Banduka & Banduka
[2021] FedCFamC1F 191
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 1)
Banduka & Banduka [2021] FedCFamC1F 191
File number(s): SYC 3682 of 2016 Judgment of: HARPER J Date of judgment: 12 November 2021 Catchwords: FAMILY LAW – PROPERTY – Interim application – Where the wife seeks removal of caveats over the former matrimonial home – Where caveats registered by third parties to whom the husband owes business debts as guarantor – Wife seeks the sale of the former matrimonial home with proceeds to be held on trust pending determination of s 79 proceedings – Property held by husband and wife as joint tenants – Where the contracts signed by the husband and third parties created an equitable mortgage or equitable charge over his interest in the former matrimonial home – Where caveators are secured creditors with no dispute as to the size of, or other challenge to, the debts owed – Caveators seek sale of former matrimonial home with payment of their debts to the extent of the husband’s share of the proceeds of sale and simultaneous removal of the caveats – Where on the evidence husband’s share unlikely to be sufficient to discharge debts in full –Wife relies upon s 90AE and s 90AF for removal of caveats – Consideration and discussion of foreseeability under s 90AE(3)(b) and s 90AF(3)(b) – Court not satisfied it would not be foreseeable at time of the order that the caveators’ debts would not be paid in full – No discretion under either s 90AE or 90AF enlivened – Further claim by wife for partial property settlement or litigation funding of $150,000 to be paid from her share of proceeds of sale – Orders made for sale of former matrimonial home and for caveators to be repaid to the extent of value of husband’s share – Orders made for removal of caveats – Order made for partial property settlement of $150,000 in favour of the wife. Legislation: Family Law Act 1975 (Cth) Part VIIIAA, ss 79, 80(1)(h), 90AC(1)(a), 90AE, 90AF, 106B, 114(3), 117(2),
Family Law Amendment Act 2003 (Cth) sch 6
Conveyancing Act 1919 (NSW) s 23C(1)
Real Property Act 1900 (NSW) s 74MA
Second reading speech, Family Law Amendment Bill 2003 (Cth), Senate Hansard, 2 December 2003
Explanatory Memorandum, Family Law Amendment Bill 2003 (Cth)
Cases cited: Abraham v Abraham [2012] NSHPL 254
Biltoft and Biltoft (1995) FLC 92-614; (1995) 19 Fam LR 82; (1995) 126 FLR 385
Bluescope Distribution Pty Ltd [2010] NSHPL 794
Buchanan v Crown & Gleeson Business Finance Pty Ltd (2006) 13 BPR 24-513; (2007) NSW ConvR 56-173; [2006] NSHPL 1465
Carlson & Carlson (2019) FLC 93-934; [2019] FamCAFC 245
Commissioner of Taxation v Tomaras (2018) 265 CLR 434; (2018) 93 ALJR 118; [2018] HCA 62
Dovgan & Dovgan [2021] FamCA 306
Dunworth & Falletti [2020] FamCA 178
El-Kazzi v Kassoum [2009] NSHPL 99
Frederick v Frederick (2019) 60 Fam LR 1; [2019] FamCAFC 87
Hanson Construction Materials Pty Ltd v Roberts (2016) 93 NSWLR 1; (2016) 18 BPR 36,173; [2016] NSWCA 240
Hodges Hall v Jovanovic and Markov (1995) FLC 92-611; (1995) 19 Fam LR 241; (1995) 126 FLR 48
Hunt & Hunt (2006) 36 Fam LR 64; [2006] FamCA 167
Osferatu & Osferatu [2012] FamCA 408
Panwar & Panwar (2020) 63 Fam LR 44; [2020] FamCA 480
Paris King Investments Pty Ltd v Rayhill [2006] NSHPL 578
Re Chemaisse & Commissioner of Taxation (No 3) (1990) 97 FLR 176; (1990) 13 Fam LR 724; (1990) FLC 92-133,
Ross Cook and Brett Cook Pty Ltd v Bli 1 & Anor [2009] QSC 300
Stanford & Stanford (2012) 247 CLR 108; [2012] HCA 52
Ta Lee Investment Pty Ltd v Antonios (2019) 19 BPR 39153; [2019] NSWCA 24
Taleb v National Australia Bank Ltd (2011) 82 NSWLR 489; (2011) 16 BPR 30,247; [2011] NSHPL 1562
Tapp v Talbott [2020] FamCA 57
Tomaras and Tomaras & Anor and Commissioner of Taxation (2017) 57 Fam LR 112; (2017) 106 ATR 878; [2017] FamCAFC 216
Valder & Saklani [2021] FamCAFC 142
Van der Merwe v Cantale [2021] NSHPL 1203
Warner v Andrews [2011] NSHPL 956
Halsbury’s Laws of Australia (LexisNexis, 295 Mortgages and Securities, ‘Equitable mortgage or charge’ [295-2505] (as at 25 April 2017))
Halsbury's Laws of England (LexisNexis, 4th edition, 1989)
Division: Division 1 First Instance Number of paragraphs: 95 Date of hearing: 20 October 2021 Place: Sydney Counsel for the Applicant: Ms Snelling Solicitor for the Applicant: Jordan’s Law Practice Solicitor for the First Respondent: Mr Banduka in person Solicitor for the Second Respondent: Grover Law Solicitor for the Third Respondent: No appearance Counsel for the First, Second and Third Interveners: Ms Hill Solicitor for the First, Second and Third Interveners: CBD Law ORDERS
SYC 3682 of 2016 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 1)
BETWEEN: MS BANDUKA
Applicant
AND: MR BANDUKA
First Respondent
MR RUDZITE
Second Respondent
MR KURJAK
Third Respondent
B PTY LTD
First Intervener
C PTY LTD
Second Intervener
D PTY LTD T/AS D COMPANY
Third Intervener
ORDER MADE BY:
HARPER J
DATE OF ORDER:
12 NOVEMBER 2021
THE COURT ORDERS THAT:
1.The Applicant Wife (“the Applicant”) and the First Respondent Husband (“the First Respondent”) shall do all acts and things and sign all necessary documents to effect the sale of the property at E Street, Suburb F NSW, more particularly described in Certificate of Title Folio Identifier …, and for that purpose, the following shall apply:
(a)The property shall be listed for sale by private treaty with such real estate agent as is agreed between the Applicant and the First Respondent and failing agreement within 14 days from the date of these Orders, the real estate agent will be as nominated by the then president or chief executive officer of the Real Estate Institute at the request of the Applicant and the First Respondent or either of them;
(b)The list price of the property shall be such amount as is agreed between the Applicant and the First Respondent, and failing agreement within 14 days of the date of these Orders, the list price will be as nominated by the real estate agent;
(c)The sale price of the property shall be such amount as is agreed between the Applicant and the First Respondent, and failing agreement, any offer to buy the property that is at least 80 per cent of the list price shall be accepted by the Applicant and the First Respondent as the sale price;
(d)The Applicant and the First Respondent are to co-operate in every way with the real estate agent in relation to the marketing of the property for sale including making the key readily available, allowing inspection of the property at all times reasonably requested by the agent and ensuring that the property is clean, neat and in good order at the time of inspection by any prospective buyer;
(e)That upon agreement being reached for sale of the property, the Applicant and the First Respondent shall execute the contract of sale and all other documents necessary to complete the sale of the property, including all transfer documentation forthwith upon its submission to them by the agent or their solicitor;
(f)The contract of sale shall provide for completion within 30 days after the date of the contract; and
(g)The proceeds of sale of the property shall be paid in the following manner and priority:
(i)To discharge the registered mortgage to Commonwealth Bank of Australia;
(ii)Payment of the agent’s commission and advertising or other expenses, if any, payable on the sale;
(iii)Payment of the conveyancing costs relating to the sale; and
(iv)50 per cent of the balance to be paid as to $150,000 to the Applicant Wife as partial property settlement, and the remaining portion into Jordan’s Law Practice Trust Account until conclusion of the proceedings on a final basis or further order of the Court;
(v)The other 50 per cent of the balance to be paid out in the following order:
A.First, to B Pty Ltd in discharge of its charge over the First Respondent’s share of the property;
B.Second, to D Pty Ltd t/as D Company in discharge of its charge over the First Respondent’s share of the property;
C.Third, to C Pty Ltd in discharge of its charge over the First Respondent’s share of the property; and
D.The residue thereafter, if any, to be paid into and held in Jordan’s Law Practice Trust Account until conclusion of the proceedings on a final basis.
2.In the event that the property is not sold by private treaty pursuant to Order 1 on or before six months from the date of this Order, then the Applicant and First Respondent shall do all acts and sign all documents as are necessary to sell the property by auction, and the following shall apply:
(a)The property shall be listed with the agent appointed under Order 1(a) (“the auctioneer”) for sale by auction within a further three months;
(b)The Applicant and the First Respondent shall execute all documents requested by the auctioneer for sale of the property by auction;
(c)The reserve price of the property shall be such amount as is agreed between the Applicant and the First Respondent, and failing agreement being reached between the Applicant and the First Respondent 21 days prior to the auction, then the reserve price shall be nominated by the auctioneer;
(d)The Applicant and the First Respondent shall each pay to the auctioneer one half of any sums requested for advertising or auction expenses, and if one of the Applicant and the First Respondent pays all of the expenses, that party shall be reimbursed from the proceeds of sale in respect of one half of such payments before any division between the Applicant and the First Respondent;
(e)The Applicant and the First Respondent shall give such instructions as are necessary to a solicitor to prepare a contract of sale and provide it to the auctioneer prior to the auction no later than the date sought by the auctioneer;
(f)The Applicant and the First Respondent agree to co-operate in every way with the auctioneer in relation to the sale by auction, including allowing inspection of the property at all times reasonably requested by the auctioneer and ensuring that the property is clean, neat and in good order at the time of any inspection and on the day of auction;
(g)The sale price of the property shall be any amount in excess of the reserve price, but in the event of the reserve price not being reached, the sale price of the property shall be such amount as is agreed between the Applicant and the First Respondent, or failing agreement, any offer received after the auction to buy the property at a price that is at least 80 per cent of the reserve price shall be accepted by the Applicant and the First Respondent;
(h)That the Applicant and the First Respondent attend at the auction and negotiate with the highest bidder or any other interested party in the event that the reserve price is not reached, for the purpose of reaching agreement under Order 2(h); and
(i)That upon agreement being reached for sale of the property, Orders 1(e), 1(f) and 1(g) shall apply.
3.In the event that the property is not sold at the auction pursuant to Order 2 or within 14 days after the date of the auction by further negotiation, then the Applicant and First Respondent shall cause a further auction of the property to be held within four months after the date of the first auction, and for that purpose, the provisions of Order 2 shall apply.
4.B Pty Ltd do all acts and things and take all necessary steps to remove Caveat … on title upon settlement of the sale of the property.
5.C Pty Ltd do all acts and things and take all necessary steps to remove Caveat … on title upon settlement of the sale of the of the property.
6.D Pty Ltd Pty Ltd t/as D Company do all acts and things and take all necessary steps to remove Caveat … on title upon settlement of the sale of the property.
7.If G Pty Ltd, holding the benefit of Caveat …, neglect or fail to sign and return or hand over a completed Withdrawal of Caveat or Transfer of any other document properly required by the solicitors for the Applicant Wife to enable them to effect the sale of the former matrimonial home, being that land contained in Certificate of Title Folio Identifier … (pursuant to orders of this Court dated 22 June 2021), then at the expiration of 24 hours after the presentation, delivery or posting of any such document, a Judicial Registrar of the Federal Circuit and Family Court of Australia may sign and otherwise execute the same for and on behalf of the said G Pty Ltd.
8.All applications concerning the caveats the subject of this judgment be otherwise dismissed.
Note: The form of the order is subject to the entry in the Court’s records.
Note: This copy of the Court’s Reasons for judgment may be subject to review to remedy minor typographical or grammatical errors (r 10.14(b) Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 10.13 Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth).
Section 121 of the Family Law Act 1975 (Cth) makes it an offence, except in very limited circumstances, to publish proceedings that identify persons, associated persons, or witnesses involved in family law proceedings.
IT IS NOTED that publication of this judgment by this Court under the pseudonyms Banduka & Banduka is approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).[1]
REASONS FOR JUDGMENT
HARPER J
INTRODUCTION
[1] Banduka & Banduka
These property adjustment proceedings are between the Applicant Wife, Ms Banduka (“the wife”) and the First Respondent Husband, Mr Banduka (“the husband”). They remain unfinalised after five years in this Court.
The wife and husband married in 1997 and separated in 2015. The wife commenced these proceedings in 2016. The former matrimonial home is located at E Street, Suburb F, being the property in Certificate of Title Folio Identifier … (“the Suburb F property”). The parties purchased the property in 2001 as joint tenants.
The wife and the husband both want to sell the Suburb F property. The obstacle in bringing this about is the existence of five caveats registered on the title of the Suburb F property. I will explain the detail of the caveats later in these reasons. The wife has made an application for orders compelling the caveators to remove the caveats. The husband does not oppose orders of this nature.
The Second Respondent is Mr Rudzite, a friend and former business partner of the husband. The Third Respondent did not participate in this aspect of the proceedings.
On 29 July 2021, I made orders for the wife to serve the caveators with her application, and made directions for the caveators to file written submissions. I then listed the proceedings for argument to hear from the caveators on 20 October 2021.
It became clear at the hearing on 20 October 2021 that all parties, including the caveators, want the Suburb F property sold. After all, no one can receive any cash unless the Suburb F property is converted from illiquid real property into a fund which can be readily disbursed. The central debate focussed not on resisting the sale of the Suburb F property or on the removal of the caveats as such, but upon what should happen to the proceeds of sale at settlement of any sale.
In summary, the wife contends that after payment of selling costs and discharge of a first registered mortgage to the Commonwealth Bank of Australia, $150,000 should be paid to her as partial property distribution. She argues that the entire balance should be held in her solicitors’ trust account pending determination of property adjustment proceedings under Part VIII of the Family Law Act 1975 (Cth) (“the Act”) between her and the husband, including the claims of the caveators to payment as creditors of the husband. The husband did not participate in these arguments. The caveators contend their debts should be discharged, wholly or partly, from the husband’s half share of the proceeds of sale at settlement, in conjunction with removal of the caveats. They made no submission about any payment to the wife.
This judgment concerns those competing contentions.
For the purposes of this judgment, it is unnecessary to set out much of the background detail of the relationship between husband and wife. I will record only those factual matters which are relevant to the dispute between the wife and the caveators. I set out below the basis of the caveats and the claims of the caveators.
On 20 October 2021, the wife and the caveators appeared by counsel. The husband was self-represented and required the assistance of an interpreter. The Second Respondent appeared by his solicitor, and there was no appearance by the Third Respondent. Since the primary argument was between the wife, the husband, and the caveators, the hearing proceeded.
BACKGROUND
There are presently five caveats which have been lodged over the Suburb F property. The caveators are:
(a)B Pty Ltd;
(b)D Pty Ltd t/as D Company;
(c)C Pty Ltd;
(d)G Pty Ltd; and
(e)The wife.
B Pty Ltd (“B Company”), C Pty Ltd (“CPL”), and D Pty Ltd t/as D Company (“D Company”) are the caveators who have engaged with the proceedings. They appeared by the same solicitor and counsel. I will refer to them as “the caveators” in this judgment, and to their caveats as “the relevant caveats”.
The evidence showed G Pty Ltd did not accept service of the relevant court documents. It did not appear and played no part in the hearing. I am satisfied that this caveator has been afforded procedural fairness. I will make an order against it to remove its caveat, with a consequential order permitting a registrar of the Court to execute the necessary documents if necessary.
I assume the wife will take the necessary steps to remove her own caveat. No order against her is necessary.
The relevant caveats are based on debts incurred through a company called H Pty Ltd (“HPL”), of which, at the relevant times, the husband was sole director and shareholder. HPL, through the husband, entered into agreements with the caveators for the supply of business materials on credit. The running accounts produced by these agreements were secured by a guarantee of the husband. His guarantee was then itself secured.
An example provision is clause 9 of the husband’s guarantee given to B Company, in the following terms:
The Guarantor hereby agrees to charge all the equitable interest in freehold or leasehold property. The Guarantor agrees to deliver to the Supplier, within seven (7) days of demand, a properly executed Memorandum of Mortgage in a form approved by the Supplier and which includes a covenant providing that interest may be charged on all outstanding monies sat rates set out from time to time by Section 94 of the Supreme Court Act 1970 (NSW), and otherwise in accordance with Memorandum …, registered at the office of the Registrar General in Sydney.
The Company and/or individual person(s) referred to in section (1 ), and/or (2) of this application hereby Charge all their Right, Title, Interest (if any) in the property of properties referred to in Section (1) and (2) of this application and also any property or properties that they own currently or may acquire in the future solely or jointly or have become to have a beneficial interest in, in favour of B Pty Ltd T/A B Company, with the due and punctual observance and performance of all of the obligations of the Customer/Buyer. Such person(s) acknowledge that B Pty Ltd T/A B Company, may at its discretion register and lodge a Caveat(s) on such property or properties in respect of the interests conferred on it by this clause. Such registration of a Caveat(s) by B Pty Ltd TIA B Company over the Customer(s) property or properties shall not be challenged by the Customer/Buyer in any way whatsoever, and the Buyer agrees not to take any steps in filing a "Lapsing Notice" via the Land Titles Office to have the Caveat(s) removed, until such time the Buyer has paid all monies owing by it to B Pty Ltd T/A B Company as claimed from time to time.
If the charge created by this clause is or becomes void or unenforceable, it may be severed from this agreement without any effect on its validity; and the Guarantor will not be exonerated in whole or part. Nor will the Suppliers rights, remedies or recourse against the Guarantor or any other Guarantor in any way be prejudiced or adversely affected by such a severance.
I discuss the legal consequences of clause 9 below.
The undisputed facts in relation to each relevant caveat are as follows.
B Pty Ltd
On 20 February 2009, HPL and B Company executed the agreement for the supply of business materials on credit. On the same date, the husband also signed the guarantee. Between March 2009 and July 2016, B Company supplied the relevant goods and materials. HPL defaulted on the payments due. B Company lodged a caveat over the Suburb F property on 24 October 2016.
B Company then commenced proceedings in the District Court of NSW on 27 February 2017 and obtained judgment against HPL in the sum of $182,303.83 plus costs on an indemnity basis.
On 30 July 2018, B Company obtained a judgment in the Local Court of NSW in the amount of $77,406.94, following an assessment of the costs of the District Court proceedings.
The original judgment sum plus interest was paid in full by 11 July 2018, however, B Company had already taken steps to wind up HPL. This application was dismissed with an order on 2 July 2018 that HPL pay B Company’s costs, which were agreed at $7,500.
As a result of the payment of the principal judgment debt, receivable management fees crystallised and became payable. Again, HPL failed to pay and B Company commenced action in the Local Court of NSW. Judgment was entered against HPL on 22 August 2018 in favour of B Company, in the sum of $28,941.50.
HPL failed to pay the costs assessment of 30 July 2018, leading B Company to commence a second winding up application. On 16 October 2018, HPL was placed into liquidation by the Supreme Court of NSW, and was also ordered to pay $7,434.90.
According to the caveators’ case outline, the outstanding amount to B Company is a total of approximately $186,283.34 and includes:
(a)Costs Assessment Judgment Debt of $77,406.94;
(b)Receivable Management Fees Judgment Debt of $28,941.50;
(c)Winding up costs of $7,500 and $7,434.90; and
(d)Other amounts estimated at $65,000, including costs associated with pursuing the principal judgment debt against HPL.
D Pty Ltd t/as D Company
On 14 January 2015, HPL executed a Credit Application and the husband executed a Personal Guarantee for D Company to supply business material on credit. This supply continued for over three years, from January 2015 to September 2018.
However, by October 2018, the outstanding amount owed by HPL to D Company was $37,518.84. This amount remains outstanding, and on 28 May 2020, D Company lodged a caveat over the Suburb F property.
C Pty Ltd
On 21 September 2015, HPL executed a Credit Application and the husband executed a Personal Guarantee for CPL to supply business material on credit. This supply occurred for a period of about two years, from September 2015 to December 2017.
On 29 February 2016, the husband increased the credit limit from $50,000 to $250,000 at CPL’s suggestion, due to the volume of goods being purchased by HPL. Again, HPL failed in their repayments, and on 30 May 2018, CPL lodged a caveat over the property.
By June 2018, HPL had incurred $233,681.30 in outstanding debt to CPL. Proceedings were commenced in the District Court of NSW, and on 17 August 2018, CPL obtained a judgment debt against HPL and the husband in the amount of $305,264.90. There remains $266,556.11 outstanding to CPL.
Consequently, the total owed to the caveators is around $490,358.
Several other factual matter should be emphasised. The debts owed to the caveators by HPL were undisputed, as was the liability of the husband to discharge those debts as guarantor. The wife did not contend the debts were not real or created at an arms’ length, and the evidence left no doubt this was so: cf Dunworth & Falletti [2020] FamCA 178, where Wilson J held there was a prima facie argument that the debts supported by caveat were “sham” transactions. There was no application by the wife pursuant to s 106B of the Act seeking to impugn any of the dealings which underpin the debts supported by the caveats. She did not argue that any of the caveats were bad in form or did not disclose a caveatable interest on their face. There was no dispute that the secured guarantee in each case was enforceable and a proper basis for the relevant caveats, having created a proprietary interest in the Suburb F property in favour of the each caveator. It should be observed that clause 9 is a part of a contract signed by the husband and would satisfy s 23C(1) of the Conveyancing Act 1919 (NSW).
There was no valuation evidence before the Court of the current value of the Suburb F property. However, in her Case Outline, the wife submitted that, on the basis of an out of date valuation of $900,000, upon sale and after payment of selling costs and discharge of the first registered mortgage, there would be net proceeds of $585,000. This figure is of dubious accuracy but I take account of the statement of the Full Court in Frederick v Frederick (2019) 60 Fam LR 1 at [39]: “We consider that, generally speaking, a person can give some evidence by way of admission as to the value of real estate owned by them which can be accorded weight.” I will accept that the net proceeds of sale would be no less than $585,000 and may be more.
COMPETING PROPOSALS
The wife and the caveators provided competing minutes of proposed orders.
By way of her Further Further Amended Initiating Application filed on 22 July 2021, the wife seeks the following interim orders:
1.The Caveator, B Pty Ltd do all acts and things without delay, and take all necessary steps to remove the Caveat (…) on title (Certificate of Title Folio Identifier …) [sic] to the former matrimonial home.
2.The Caveator, C Pty Ltd do all acts and things without delay, and take all necessary steps to remove the Caveat (…) on title (Certificate of Title Folio Identifier …) [sic] to the former matrimonial home.
3.The Caveator, G Pty Ltd do all acts and things without delay, and take all necessary steps to remove the Caveat (…) on title (Certificate of Title Folio Identifier …) [sic] to the former matrimonial home.
4.The Caveator, D Pty Ltd t/as D Company do all acts and things without delay, and take all necessary steps to remove the Caveat (…) on title (Certificate of Title Folio Identifier …) [sic] to the former matrimonial home.
5.That if B Pty Ltd holding the benefit Of the Caveat on title to the former matrimonial home neglect or fail to sign and return or hand over the completed Withdrawal of Caveat or Transfer of any other document properly required by the solicitors for the Applicant (Wife) to enable them to effect the sale of the former matrimonial home being all that land contained in Certificate of Title Folio Identifier … (pursuant to orders of this Court dated 22 June 2021) then at the expiration of 24 hours after the presentation, delivery or posting of any such document a Registrar of the Family Court of Australia may sign and otherwise execute the same for and on behalf of the said B Pty Ltd.
6.That if C Pty Ltd holding the benefit of the Caveat on title to the former matrimonial home neglect or fail to sign and return or hand over the completed Withdrawal of Caveat or Transfer of any other document properly required by the solicitors for the Applicant (Wife) to enable them to effect the sale of the former matrimonial home being all that land contained in Certificate of Title Folio Identifier … (pursuant to orders of this Court dated 22 June 2021 then at the expiration of 24 hours after the presentation, delivery or posting of any such document a Registrar Of the Family Court of Australia may sign and otherwise execute the same for and on behalf Of the said C Pty Ltd.
7.That if G Company NSW Ptdfy [sic] Ltd holding the benefit of the Caveat on title to the former matrimonial home neglect or fail to sign and return or hand over the completed Withdrawal of Caveat or Transfer of any other document properly required by the solicitors for the Applicant (Wife) to enable them to effect the sale of the former matrimonial home being ail that land contained in Certificate of Title Folio Identifier … (pursuant to orders of this Court dated 22 June 2021), then at the expiration of 24 hours after the presentation, delivery or posting of any such document a Registrar of the Family Court of Australia may sign and otherwise execute the same for and on behalf of the said G Pty Ltd.
8.That if D Pty Ltd t/as D Company holding the benefit of the Caveat on title to the former matrimonial home neglect or fail to sign and return or hand over the completed Withdrawal of Caveat or Transfer of any other document properly required by the solicitors for the Applicant (Wife) to enable them to effect the sale of the former matrimonial home being ail that land contained in Certificate of Title Folio Identifier … (pursuant to orders of this Court dated 22 June 2021), then at the expiration of 24 hours after the presentation, delivery or posting of any such document a Registrar of the Family Court of Australia may sign and otherwise execute the same for and on behalf of the said D Pty Ltd.
9.The proceeds of sale of the former matrimonial home are to be distributed in the following manner:
9.1 Payment of costs of sale including agent's commission and solicitor's fees on sale.
9.2 Payment of full amount due to CBA in discharge of mortgage.
9.3 Payment to the wife of $150,000.00 by way of partial property settlement.
9.4 The balance to be held in Jordan's Law Practice Trust Account until conclusion of the proceedings on a final basis.
10.That in the event that either party refuses or neglects to execute any deed or instruction, the registrar of the Court be appointed pursuant to section 106A, to execute such deed or instrument in the name of such party and to all acts and things necessary to give validity to the operation to the deed or instrument.
The husband and Second Respondent did not file any Response, nor did they make reference to any Minute of Order during the hearing.
The caveators proposed the following orders as outlined in a document entitled “Interim Orders Sought at Applicant’s Interim Application”:
1.That the Applicant and the First Respondent shall do all acts and things and sign all necessary documents to effect the sale of the property at E Street in the state of New South Wales and more particularly described in Certificate of Title Folio Identifier … [sic] and for that purpose the following shall apply:
a.The property shall be listed for sale by private treaty with such real estate agent as is agreed between the the [sic] Applicant and the First Respondent and failing agreement within 14 days from the date of these Orders the real estate agent will be as nominated by the then president or chief executive officer of the Real Estate Institute at the request of the the [sic] Applicant and the First Respondent or either of them.
b.The list price of the property shall be such amount as is agreed between the the [sic] Applicant and the First Respondent and failing agreement within 14 days of the date of these Orders the list price will be as nominated by the real estate agent.
c.The sale price of the property shall be such amount as is agreed between the the [sic] Applicant and the First Respondent and failing agreement any offer to buy the property that is at least 80% of the list price shall be accepted by the the [sic] Applicant and the First Respondent as the sale price.
d.The Applicant and the First Respondent are to co-operate in every way with the real estate agent in relation to the marketing of the property for sale including making the key readily available, allowing inspection of the property at all times reasonably requested by the agent and ensuring that the property is clean, neat and in good order at the time of inspection by any prospective buyer.
e.That upon agreement being reached for sale of the property the the [sic] Applicant and the First Respondent shall execute the contract of sale and all other documents necessary to complete the sale of the property including all transfer documentation forthwith upon its submission to them by the agent or their solicitor.
f.The contract of sale shall provide for completion within 30 days after the date of the contract.
g.The proceeds of sale of the property shall be paid in the following manner and priority:
i.To discharge the registered mortgage to Commonwealth Bank of Australia.
ii.Payment of the agent’s commission and advertising or other expenses, if any, payable on the sale.
iii.Payment of the conveyancing costs relating to the sale.
iv.The balance to be applied as follows:
A.50% of the balance to be paid into and held in Jordan’s Law Practice Trust Account until conclusion of the proceedings on a final basis.
B.The remaining 50% of the balance to be paid out in the following order:
(1) First, to B Pty Ltd in discharge of its charge over the First Respondent’s share of the property;
(2) Second, to D Pty Ltd t/as D Company in discharge of its charge over the First Respondent’s share of the property;
(3) Third, to C Pty Ltd in discharge of its charge over the First Respondent’s share of the property; and
(4) The residue thereafter to be paid into and held in Jordan’s Law Practice Trust Account until conclusion of the proceedings on a final basis.
2.In the event that the property is not sold by private treaty pursuant to Order 1 on or before six months from the date of this Order then the First Respondent and the Applicant (“the the [sic] Applicant and the First Respondent”) shall do all acts and sign all documents as are necessary to sell the property by auction and the following shall apply:
a.The property shall be listed with the agent appointed under Order 1(a) (hereinafter called “the auctioneer”) for sale by auction within a further 3 months.
b.The Applicant and the First Respondent shall execute all documents requested by the auctioneer for sale of the property by auction.
c.The reserve price of the property shall be such amount as is agreed between the Applicant and the First Respondent and failing agreement being reached between the Applicant and the First Respondent 21 days prior to the auction, then the reserve price shall be nominated by the auctioneer.
d.The Applicant and the First Respondent shall each pay to the auctioneer one half of any sums requested for advertising or auction expenses and if one of the Applicant and the First Respondent pays all of the expenses, that party shall be reimbursed from the proceeds of sale in respect of one half of such payments before any division between the the [sic] Applicant and the First Respondent.
e.The Applicant and the First Respondent shall give such instructions as are necessary to a solicitor to prepare a contract of sale and provide it to the auctioneer prior to the auction no later than the date sought by the auctioneer.
f.The Applicant and the First Respondent agree to co-operate in every way with the auctioneer in relation to the sale by auction including allowing inspection of the property at all times reasonably requested by the auctioneer and ensuring that the property is clean, neat and in good order at the time of any inspection and on the day of auction.
g.That the Applicant and the First Respondent attend at the auction and negotiate with the highest bidder in the event of the reserve price not being reached.
h.The sale price of the property shall be any amount in excess of the reserve price but in the event of the reserve price not being reached the sale price of the property shall be such amount as is agreed between the the [sic] Applicant and the First Respondent or failing agreement any offer received after the auction to buy the property at a price that is at least 80% of the reserve price shall be accepted by the Applicant and the First Respondent.
i.That the Applicant and the First Respondent attend at the auction and negotiate with the highest bidder or any other interested party in the event that the reserve price is not reached, for the purpose of reaching agreement under Order 2(h).
j.That upon agreement being reached for sale of the property, Orders 1(e), 1(f) and 1(g) shall apply.
3.In the event that the property is not sold at the auction pursuant to Order 2 or within 14 days after the date of the auction by further negotiation, then the Applicant and First Respondent shall cause a further auction of the property to be held within 4 months after the date of the first auction and for that purpose the provisions of Order 2 shall apply.
4.B Pty Ltd do all acts and things and take all necessary steps to remove Caveat … on title upon settlement of the sale of the property.
5.C Pty Ltd do all acts and things and take all necessary steps to remove Caveat … on title upon settlement of the sale of the of the property.
6.D Pty Ltd Pty Ltd t/as D Company do all acts and things and take all necessary steps to remove Caveat … [sic] on title upon settlement of the sale of the property.
EVIDENCE
The wife relied upon the following documents:
(a)Case Outline emailed on 19 October 2021;
(b)Joint Balance Sheet emailed on 19 October 2021;
(c)Further Further Amended Initiating Application filed 22 July 2021;
(d)Affidavit of Ms Banduka filed 7 June 2016;
(e)Affidavit of Ms Banduka filed 30 May 2017;
(f)Affidavit of Ms Banduka filed 22 March 2021;
(g)Financial Statement of Ms Banduka filed 10 June 2021;
(h)Response to Application in a Case filed 23 July 2021; and
(i)Affidavit of Ms Banduka filed 23 July 2021.
As noted above, the husband and Second Respondent did not file or send any material. The Third Respondent did not participate.
The caveators relied on the following documents:
(a)Case Outline emailed 18 October 2021;
(a)Affidavit of Ms J filed 14 September 2021;
(b)Affidavit of Mr L filed 17 September 2021; and
(c)Affidavit of Ms K filed 21 September 2021.
During the hearing, the following documents were received into evidence:
Exhibit Label Document Tendered by A Evidence of service upon G Company A/W 1 Interim Orders Sought at Applicant’s Interim Application by B Pty Ltd, C Pty Ltd and D Pty Ltd t/as D Company Caveators DISCUSSION
Removal of caveats
The material difference between the wife and caveators can be simply stated. Although all parties seek a sale of the Suburb F property, the wife seeks orders compelling the caveators to remove the caveats before the property is sold, without discharge of any part of the debts owing to them from the proceeds of sale. The caveators seek payment of their debts from the husband’s share of the proceeds of sale upon the settlement of any sale and simultaneous removal of the caveats. In practice, this would be achieved by each caveator providing an executed removal of caveat in registrable form at settlement.
I have already accepted the submission that the likely proceeds of sale of the Suburb F property will be something in excess of $585,000, while the amount owing in total to the caveators is around $490,357. It is important to observe here that the proposal of the caveators is for only 50 per cent of the proceeds of sale to be applied towards repayment of their debts in return for removal of the caveats. In substance, this acknowledges that the liability for repayment of their debts should fall only upon the husband’s half share, while the wife’s half share should be held in trust pending determination of the proceedings, subject to her claim to partial property distribution. It also seems to accept that the husband’s half share of any proceeds of sale may not be sufficient to discharge the liability to the caveators in full, depending of course upon the actual sale price. Nonetheless, they accept the Suburb F property should be sold.
The central question, then, is whether the Court should make orders for the removal of the caveats before the caveators are paid any part of their debts, and leave the caveators to compete with the wife, and possibly the husband, in the final determination of the s 79 proceedings.
Since the decision in Re Chemaisse & Commissioner of Taxation (No 3) (1990) 97 FLR 176, it has been clearly established that in a s 79 proceeding between a party spouse to and a third party unsecured creditor, the unsecured creditor has no priority, nor does the party spouse: Biltoft and Biltoft (1995) FLC 92-614 at 93, and recent discussion by Wilson J in Panwar & Panwar (2020) 63 Fam LR 44 at [110]–[113].
Nonetheless, the rights of creditors of a party to a marriage must be taken into account in s 79 proceedings. This is embedded in s 79(10)(a) of the Act. Recently, in Valder & Saklani [2021] FamCAFC 142 at [33], the Full Court explained:
Section 79(10)(a) of the Act relevantly provides that a “creditor of a party to the proceedings if the creditor may not be able to recover his or her debt if the order were made” is entitled to become a party to the proceedings. This is statutory recognition of a well-established proposition that a creditor is entitled to intervene in proceedings concerning s 79 of the Act to protect his, her or its interests. See, for example, [Semmens v Commonwealth of Australia (1989) 13 Fam LR 715]; Rowell and Rowell (1989) FLC 92-026; Re Bailey and Bailey (executrix of the estate of Bailey) (1990) FLC 92-117 and Biltoft and Biltoft (1995) FLC 92-614.
But secured creditors are in a different position to unsecured creditors. It is necessary, therefore, to express a view about the nature of the interests supporting the caveats of the caveators. Clauses such as clause 9 (at [16] above) are common in contracts for the supply of business materials. Each of the caveats under consideration was based upon clauses in similar terms. I will use clause 9 as representative of the basis of each caveat.
In Hodges Hall v Jovanovic and Markov (1995) 19 Fam LR 241 at 254 (“Hodges Hall”), the Full Court cited Halsbury's Laws of England (LexisNexis, 4th edition, 1989) at 243 to the effect that
an agreement to charge real or personal estate, made for valuable consideration by a person who has power to create such a charge, operates as a valid equitable charge, even though the charge extends to all his existing property.
The current online edition of Halsbury’s Laws of Australia [295-2505] supports the view that such charges can be created over Torrens Title land or land under the Real Property Act 1900 (NSW) (“the Real Property Act”). The current law in NSW, where the Suburb F property is situated, is that it is a question of construction of the document relied upon as creating the charge. For a clause such as clause 9 to create an interest in land sufficient to support a caveat, the Court must be satisfied, as a matter of construction, that the relevant contractual terms constitute a present grant of a charge or mortgage enforceable in equity: Taleb v National Australia Bank Ltd (2011) 82 NSWLR 489 at [64]–[65]; Ta Lee Investment Pty Ltd v Antonios (2019) 19 BPR 39153 at [95]–[98].
On its face, clause 9 potentially does both. The husband’s guarantee was itself secured by an agreement to provide the caveator an executed Memorandum of Mortgage in registrable form, and on terms which were certain or capable of being ascertained. This appears to constitute an enforceable agreement to grant a mortgage; enforceable in the sense that it could be the subject of a decree of specific performance. Secondly, and separately to the agreement to provide a registrable mortgage, the husband “hereby” charged his “Right, Interest and Title” to nominated properties, which at the date of execution clearly included the Suburb F property. These are words “specifically appropriating that property to the discharge or a debt or obligation”: El-Kazzi v Kassoum [2009] NSHPL 99 (“El-Kazzi”) at [122].
In my view, properly construed, clause 9 therefore arguably constituted two types of security interest in the Suburb F property, being either an equitable mortgage in the form of an enforceable agreement to grant a mortgage, or the immediate grant of an equitable charge over the husband’s interest in the Suburb F property. An equitable mortgage, being property understood as a mixed hypothecation on the land, gives the mortgagee the rights of foreclosure, while an equitable charge, being a pure hypothecation, gives a right of realisation by judicial sale: El-Kazzi at [124]–[126].
However, to be clear, each relevant caveat claimed an interest in the Suburb F property on the basis of an equitable charge alone. It is therefore unnecessary to express a final view as to whether clause 9 effects the creation of an equitable mortgage.
The Certificate of Title of the Suburb F property showed, and it was common ground, that the wife and husband own the Suburb F property as joint tenants. No submissions were made which clarified whether the creation of the equitable charges by the husband to secure his obligations as guarantor was an alienation of his interest which severed the joint tenancy, with the result that the Suburb F property is now owned by the parties as tenants in common. This may not make any difference. It appeared to be common ground that on any view, and as recorded on the Certificate of Title, it was only the interest of the husband which was charged to support his guarantee to the caveators.
In Hodges Hall, the Full Court in dealing with a caveat lodged by legal practitioners to protect their costs, held at 253:
We do not doubt that in a proper case and on proper notice the Court can make orders which have the effect of nullifying any priority or "proprietary" interest created by a charge and protected by a caveat.
The Full Court commented further at 255:
The primary purpose of a caveat is to provide a measure of protection or warning to the caveator; it also serves as a notice to registered interests and to others who may be dealing with the land of a contrary interest: see J and H Just (Holdings) Pty Limited v The Bank of New South Wales & Ors (1971) 125 CLR 546 at 552 per Barwick CJ; Jacobs v Platt Nominees Pty Ltd & Ors (1990) V.R. 146 at 149-151; Bacon & Ors v O'Dea (1989) 25 FCR 495 at 506-7; Butler v Fairclough & Anor (1917) 23 CLR 78; Avco Financial Services Ltd v Fishman (1992) 1 V.R. 90 at 94 ; Abigail v Lapin (1934) AC 491 . As the Full Court of the Federal Court pointed out in Bacon v O'Dea , supra, at 506 it is ''not, in general, designed as a substitute for registration of an interest, but to preserve the status quo pending resolution of the claim underlying the caveat'' . In Kerabee Park Pty Ltd v Daley (1978) 2 NSWLR 222 at 228 Holland J said that ''The effect of a caveat is to prevent registration of any instrument which might have the effect of defeating the caveator's rights without giving the caveator the opportunity of invoking the assistance of the court''.
But for the jurisdiction and source of power for her proposed orders, the wife relies upon ss 90AE and 90AF of the Act. These sections fall in Part VIIIAA and were introduced into the Act by schedule 6 of the Family Law Amendment Act 2003 (Cth), that is, after the decision in Hodges Hall. The Explanatory Memorandum to the introduction of ss 90AE(3) and 90AF(3) stated:
The provision is intended to apply only to the procedural rights of the third party it is not intended to extinguish or modify the underlying substantive property rights of third parties. The order can only be made if it is reasonably necessary or appropriate to effect the division of property between the parties and the third party must be provided with procedural fairness. The order also cannot be made if it is unlikely that the result of the order would be a debt not being paid in full.
In the Second reading speech, Family Law Amendment Bill 2003, Senate Hansard, 2 December 2003, it was said:
If the order concerned a debt, the court would have to be satisfied that the order would not result in non-payment of the debt. Third parties would be provided with an immunity against loss or damage because of acts done in good faith and in reliance on an order. An order would prevail over any contrary obligation in any other law or legal instrument…
As will be explained, even if the Court has the power in Part VIIIAA to override the interests of the caveators, I am not persuaded such a power should be exercised in the circumstances of this case.
In Tomaras and Tomaras & Anor and Commissioner of Taxation (2017) 57 Fam LR 112 (“Tomaras”), the majority of the Full Court (Thackray and Strickland JJ) made the following observation about s 90AE (which is equally applicable to s 90AF) at [10]:
Section 90AE appears in Part VIIIAA of the Act which was inserted by the Family Law Amendment Act 2003 (Cth). The relevant object of that Part, as provided in s 90AA, is to permit the court “in relation to the property of a party to a marriage” to make an order under s 79 that is “directed to, or alters the rights, liabilities or property interests of a third party”. While authorising orders that are binding on third parties, the Part does not otherwise affect the operation of any other provision of the Act (s 90ADA).
It is unnecessary to set out the terms of ss 90AE and 90AF in full. In Dovgan & Dovgan [2021] FamCA 306 at [295], I outlined, and rely upon here, some of the relevant aspects and reach of ss 90AE and 90AF as follows:
The range of orders that the Court can make is broad. For example, orders can be made under s 90AE(2)(b) or s 90AF(2)(b) altering “the rights, liabilities or property interests of a third party in relation to the marriage”. The expression “in relation to the marriage” is important and has been held to mean the exercise of discretion is carefully linked and sufficiently connected to the subject matter of the marriage and matrimonial causes: Hunt v Hunt at [119]; XYZ Pty Ltd and Anor & Charisteas & Ors; ABC Pty Ltd & Charisteas and Ors (2017) FLC 93-782; [2017] FamCAFC 112 at [89]. By reason of s 90AC(1), such an order overrides the provisions of a trust deed. In Hunt & Hunt (2006) 36 Fam LR 64; [2006] FamCA 167 (“Hunt & Hunt”), O’Ryan J held that Part VIIIAA did not contemplate “some arbitrary invasion of the rights of a third party but an alteration of those rights where they are sufficiently connected to the division of the property between parties to a marriage”. The Full Court in B Pty Ltd & Ors & K & Anor [2008] FamCAFC 113; (2008) FLC 93-380 at [63] made clear that any order made under these sections must be for the purpose of effecting the division of a property between the parties, and cannot be used for the purpose of increasing the property of the parties. In Allan and Allan and Ors [2009] FamCA 553; 41 Fam LR 565 at [99] Watts J emphasised that the sections cannot be used “to deprive a third party of its rights simply to benefit a party to the marriage”. The same comment applies to property interests.
However, for present purposes, ss 90AE(3) and 90AF(3) are central. They make clear an order may be made under either section only if the matters specified in those subsections are satisfied (emphasis added). The specified matters are as follows:
(a) the making of the order, or the granting of the injunction, is reasonably necessary, or reasonably appropriate and adapted, to effect a division of property between the parties to the marriage; and
(b) if the order or injunction concerns a debt of a party to the marriage--it is not foreseeable at the time that the order is made, or the injunction granted, that to make the order or grant the injunction would result in the debt not being paid in full; and
(c) the third party has been accorded procedural fairness in relation to the making of the order or injunction; and
(d) for an injunction or order under subsection 114(1)--the court is satisfied that, in all the circumstances, it is proper to make the order or grant the injunction; and
(e) for an injunction under subsection 114(3)--the court is satisfied that, in all the circumstances, it is just or convenient to grant the injunction; and
(f) the court is satisfied that the order or injunction takes into account the matters mentioned in subsection (4).
It can be seen that these subparagraphs are conjunctive, so that each one must be satisfied before the Court can make an order.
In the Full Court decision in Tomaras, Aldridge J agreed with the result but made his own observations on subparagraph (3) as follow:
73. It is true that the clear intent of s 90AE(3) and s 90AJ is that orders should not be made under s 90AE(1) unless the Court is satisfied that it is not foreseeable that under the order to be made the debt will not be paid in full and that the creditor’s expenses of complying with the order will be met. However, that is not the receipt of a benefit because those sections are designed to ensure that, in short, the creditor will be no worse off..
In Tomaras, the wife was solvent but the husband was bankrupt. The relevant creditor was the Australian Taxation Office. The issue was whether an order could and should be made under s 90AE(1)(b) substituting the husband for the wife in respect of a tax debt. The Full Court was asked to determine a question stated from a lower court for consideration. The decision of the Full Court went on appeal to the High Court of Australia. In Commissioner of Taxation v Tomaras (2018) 265 CLR 434, the High Court emphasised that Part VIIIAA of the Act sits alongside, is ancillary to s 79, is facultative and protective, and the power to make orders binding third parties only arises if the conditions in s 90AE(3), or by parity of reasoning, s 90AF(3), are satisfied (at [4], [66], [73]).
In relation to subparagraph 3(b), Keifel CJ and Keane J said at [8] and [9]:
8. … The observance of this condition by the court is apt to ensure that the interests of the revenue authorities, and other creditors for that matter, are not adversely affected by the making of an order under s 90AE(1)(b). The scope of this power should not be distorted by attributing to the Parliament an unfounded apprehension that the courts cannot be trusted to ensure that the statutory conditions upon which the power may be exercised are satisfied.
9. Given that, so far as appears from the record in the present case, the husband is a bankrupt and the wife is solvent, it is not possible to see how the condition in s 90AE(3)(b) could be satisfied in this case. More generally, it is difficult to see how any case where there is a real prospect that the substitution of one spouse for another as the debtor of the revenue authority would create or enhance a risk of non-payment would not fall foul of s 90AE(3)(b) of the Act.
In the present matter, some of the subparagraphs of subsection (3), such as affording the caveators procedural fairness (subparagraph 3(c)), have been satisfied. However, for the reasons which follow, it is not necessary to make a determination about each factor in ss 90AE(3) or 90AF(3). This is because, in my view, subparagraph (3)(b) in either section cannot be satisfied in the circumstances of this case.
Satisfaction of subparagraph (3)(b) requires a conclusion that it is “not foreseeable” at the time that the order is made, or when the injunction is granted, that to make the order or grant the injunction would result in the debt not being paid in full. The test in the subparagraph is foreseeability. Foreseeability is a concept widely used in the common law, particularly in connection with the assessment of damages in contract or tort. But here, the concept is used in a specific statutory context, and its meaning is to be derived from its context and the purpose of the legislation where it sits.
As pointed out, one aspect of the purpose of Part VIIIAA is to protect the interests of third parties. The Oxford English Dictionary defines the adjective “foreseeable” as “That may be foreseen”. It would be fair to say this definition is not extensive, but it does capture the notion of the possibility of seeing an outcome in advance. This is consistent with the Macquarie Dictionary’s definition of “foresee”, as meaning “to see beforehand”. I take “foreseeable” to have its ordinary meaning in ss 90AE(3) and 90AF(3), in the sense that it refers to an outcome or consequence of a proposed Court order which can be perceived in advance, specifically a debt not being paid in full. This is for the protection of third party creditors.
In writing, the wife made the following submissions, which were repeated orally:
It is respectfully submitted, the interim orders sought by the wife, will not disadvantage the caveators. The nett [sic] proceeds of sale of the home, less the interim distribution to the wife, will be secured in the wife's solicitor's trust account. The value of the home is such that funds will be available to be paid to the caveators from any interest the husband may be found to have in the proceeds of the sale.
In the event the wife's claim is successful, it may result in the husband being found to have little interest in the funds. If that is the case, the creditors will be forced to pursue the husband and his business partner for payment of the business debts. Whether or not the fund is held as equity in the property or monies in a trust account does not disadvantage the caveators.
As already established, all parties agree that an order for sale of the Suburb F property should be made. It should be remembered here that at present, the wife has no greater interest in the Suburb F property than her registered interest. Unless and until the Court makes a property adjustment order under s 79, this does not change. A claim under s 79 does not give the wife any greater interest in the Suburb F property. The High Court confirmed in Stanford & Stanford (2012) 247 CLR 108 that the discretion conferred by s 79 must be exercised in accordance with legal principles and must not proceed on an assumption that the parties’ interests in property are, or should be different, from those determined by common law and equity. The problem for the wife lies in the further orders she seeks about the withholding of the entire balance of the proceeds of sale at settlement of the sale. The wife advocates a form of orders which would deny the caveators payment of any part of their debts at settlement from the proceeds of sale, even though they have proposed orders which would result in a shortfall in payment, on the values provided by the wife. She seeks an order for the proceeds to be held pending determination of her claims under s 79.
Clearly, the purpose of this order is to retain a fund, from which the wife will argue she should obtain more than 50 per cent. The possibility of such an outcome is inherent in her submission that “In the event the wife's claim is successful, it may result in the husband being found to have little interest in the funds.” The primary purpose of the wife’s interlocutory order in this regard is to deny the caveators repayment of their debts at settlement, so that she can compete with them at a final hearing over distribution of the fund. There would be no purpose to her proposed order to retain a fund unless this was the case.
For the purposes of subparagraph (3)(b), it is not necessary for the Court to be satisfied there is a prima facie case, or even a likelihood, that the caveators will not be paid in full. It must simply be foreseeable. Contrary to the wife’s submissions, the potential detriment to the caveators is obvious. Even though, on the values put forward by the wife, the caveators could not have their debts discharged in full from the husband’s interest in the Suburb F property alone, the wife seeks to preserve a situation where the caveators foreseeably receive even less than the full value of the husband’s interest, in respect of secured debts which are unchallenged and bona fide. While the position here is perhaps not quite so obvious as its was in Tomaras, nonetheless, in my view, the conclusion that it is “foreseeable” that the caveators will not be paid in full if the orders sought by the wife are made, is unavoidable: see Tapp v Talbott [2020] FamCA 57 at [73]–[75] (“Tapp”).
In Tapp, McClelland DCJ also observed that under s 90AF(4)(h) of the Act, the Court can consider “any other matter that the court considers relevant.” Section 90AE(4)(h) is in identical terms. Under this subparagraph, he took account of the principles applicable in State courts for the removal of caveats. I agree that this body of jurisprudence should be considered.
In an application under the Real Property Act for removal of a caveat pursuant to s 74MA, it is well settled that whether a caveat should be ordered to be removed depends upon whether an interlocutory injunction would be granted to protect the interest claimed in the caveat: Abraham v Abraham [2012] NSHPL 254 at [8]; Lew v Bluescope Distribution Pty Ltd [2010] NSHPL 794 at [5] (“Lew”) and authorities cited there. As Pembroke J said in Lew at [6]:
The issue is not whether the caveator has a valid caveatable interest but whether, as against competing interests, there is a serious question that the interest recorded in the caveat would be entitled to the protection of an interlocutory injunction.
Where a superior interest, such as a first registered mortgage, will exhaust the security of a caveator by consuming the entirety of the proceeds of sale, an injunction would be futile. Here, on the wife’s own evidence, there will be more than enough available upon sale of the Suburb F property to discharge at least part of the debts owing to the caveators from the husband’s interest alone.
In the frequently cited decision of Buchanan v Crown & Gleeson Business Finance Pty Ltd (2006) 13 BPR 24-513 (“Buchanan”), Brereton J said at [11]:
A highly relevant consideration is whether the removal of the caveat will derogate from the caveator’s claim. There is great force in the submission made by Mr Bransgrove that if the removal of the caveat would have the practical effect of deferring the priority of the caveator’s equitable mortgage, its removal ought not be countenanced. That view is supported by authority which indicates that it is a rare case where a valid caveat will be removed for reasons of the balance of convenience. Thus in Custom Credit Corp Ltd v Ravi Nominees Pty Ltd (1992) 8 WAR 42, Owen J said (at 50):
However it seems to me interlocutory removal of a caveat where an arguable case as to the existence of a caveatable interest has been demonstrated would be unusual. It is important to bear in mind the nature and purpose of a caveat under the Torrens system. By its very nature the caveatable interest must be a proprietary interest in the land. The purpose of the caveat is to restrain the registered proprietor from dealing with the land in a way which will defeat or derogate from the incidents attaching to that proprietary interest until the respective rights of the parties have been honoured (if there is agreement) or to determine if there is disagreement. In many cases, removal of the caveat will have the effect of destroying for all practical purposes, the benefit of the proprietary interest. For example, a creditor, having a specific security interest in land will rank as an unsecured creditor once the property, the subject of the specific security, no longer exists. This will often be the result of removal of a caveat which permits the registered proprietor to sell the property free from any practical obligation to recount to the secured creditor for the proceeds of sale.
In Warner v Andrews [2011] NSHPL 956 at [10]–[12], Brereton J returned to the same principles, saying:
10. Turning to the balance of convenience, I accept that, where there is a seriously arguable - or even indisputable - caveatable interest, the Court nonetheless retains a discretion, based on the balance of convenience, as to whether or not it will maintain the caveat or permit it to lapse. Thus, the circumstance that a caveator has or may have a caveatable interest is a necessary but not a sufficient condition that the caveat will not be removed, and the Court may order its withdrawal, even where the caveat is indisputably valid, where the balance of convenience favours that course ( Buchanan v Crown & Gleeson Business Finance Pty Limited [2006] NSHPL 1465, [8] (Brereton J); Australian Property & Management Pty Ltd v Devefi Pty Ltd (1997) 7 BPR 15,255; and Esther Investments Pty Ltd v Wilson International Pty Ltd [1982] ANZ ConvR 647).
11. The circumstances in which such a course may be appropriate include where a party, applying for the removal of a caveat, has an interest in the land superior to that of the caveator - particularly where that party is being prevented by the caveat from a legitimate exercise of its rights. Thus, a caveat by an unregistered second mortgagee will be removed if it is preventing the registered first mortgagee from exercising its power of sale with a clear title. A valid caveat may also be removed by the Court if it prevents the registered proprietor from the legitimate exercise of a right in respect of the land, including a proper sale or refinance. But a highly relevant consideration is whether the removal of the caveat will derogate from the caveator's claim and it is a rare case indeed, if there is any, that a valid caveat will be removed for reason of balance of convenience, if that will result in a derogation of priority of the caveator's claim [ Custom Credit Corporation Limited v Ravi Nominees Pty Limited (1992) 8 WAR 42, 50, (Owen J)].
12. In my view, if the priority of the caveator's interests would be adversely affected by the removal of the caveat, it is ordinarily inappropriate to remove the caveat having regard to considerations of the balance of convenience [ Oceanview Group Holdings v Balaz [2006] NSHPL 1469 [10]-[11], (Brereton J)].
There is no doubt about the broad application of these principles in jurisdictions where land tenure is governed by Torrens System legislation. For example, in Ross Cook and Brett Cook Pty Ltd v Bli Bli 1 & Anor [2009] QSC 300 at [21], Martin J in the Supreme Court of Queensland summarised relevant principles in the same terms, with extensive reference to Buchanan. In Hanson Construction Materials Pty Ltd v Roberts (2016) 93 NSWLR 1 at [78]–[79], Sackville AJA embraced the same principles, while noting the Court nonetheless retained a discretion to make orders derogating from a caveator’s interests, even if it would be unusual; and see more recently Ward CJ in Eq in Van der Merwe v Cantale [2021] NSHPL 1203 at [35].
The orders proposed by the wife would have the effect of destroying the security of the caveators without them receiving any repayment of their undisputed debts. The authorities make clear this would only happen in a rare case in jurisdictions where the jurisprudence concerning removal of caveats has been developed.
I accept that s 90AC(1)(a) of the Act permits this Court to make an order under Part VIIIAA despite these well-established principles. One obvious purpose of the provisions of Part VIIIAA is to enable this Court to make orders affecting the rights or interest of third parties “despite anything to the contrary” in “any other law (whether written or unwritten) of the Commonwealth, a State or Territory”.
But, in summary, as made clear in Hunt & Hunt referred to above, ss 90AE or 90AF do not sanction the arbitrary invasion of third party rights. The Explanatory Memorandum and subsequent authorities, including the High Court in Tomaras, make clear that neither section is designed to deprive a third party of rights simply to benefit a party to a marriage, or to adversely affect or derogate from the underlying substantive rights of bona fide creditors.
To this extent, ss 90AE and 90AF are to be understood as consistent with the settled law in other jurisdictions, to the effect that any order derogating from or adversely affecting the interest of a caveator, such as destroying the security of an equitable charge, will not ordinarily be made. There may be cases where a party to a marriage challenges a creditor’s debt or security directly, and the circumstances may justify orders under Part VIIIAA, but that is not this case.
Consequently, I am not satisfied that subparagraph (3)(b) of either ss 90AE or 90AF can be satisfied in relation to the wife’s application. This of itself precludes this Court making the orders sought by the wife regarding the proceeds of sale of the Suburb F property, because neither discretion in s 90AE or 90AF has been enlivened. Further, taking account of the principles and matters discussed at [73]–[81] above, as a matter of discretion, the wife’s proposed orders under ss 90AE or 90AF should not be made.
It remains to consider the seemingly ironic problem that the orders proposed by the caveators would also appear, on their face, to fall foul of subparagraph (3)(b), assuming that the jurisdictional basis for their orders is also found in ss 90AE or 90AF. It is also foreseeable, if those orders are made, that their debt will not be paid in full, since their debts total around $490,357 and the net proceeds upon sale are around $585,000. However, since only the husband’s interest in the Suburb F property is subject to the equitable charge, they will receive payment to the full extent of the value of their security, if the value of his interest upon sale is less than the outstanding amounts owing.
This means that it is not their orders which would foreseeably result in them not being paid in full. Rather, it is the limit of their security which brings about this result in the present circumstances, and the inability of the husband to make good the likely shortfall, if he is actually unable to do so. In my view, there is nothing in ss 90AE or 90AF, or even s 114(3) for that matter, which precludes the Court from making injunctive orders on the application of a third party against whom relief is sought under the same sections, and no submissions were made to that effect.
Accordingly, I will make orders for the sale of the Suburb F property and consequential orders for the caveators to be repaid to the limit of the husband’s share of the proceeds of sale. I note that in light of the absence of G Pty Ltd, a separate order will be made empowering a judicial registrar of the Court to complete a withdrawal of caveat in respect of this outstanding caveat if necessary.
Partial property settlement
That leaves for consideration the wife’s application for $150,000 to be released to her as partial property adjustment from the proceeds of sale. As I understood the submissions of the husband, he did not oppose this happening. No other party resisted such an order.
The wife appeared to rely on the powers of this Court to make costs orders in s 117(2) of the Act, or alternatively under ss 79 and 80(1)(h) as an interim or partial property order.
Where the Court exercises the costs power, the authorities have established that the wife, at the least, must show a position of relative financial strength by the husband, a capacity on his part to meet his own litigation expenses, and an inability by the wife to meet her litigation expenses from her or his own income assets or financial resources. The wife must also show she has at least an arguable case for substantive relief which deserves to be heard: see Paris King Investments Pty Ltd v Rayhill [2006] NSHPL 578 at [30].
The elements of s 79 must also be addressed if the applicant for partial property settlement is relying on that provision. In Carlson & Carlson (2019) FLC 93-934, the Full Court said at [26]:
It is well established that in considering what, if any, order should be made to alter property interests, the Court is first required to identify and value the parties' legal and equitable interests (see Stanford v Stanford and Bevan & Bevan [supra] What follows then is that the court must consider the matters relevant to the making of a final order by reference to the matters referred to in s 79(4) and, by reference to s 79(4)(e) the relevant aspects of s 75(2) (Strahan at [137]). That second step, per force, involves a consideration of the nature of the property, the parties' respective contributions and the effect of the application of any matters to which s 75 refers.
It is also well established that the Court need not undertake a detailed enquiry, but on an interim application can form a “broad brush” view of the parties’ financial circumstances: eg Osferatu & Osferatu [2012] FamCA 408 at [41].
The wife submitted that there was evidence that the husband had applied in excess of $1.2 million of matrimonial funds to repaying unspecified debts, gambling and gambling debts, in a relatively short time at and after separation. She contends he has made inadequate disclosure in the proceedings. She gave detailed affidavit evidence to support her contentions. She argues that on an interim basis, she requires funds to pay legal costs and living expenses for herself and the parties’ children. She argued there is adequate equity in the Suburb F property for the court to be satisfied, on an interim basis, that the payment she seeks will not exceed her entitlement to a share of the home, and adequate assets will remain to satisfy any orders the court may make at trial.
The husband made no arguments disputing these contentions. He also asserted that post-separation in mid-2015, he transferred his interest in HPL to the Third Respondent for nil consideration, but he continued to work in the business. The husband has not disclosed the terms of this alleged transfer.
There is a good deal that remains opaque about the husband’s dealings after separation, and an overall picture of the parties’ assets is not at present easy to achieve. Nonetheless there was some common ground that the Suburb F property was the only remaining asset of substance.
I am satisfied that, taking a broad brush approach, the release to the wife of $150,000 from her share of the proceeds of sale form the Suburb F property is justified.
CONCLUSION
For the foregoing reasons, I will make the orders as set out at the commencement of these reasons.
I certify that the preceding ninety-five (95) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Harper. Associate:
Dated: 12 November 2021
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