Bassi & Anor v Maas

[2000] HCATrans 324

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S198 of 1999

B e t w e e n -

KRISHNA DEVI BASSI

First Applicant

K.D. SALES FORCE SPECIALISTS PTY LTD

Second Applicant

and

JILL ELIZABETH MAAS

Respondent

Application for special leave to appeal

GLEESON CJ
GAUDRON J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 4 AUGUST 2000, AT 3.50 PM

Copyright in the High Court of Australia

MR T.L.P. HODGSON:   May it please the Court, I appear for the applicants in this matter. (instructed by H.A. Miedzinski)

MR G.J. McVAY:   May it please the Court, I appear for the respondent. (instructed by Farmer Campbell Edmunds)

GLEESON CJ:   Yes, Mr Hodgson.

MR HODGSON:   Your Honours, these proceedings arise under the Family Law Act. My clients are third parties. That is, not parties to the marriage. The application for special leave to appeal is against orders made pursuant to section 85 of the Family Law Act, section 85 being an anti‑avoidance provision of that Act, providing relief, essentially, to enable the just and equitable division of property pursuant to section 79 of that Act where one party seeks to evade the outcome, essentially, by depleting the assets or by trying to place assets out of the reach of the other party, and out of the court.

I have attached a copy of section 79 and section 85(1) to my authorities, as filed yesterday morning. But section 85(1) provides the court with discretion to:

set aside, or restrain the making of an instrument or disposition…..which is made or proposed to be made to defeat an existing or anticipated order in those proceedings or which, irrespective of intention, is likely to defeat any such order.

And then section 85(3) requires the court to:

have regard to the interests of, and shall make any order proper for the protection of, a bona fide purchaser or other person interested.

Now, the last time that this Court dealt with the rights of third parties was in a decision of Ascot Investments v Harper in 1981.  In that decision, often reference is made to the judgment of as he then was Mr Justice Gibbs, which is found at pages 354-355, again of the authorities provided, in which his Honour looks at the circumstances in which the Family Court has power to make, in that case, orders for injunctions directed at third parties who are not parties to a marriage.  His Honour certainly stated, in about the middle of page 354:

It can safely be assumed that the Parliament intended that the powers of the Family Court should be wide enough to prevent either of the parties to a marriage from evading his or her obligations to the other party, but it does not follow that the Parliament intended that the legitimate interests of third parties should be subordinated to the interests of a party to a marriage –

His Honour then went down towards the bottom of the page to state that obviously if a sham was involved “as a device to assist one party”, then clearly to evade his obligations then such transactions should be disregarded.  But his Honour then went on, at the top of page 355 to say:

Except in the case of shams, and companies that are mere puppets of a party to the marriage, the Family Court must take the property of a party to the marriage as it finds it.  The Family Court cannot ignore the interests of third parties in the property, nor the existence of conditions or covenants that limit the rights of the party who owns it.

This Court had an application for special leave before it in 1988, again a case which I have included called Loder v Aysom and Others in my authorities.  This was a special leave application.  Special leave was not granted but, again, in that decision the Bench stated that they did not doubt that:

The question of the citation of persons not parties to the marriage in S85 proceedings and the scope and operation of that section are questions of general public importance –

but they determined that that particular case on its facts, and for other discrete reasons especially referrable to that case, that it was not a suitable vehicle in relation to that issue proceeding further, particularly as it seemed that in certain respects the orders under section 85 were being remitted back to a judge of the Family Court for a determination. But, in my submission, it has been some 20 years since this Court has determined matters arising from section 85.

In this particular case, there were a number of transactions between the applicants and the husband which were set aside.  These transactions related to the payment of some mortgage payments over a period of time, it being the case that one of the applicants is now the de facto spouse of the husband;  the payment for certain improvements to the property of one of the applicants;  the provision of a motor vehicle and also the loan of moneys to enable the purchase of a boat and, in respect of which ‑ there were two matters:  one, there was a deed subsequently evidencing that loan; and, secondly, there was evidence which was accepted that that loan had been, in part, repaid.

GAUDRON J:   But then there was a finding against your clients, was there not – or a finding against all the parties, except the wife, that those transactions and dispositions were part of a general course of conduct, the purpose of which was to defeat property orders under the Family Law Act.  There was a finding in the Full Court.

MR HODGSON:   A finding of the Full Court?

GAUDRON J:   Yes.  You see, it was not just this.  Something did happen, did it not, after the husband’s retrenchment?  There is no explanation for the earnings up to that point, or for the retrenchment moneys, other than a large amount was lost at the casino and an even larger amount was lost in the Solomon Islands or Western Samoa on a speculative transaction.  The rest cannot be accounted for, and these matters were given away, it was found, on that evidence.  These were not isolated incidents, but part of a course of conduct, the purpose of which was to avoid orders under the Act.

MR HODGSON:   There was another issue, too, your Honour, and that was that there was an amount of $100,000 that was the husband’s that, indeed, had been frozen by injunction in the Family Court.  But then subsequently the husband went bankrupt.  The bankruptcy was annulled under the cross‑vesting legislation and then that $100,000 which was there, was ultimately dissipated in relation to the costs of the trustee, and the like.

GAUDRON J:   One might have thought that the voluntary bankruptcy – it might have been open to the court to find that the voluntary bankruptcy was also an effort to avoid orders under the Act.  I know it was not in issue, but it is a finding that well might have been made.

MR HODGSON:   The trial judge did not add that $100,000 back into the pool, but what he did, which was upheld by the Full Court, was to add back in the Samoan transaction and then determine, and also include in the pool of assets the various moneys that had been provided to the third parties.  And then, in determining an appropriate just and equitable division, then determined it was appropriate that the money should essentially come back into the pool and be distributed to the wife.

Now, the issue is, and your Honour has identified them, there were two other transactions, namely, the bankruptcy $100,000 and also the $260,000 lost in Western Samoa, both of those transactions occurring some time after the moneys were provided to my clients by the husband, and it is my submission that, essentially, my clients have been a target of opportunity in that there is money that is available there, therefore it can be recouped.  That, it would seem, is what the court has done.  In particular, on that point, it would seem in relation to the question about the loan, as opposed to the moneys that were provided, but the loan – this is on page 98 of the application for special leave, about point 34:

The Full Court then considered the issue of whether the loan from the Husband to the Second Applicant did not deplete the Husband’s assets, but merely converted an asset in one form, namely cash, into an asset in the form of a chose in action, namely the debt. The issue was whether there had in fact been a “disposition” within the meaning of Section 85(1) of the Act.

And it is not defined in the Act and, indeed – at about page 41:

The Full Court, through its researches, was not able to find any authority in which it had previously been held that a loan by a spouse to a third party constituted a disposition –

GAUDRON J:   Well, an interest free loan payable at the end of 10 years looks very much like one, does it not?

MR HODGSON:   In my submission, it does not justify the conclusion of the Full Court that it had the effect of putting beyond the reach of the wife and, indeed, the court, the amount still outstanding in respect of the debt.  It seems that the Full Court then goes on to say:

for “practical purposes”, that sum was disposed of by the Husband as effectively as if he had made a gift of it to the Second Applicant.

In my submission, that was not the reality of the situation and, indeed, (a) there was a loan agreement;  and, (b), and more crucially, there was evidence accepted that a large proportion of those moneys had been paid back, and it is my submission that that was not a disposition likely to defeat an order, because it was a conversion from one to another.  If it had been a loan for 50 years, or something like that ‑ ‑ ‑

GAUDRON J:   If you segregate each transaction out, that is an argument you can put.  I am not saying it is necessarily a compelling argument.  But once you look at the entire course of conduct, the argument is untenable, is it not?

MR HODGSON:   In my submission, and I suppose what your Honour is taking up largely what the Full Court said on page 97 towards the bottom “that it was wrong and artificial to look at” things as separate events and, in particular:

the Samoan transaction as a separate event and merely because –

the court refers to there:

it “fortuitously” followed the bulk of the dispositions by the First Applicant and because of its quantum, to conclude that it was that transaction, rather than the disposition to the Applicants, which defeated or at the time was likely to defeat the anticipated order –

because, of course, if the husband still had the $260,000 there would not have been any need to invoke section 85.

GAUDRON J:   Which he always intended to do something with, so that the wife could not get her hands on it?

MR HODGSON:    Yes, and there was evidence ‑ ‑ ‑

GAUDRON J:   And so, given that intention, and given the other transactions, why segregate them up?

MR HODGSON:   It is my submission that, if one further looks at what the Full Court says, and it takes this combination views, that the combination of these dispositions in the Samoan transaction constituted the single chain of connected transaction.  And it was open to the wife to seek to attack through 85 either the whole chain or separate chains in the chain, and that is what the Full Court held, and that each link of a chain contributed to the chain’s ability to the whole of the load and, therefore, it was the whole chain that related to the overall effect of being likely to defeat the order.

But, in my submission, it was not a situation that there was ever any evidence concerning any collaboration, or connivance, between my clients and the husband to go to Western Samoa and lose the money.  The husband certainly was saying “I have sought to put the money out of the reach of the wife.”  But it is the connection that it seems that the Family Court or the Full Court makes, perhaps for these practical reasons to bring the Western Samoan transaction back in.  And, in my submission, that is where it comes in to the question of convenience.

If the husband had provided the moneys elsewhere that were, perhaps, to another third party in much the same way that he had provided it to my clients, would it be the case that then one looked at the bona fides of the third parties and then determined which of those was going to pay back the money, be it the de facto spouse, be it the company which she controlled, or be it the other third party.  In my submission, that then leaves the Court with a discretion to attack the transaction which can most conveniently be set aside as, in my submission, the court has done here.

But also in relation to these transactions, there is another aspect, and that is that the transactions which were set aside, in my submission, as well as there being the question of expediency as to what might or might not be available, there is also, your Honours, an issue that the trial judge did not make a final determination of the property proceedings because he had regard to the fact that there were other assets which he believed would be available in the future and which he had regard to, which were a superannuation entitlement that the husband had. 

Now, it is my submission that it may, and certainly on some preliminary calculations that the trial judge did, that superannuation, when it vested, would have been able to be used to satisfy the wife’s entitlement, or certainly, at least, there should have been some endeavour to ascertain whether or not those moneys may have been able to satisfy the wife’s entitlement rather than affecting the rights as far as the third parties were concerned.

Another issue, your Honours, too, arises out of, again, another decision which I have included in my authorities which is the most recent Full Court decision in relation to section 85 which is Halabi – again, it is with those authorities.  In particular, it refers to a decision of his Honour Justice Nygh – this is at the bottom of page 679 – in which his Honour:

expressed the view that some connection must be shown between the disposition and the defeat, or likely defeat, of the order.  His Honour expressed concern that the section, if interpreted too broadly, might enable parties long after the event to set aside transactions if at any future time the assets of the respondent were insufficient to meet the demands of an order.

Now, it is my submission that that is, essentially, what the Full Court has done here. But because there has not been sufficient assets to meet the order but, notwithstanding, at the time when, perhaps, $2,500 was paid to put in some paving, or some air conditioning, or some monthly mortgage repayments were made, that because now we have a situation where there is not sufficient moneys, that this broad approach is taken as far as section 85 is concerned and it is really a retrospective view of looking at the situation and saying, well, the transaction was made three or four years ago. Since that time, there have been other transactions which have put money out of the reach of the court. In fact, they are as effective as the Western Samoan transaction where the money has gone right away and cannot be recovered. So what we will do is we will just build a chain as far as all these transactions are concerned, link them all together, use the logic that the Full Court has used in that section which I referred to in their judgment about the chain, and that means that every link in this potential chain is under attack, or potentially under attack, and that, really, any transaction can be attacked.

In my submission, if one also looks at that Halabi authority, too, his Honour Justice Nygh repeated this same view about this interpretation of section 85 in another decision called In the Marriage of Heath, which is referred to there.  The Full Court dealt with that case on appeal, but expressly left the issue open as to whether such a causal connection needed to be shown, and, in my submission, that issue, as far as the causal connection is concerned, is an important issue as far as public policy is concerned.

GAUDRON J:   But the causal connection was found in this case, was it not?  Your complaint is that it was found?

MR HODGSON:   Yes.

GAUDRON J:   Not that no regard was had to it?

MR HODGSON:   Yes, although it was found in a manner, in my submission, that it would seem in every case where there are dispositions there will be a causal connection found because one simply looks at all the dispositions that might have been made, and even though one may have been made ‑ ‑ ‑

GAUDRON J:   That is one way of looking at it, but it is not the way the Full Court looked at it.  What you are really saying is, are you not, look, although the Full Court said it was doing X, Y and Z, it was really, in truth, not doing that.  You are really attacking the bona fides of the reasoning process, are you not?

MR HODGSON:   That is certainly one aspect of it, but also the bona fides of the reasoning process, having regard to the words of the statute in section 85(1) and the interpretation of that statute, or that particular section about “likely to defeat”, irrespective of intention, likely to defeat an order or likely to…..an order. Certainly, there is no argument that if a transaction is made which has the intention to defeat an order, then section 85 applies without question. Then we come into a more, in my submission, discretionary aspect as to whether or not the transaction is likely to defeat an order, and what does that mean? How can one, when the transaction is made three or four years ago, even before perhaps an application is made, and it being perhaps a relatively insignificant transaction, determine at that point of time that that transaction, down the track, with a whole lot of other transactions added in which may have or have nothing to do whatsoever with the particular third party who was involved in the initial transaction, that those are all linked together and that that initial transaction can be then under threat because of this chain of causal connection which the Full Court determines is appropriate. I do not know if I can take it beyond that.

GLEESON CJ:   Thank you.  We do not need to hear you, Mr McVay.

The Court is of the view that there are not sufficient prospects of success of an appeal to warrant a grant of special leave in this matter.  The application is refused with costs.

AT 4.11 PM THE MATTER WAS CONCLUDED