Bendell and Bendell and Anor - [2014] FCCA 1386

FEDERAL CIRCUIT COURT OF AUSTRALIA

BENDELL & BENDELL & ANOR

[2014] FCCA 1386

Catchwords:
FAMILY LAW – Distribution of property – one spouse bankrupt – bankrupt spouse executed guarantee to creditor – creditor joined as a party – whether creditor’s interest is secured against property of both spouses –whether creditor entitled to payment of debt before pool divided between spouses.

FAMILY LAW – Section 79 of the Family Law Act 1975 – obligation on Court to consider effect of orders on ability of creditor to recover debt: s.75(2)(ha).

FAMILY LAW – Section 79 steps – to decide the value of the pool after deducting secured and unsecured creditors – whether to deduct liability to creditor without security over property of both spouses – whether creditor entitled to interest on judgment debt – caveat by creditor – whether to be removed – property to be sold – proceeds to be used to pay costs of sale, outstanding rates and taxes, then mortgage, then debt to creditor in the amount of judgment debt plus interest from the date of judgment debt until payment of the amount due hereunder at the rates prescribed in r.17.03 of the Family Law Rules 2004.

BANKRUPTCY – One spouse declared bankrupt – that spouse owes judgement debt to creditor – creditor joined as a party to family law proceedings – whether actions unconscionable so as to disentitle creditor from payment of debt – ‘unconscionable conduct’ defined.

Legislation:

Family Law Act 1975, ss.75(2), 79, 90AE(2)(b), 117B

Family Law Rules 2004, r.17.03

Biltoft and Biltoft (1995) FLC 92-614
Garcia v National Australia Bank Ltd [1998] HCA 48
Hickey and Hickey and Attorney-General for the Commonwealth of Australia (Intervener) (2003) FLC 93-143
Hodges Hall v Jovanovic and Markov (1995) FLC 92-611
Stanford v Stanford [2012] HCA 52
Trustees of the Property of Cummins (A Bankrupt) v Cummins (2006) 227 CLR 278

Applicant:

MS BENDELL

Respondent:

MR BENDELL

Third Party:

[M] PTY LTD

File Number:

MLC 9407 of 2013

Judgment of:

Judge F. Turner

Hearing date:

3 June 2014

Date of Last Submission:

17 June 2014

Delivered at:

Melbourne

Delivered on:

3 July 2014

REPRESENTATION

Counsel for the Applicant:

Ms Plain

Solicitors for the Applicant:

Vines Lawyers

The Respondent did not appear

Counsel for the Third Party:

Mr Lapirow

Solicitors for the Third Party:

Davies Moloney

ORDERS

Pursuant to s.90AE(2)(a) of the Family Law Act 1975, that [M] Pty Ltd at its cost withdraw Caveat no:[omitted] over the property at Property T in the State of Victoria (the “property”), forthwith upon being notified of the proposed date of sale and provide the wife with documentary proof of that withdrawal by the date of settlement.
The property be listed for sale and sold forthwith by way of public auction.
The proceeds of sale be applied at settlement as follows:
(a)To pay the costs of and incidental to the sale;
(b)To pay any outstanding rates and taxes;
(c)To discharge the mortgage to the Commonwealth Bank of Australia;
(d)To pay…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2014] FCCA 1386
Decision Date: 3 July 2014

CaseChat Overview and Summary

In the matter of *Bendell and Bendell and Anor*, Judge F. Turner of the Family Court of Australia considered a property settlement dispute where one spouse was bankrupt and owed a judgment debt to a creditor, [M] Pty Ltd, who had been joined as a party to the proceedings. The central dispute concerned the extent to which the creditor's interest in the bankrupt spouse's debt should be recognised and satisfied from the marital property pool before distribution between the spouses.

The court was required to determine whether the creditor's interest was secured against the property of both spouses, and if so, whether the creditor was entitled to payment of the debt prior to the division of the remaining property between the husband and wife. Further, the court had to consider the effect of any property orders on the creditor's ability to recover the debt, as mandated by section 75(2)(ha) of the *Family Law Act 1975*. This involved assessing whether to deduct the liability to the creditor, who did not hold security over both spouses' property, from the value of the pool. The court also had to decide whether the creditor was entitled to interest on the judgment debt and whether a caveat lodged by the creditor should be removed.

The court reasoned that while the creditor did not have a direct security interest over the property in the same way a mortgagee does, the circumstances warranted treating the debt as a priority claim against the property pool. This approach was informed by the obligation under section 79 of the *Family Law Act 1975* to consider the impact of orders on creditors. The court ordered the property to be sold, with the proceeds to be applied first to the costs of sale, then to outstanding rates and taxes, followed by the discharge of the mortgage. Crucially, the debt owed to [M] Pty Ltd, including the judgment debt and interest, was to be paid before the remaining balance was distributed between the wife and husband. The wife was ordered to serve a copy of the orders on the Official Trustee in Bankruptcy, and the Trustee was directed to facilitate the execution of the orders.

The final orders directed the sale of the property, with the proceeds to be applied in a specific order of priority: sale costs, rates and taxes, the mortgage, the debt to [M] Pty Ltd (including interest), and then the net balance to be divided 85% to the wife and 15% to the husband. The creditor was ordered to withdraw its caveat. The wife was ordered to pay the costs of [M] Pty Ltd. Each party was to retain other property in their possession, and superannuation entitlements were to remain with the respective individuals.

Orders

Orders of the court

Pursuant to s.90AE(2)(a) of the Family Law Act 1975, that [M] Pty Ltd at its cost withdraw Caveat no:[omitted] over the property at Property T in the State of Victoria (the “property”), forthwith upon being notified of the proposed date of sale and provide the wife with documentary proof of that withdrawal by the date of settlement.

The property be listed for sale and sold forthwith by way of public auction.

The proceeds of sale be applied at settlement as follows:

(a) To pay the costs of and incidental to the sale;

(b) To pay any outstanding rates and taxes;

(d) To pay to [M] Pty Ltd the amount of $39,517.10, plus interest from the date of these orders to the date of payment;

(e) To pay the wife 85% of the net balance remaining; and

(f) To pay the husband 15% of the net balance remaining.

That the wife forthwith serve upon the Official Trustee in Bankruptcy a copy of these orders.

That the Trustee in Bankruptcy, upon being accorded procedural fairness in relation to the making of these orders, shall do all such acts and things and sign all such documents as may be necessary to give effect to orders 2 and 3 hereof.

The parties otherwise do all such acts and things and sign all such documents as may be necessary to give effect to orders 2 and 3.

If any party refuses or neglects to sign any document necessary to implement these orders, that a Registrar sign the necessary document on behalf of the defaulting party pursuant to s.106A of the Act.

The wife pay the costs of [M] Pty Ltd calculated according to Part 1, Schedule 1 to the Federal Circuit Court Rules 2001.

Unless otherwise specified in these orders:

(a) Each party is solely entitled to the exclusion of the other, to all other property and chattels of whatsoever nature and kind, in the possession of such party as at the date of these orders, and that for this purpose bank accounts are deemed to be in the possession of the person whose name appears on the bank’s records thereof, and

(b) Superannuation entitlements are deemed to be in the possession of the person which is named as the worker whose age and working future provides conditions for payment out of such fund.

10.

All extant applications are dismissed and the matter is removed from the list of pending cases.

Background

Background to the litigation

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Evidence

Evidence Before The Court

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Decision

Reasons for decision

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Ratio Decidendi

Legal Principle Established

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