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

1. 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.

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

3. 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 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.

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

5. 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.

6. 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.

7. 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.

8. The wife pay the costs of [M] Pty Ltd calculated according to Part 1, Schedule 1 to the Federal Circuit Court Rules2001.

9. 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.

IT IS NOTED that publication of this judgment under the pseudonym Bendell & Bendell & Anor is approved pursuant to s.121(9)(g) of the Family Law Act 1975 (Cth).

FEDERAL CIRCUIT COURT
OF AUSTRALIA
AT MELBOURNE

MLC 9407 of 2013

MS BENDELL

Applicant

And

MR BENDELL

Respondent

[M] PTY LTD

Third Party

REASONS FOR JUDGMENT

1. In this matter the husband and the wife owned a business called [B] Pty Ltd (“[B]”). That business acquired goods from [M] Pty Ltd (“[M]”) on credit amounting to $37,809.01, including interest to the date of the judgment debt on 9 July 2008.

2. In order to secure credit from [M], the husband executed a guarantee, indemnity, and charge in respect of any interest in land that the husband may have, to secure payment of all amounts owed to [M] (Annexure ‘B’ to the Affidavit of Mr M sworn 5 December 2013).

3. The husband and wife were both directors of, and shareholders in, [B] at all relevant times (the wife having become a joint owner on

   
   

   15 September 2004) but the wife was not required by [M] to sign the Guarantee/Indemnity/Charge. The wife did not sign the Guarantee/Indemnity/Charge and was not aware of it at any relevant time; [M] told her nothing about it.

4. The husband and wife purchased a property at Property T in the State of Victoria (“[T]”) and became tenants in common in [T].

5. [M] lodged a Caveat on [T] on or about 27 March 2008 in order to secure payment of the debt owed to it.

6. The husband and wife separated on 1 May 2008. [M] obtained a judgment against [B] for $39,517.10 on 9 July 2008. The husband was declared bankrupt on 28 October 2010.

7. By Initiating Application filed 30 October 2013 the wife seeks

   (1)That there be a declaration as to the interest of the wife in the real property situated at and known as Property T in the State of Victoria ("the real property") in such proportions as the Court deems fit.

   (2)That the Official Trustee in Bankruptcy (on behalf of the husband) sign all documents and do all things necessary to transfer to the wife all its right, title and interest in the real property whereupon the wife assume sole responsibility for the mortgage to the Commonwealth Bank of Australia over the property together with all rates, taxes and apportionable outgoings.

   (3)That there be further and consequential Orders with respect to the third party including but not limited to an order that the third party provide a Withdrawal of Caveat forthwith.

   (4)Such further and other orders as the Court deems fit.

8. By orders dated 10 December 2013, [M] was joined as a third party to the proceedings.

9. It is common ground that [T] is the only property of value owned by the husband and wife.

10. The application was heard by the Court on 3 June 2014. Ms Plain of Counsel represented the wife and Mr Lapirow of Counsel the third party. The Trustee in bankruptcy and the husband did not appear.

11. The application by the wife is primarily pursuant to s.79 of the Family Law Act 1975 (the “FL Act”). The overall process under s.79 is described in Hickey and Hickey and Attorney-General for the Commonwealth of Australia (Intervener) (2003) FLC 93-143 at p.78,389 [3] as follows:

    “The case law reveals that there is a preferred approach to the determination of an application brought pursuant to the provisions of s. 79. That approach involves four inter- related steps. Firstly, the Court should make findings as to the identity and value of the property, liabilities and financial resources of the parties at the date of the hearing. Secondly, the Court should identify and assess the contributions of the parties within the meaning of ss. 79(4)(a), (b) and (c) and determine the contribution based entitlements of the parties expressed as a percentage of the net value of the property of the parties. Thirdly, the Court should identify and assess the relevant matters referred to in ss. 79(4)(d), (e), (f) and (g), (``the other factors'') including, because of s. 79(4)(e), the matters referred to in s. 75(2) so far as they are relevant and determine the adjustment (if any) that should be made to the contribution based entitlements of the parties established at step two. Fourthly, the Court should consider the effect of those findings and determination and resolve what order is just and equitable in all the circumstances of the case: Lee Steere and Lee Steere ; Ferraro and Ferraro ; Davut and Raif ; Prpic and Prpic ; Clauson and Clauson ; Townsend and Townsend ; Biltoft and Biltoft ; McLay and McLay ; JEL and DDF and Phillips and Phillips .”

The First Step

1. The first step is that the Court establish the list of property in the matrimonial pool. The valuation of [T] by Ray White on

   
   

   19 December 2013 was $340,000.00, less the mortgage of $224,000.00 to the Commonwealth Bank of Australia (“CBA”). Mr Lapirow submits that the debt to his client plus interest should then be deducted before any distribution to the spouses. Mr Lapirow submits that there is no law requiring that a creditor’s right should be inferior to those of a non-bankrupt spouse.

2. Section 75(2)(ha) together with s.79(4)(e) of the FL Act require the Court in deciding what orders are just and equitable under s.79, to consider “the effect of any proposed order on the ability of a creditor of a party to recover the creditor's debt, so far as that effect is relevant”.

3. The Full Court in Hickey (supra) stated at p.78,386 [39] that the first step requires the Court to “make findings as to the identity and value of the property, liabilities and financial resources of the parties at the date of the hearing”. In order to do that the Court must deduct from the value of [T] the amounts owing under the mortgage to the CBA, and the amount owing to [M].

4. As decided by the Full Court in Biltoft and Biltoft (1995) FLC 92-614 at p.82,124:

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

5. However at p.82,128 the Full Court stated:

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

6. Ms Plain referred the Court to the decision of the Full Court in Hodges Hall v Jovanovic and Markov (1995) FLC 92-611, that the Court may adjust the property interests of the parties under s.79 of the FL Act and then direct payment to secured third parties from the husband’s adjusted interest. In the present case, for the reasons stated herein, the Court finds that to do so would not be just and equitable.

7. The Court is proscribed from making an order under s.79 unless it is just and equitable. Having regard to the facts that the husband and wife are, and were, shareholders and directors of [B] and that [B] obtained credit from [M], but has not paid the balance outstanding, it is just and equitable that [M] have priority over the husband and wife in the distribution of the pool.

8. The Court therefore determines the pool to be:

[T]	$340,000.00
Less mortgage to CBA	$224,000.00
Less debt to [M] Plus interest from the date of these orders until payment in made (as prescribed in these orders)	$39,517.10	$263,517.10
Balance (less interest due to [M])	$76,482.90

The Second Step

1. The next step is to decide the contributions by the husband and the wife.

2. The husband has not filed evidence of his financial contributions to the acquisition, conservation or improvement of any property of the parties; and has not filed evidence of non-financial contributions to such, or contributions to the welfare of the family. The Court has evidence of the contributions by the wife only. Between 2002 and 2008 the husband and wife shared, and therefore contributed, the income from [B] of between $1,000.00 and $40,000.00 per annum. It can be inferred that much of this income resulted from work performed by the husband in building cabinets.

3. The Court finds that the wife made significant financial and non-financial contributions as follows:

   ·The wife entered the relationship with a property in [C], which she sold for $247,000.00 in 2004, netting $136,000.00. The wife made all of the financial contributions at the commencement of the relationship.

   ·The wife had the major care and control of the only child of the marriage [X] born [omitted] 2014.

   ·The wife has her 16 year old daughter from her first marriage living with her, for whom the father is $16,000.00 in arrears for child support [s.75(2)(e) and (f)].

   ·The husband pays the wife $100 per week child support for [X], but otherwise has no responsibility to support any other person.

4. The wife seeks 85% of the property pool with 15% to the husband.

5. As the wife made 100% of the initial contributions, and contributed her income, and care and control of [X], the Court finds the 85/15% distribution in favour of the wife to be just and equitable.

Alleged Unconscionable Conduct by [M]

1. In final submissions on 3 June 2015, Ms Plain submitted that the actions of [M] in not having the wife sign the Guarantee/Indemnity/Charge; and not advising the wife of the Guarantee/Indemnity/Charge was unconscionable conduct, and should disentitle [M] from obtaining the relief that it seeks against her. The Court ordered that the wife file and serve written submissions in support of those contentions within 7 days; with [M] to file and serve written submissions in response within a further 7 days.

Submissions for the Wife

1. The wife submits:

   ·That [M] never asked her to sign the Guarantee/Indemnity/Charge;

   ·That [M] never informed her that the husband had signed a Guarantee/Indemnity/Charge; and

   ·That [M] never sought the wife’s consent to lodge a Caveat over the property in [T].

2. The wife submits that the joint tenancy in [T] is not covered by the presumption of tenancy in common because the presumption is inapplicable where the contributions to the property were, as here, made in the context of a marriage relationship: see Trustees of the Property of Cummins (A Bankrupt) v Cummins (2006) 227 CLR 278 at p.301 [68].

3. The Court finds that this is not the relevant question here; the relevant question is what is just and equitable as between the spouses and [M].

4. The wife submits that [M], by not involving the wife in the Guarantee/Indemnity/Charge, voluntarily assumed the risk of a potential alteration of the husband’s interest in [T]. Again, that is not the relevant question. [M] may have taken a risk but that does not disentitle it from a just and equitable resolution.

5. The wife submits that the conduct here is more unconscionable than in Garcia v National Australia Bank Ltd [1998] HCA 48, because there the wife signed the security documents. The Court decides that a decision on unconscionableness must be made on the facts of each case.

Submissions for [M]

1. The Court accepts the definitions of ‘unconscionable’ and ‘unconscionable conduct’ set out in footnotes 1 and 2 to the Submissions for [M] filed 17 June 2014 as follows:

   “1. Unfair, unjust, unscrupulous, unreasonable, or excessive; against the dictates of conscience as recognised by a court of equity. Conduct is deemed unconscionable where it can be seen in accordance with the ordinary concepts of humanity to be so unfair and against conscience that a court would intervene (Zoneff v Elcom Credit Union Ltd (1990) 94 ALR 445; ATPR 41–009) or so unreasonable and oppressive so as to affront minimum standards of fair dealing (Commonwealth v Verwayen (1990) 170 CLR 394; 95 ALR 321; [1990] HCA 39). A transaction will be set aside as being unconscionable wherever one party by reason of some condition or circumstance is placed at a special disadvantage vis-à-vis another and unfair or unconscientious advantage is then taken of the opportunity thereby created: Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447; 46 ALR 402; [1983] HCA 14; Blomley v Ryan (1956) 99 CLR 362. The special disadvantage may arise by reason of age, sex, need of assistance, language ability, illness, ignorance, inexperience, impaired faculties, or financial need. To attract the equitable jurisdiction, a person who takes unconscientious advantage of another need only be aware of facts raising the possibility in the mind of a reasonable person: Commercial Bank of Australia Ltd v Amadio. The broad principle of unconscionability applies to all transactions: Akins v National Bank of Australia Ltd (1994) 34 NSWLR 155; ASC 56-279. In the context of rescinding a contract for sale, conduct of the vendor is unconscionable if it has effectively caused or contributed to the purchaser’s breach of contract: Amann Aviation Pty Ltd v Commonwealth (1988) 100 ALR 267. Equity’s jurisdiction to set aside these bargains is independent of the doctrine of undue influence. The (CTH) Trade Practices Act 1974 s 51AB(1) prohibits a corporation in trade or commerce from engaging in unconscionable conduct in relation to the supply of goods or services to a consumer. In determining whether conduct is unconscionable, regard will be given to the relative bargaining positions of both parties, whether the contract was induced by any undue influence, pressure, or unfair tactics, the amount for which the consumer could have acquired goods from another supplier, and whether the consumer was able to understand the documents relevant to the transaction: (CTH) Trade Practices Act 1974 s 51AB(2); Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 477; 46 ALR 402; [1983] HCA 14.

   Also known as ‘unconscientious’.

   2. Conduct in which a person takes unconscientious advantage of another person who is unable to conserve their own interests by reason of a special disadvantage in their dealings with the first person: Blomley v Ryan (1956) 99 CLR 362; Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447; 46 ALR 402; [1983] HCA 14. The concept is given statutory effect in the Australian Consumer Law (ACL), which applies the unwritten law of the States and Territories (ACL s 20); in connection with the supply of goods or services to a consumer (ACL s 21); and in certain business transactions (ACL s 22); thereby importing the statutory remedies available in Pt VI of the Competition and Consumer Act 2010 (Cth). Equivalent provisions applied under Pt IVA of the (CTH) Trade Practices Act 1974 ss 51AA-51AC.”

1. The Court will apply relevant parts of those definitions in deciding whether the conduct of [M] was “unconscionable”.

2. Mr Lapirow refers to the decision in Stanford v Stanford [2012] HCA 52 to assert that the applicant misunderstands the law as to the unconscionability defence to defeat the claims of [M] against the applicant. Mr Lapirow submits at [11] that:

   “The High Court clearly held that property interests are not to be determined first, as between the parties; and then according to the law that applies otherwise”.

3. What the High Court decided in Stanford at [37] to [40] is that in exercising power under s.79 of the FL Act the Court must “first… begin consideration of whether it is just and equitable to make a property settlement order by identifying, according to ordinary common law and equitable principles, the existing legal and equitable interests of the parties in the property”. That statement is not limited to the parties to a marriage. The Court takes from those statements and from the decision in Biloft (supra) that a Court exercising power under s.79, should consider not only the legal and equitable interests of the parties to the marriage, but those of other parties involved. Here, the Court has considered the interests of [M].

4. Mr Lapirow submits that the Guarantee given by the husband was not taken by [M], but was offered by the husband. Apart from not seeing the relevance of that distinction, that submission is in conflict with paragraph 3 of the Affidavit of Mr M sworn 16 June 2014, and is rejected.

5. Exhibit ‘A’ to that Affidavit of Mr M sworn 5 December 2013 shows that the husband and wife were both directors and shareholders of [B]. In circumstances where [M] would obviously seek recompense from [B] if the credit given by it was not repaid, it was remiss of it to not seek the involvement of the wife, but that falls short of unconscionability. It was obviously not ‘unscrupulous’ or ‘against the dictates of conscience’ or ‘outside the ordinary concepts of humanity’, and ‘does not affront minimum standards of fair dealing’.

6. Mr Lapirow asks the Court to find that express notice of the Caveat was given to the wife. He refers to the Annexure ‘CMF-7’ to the Affidavit of
   Mr C sworn 17 June 2014, which is a letter from Land Victoria to the wife on 1 April 2008 advising her of the Caveat. The existence of the letter and its contents can hardly be questioned.

7. Mr Lapirow addresses s.79 to the effect that [T] was encumbered by the guarantee by the husband and that the obligation under the guarantee should be deducted from the value of [T] before a distribution to the spouses occurs. That is what the Court has decided.

8. Mr Lapirow takes issue with the wife’s written submission at [20] that in proceedings under s.79 of the FL Act the Court may make any other order pursuant to s.90AE(2)(b), that “alters the rights, liabilities or property interests of a third party in relation to the marriage”. That submission by the wife merely quotes s.90AE(2)(b). Mr Lapirow submits that such statutory power is “not open in law as the effect would be to ensure that the Third Party would not be paid in full”. Reason to reject that submission arises from s.90AE(2)(b) itself.

9. The Court accepts the submission by Mr Lapirow at [29] that there is no evidence that [M] had an actual constructive knowledge of the wife’s interest in [T].

10. At [29] Mr Lapirow submits that [M] in not obtaining security from the wife “took a step to its detriment, and thereby to the benefit of the Applicant (wife)”. The Court accepts that submission which is referred to (supra).

11. At [30] Mr Lapirow seeks to ask the Court question as follows:

    (a)Is there any law or authority that requires a person who receives a charge over property, to seek out and “inform” any proprietor of the property of the charge?

    (b)In what way is it said that lodging of the Caveat by a creditor fails to “inform” the world at large (including the proprietor of the land), of the equity thereby claimed?

    (c)Apart from the use of the word “reprehensible” upon what authority is it argued in law, that a creditor, who claims no interest against the Applicant, is required to obtain “security documents” from the Applicant?

    (d)In what way was the process followed by the Third Party in lodging the Caveat in breach of any provisions of the Transfer of Land Act?

    (e)In what way was the process followed by the Third Party in breach or conflict with established law or practice?

    (f)In what way did the charge or the caveat “encumber” the Applicant’s interest in the land?

12. The Court has reached its decision for the reasons set out herein, and apart from commenting as follows, declines to make further comment on those questions.

    (a)[M] had the ability to do a company search of [B] but failed to do so;

    (b)[M] should have advised the wife of its intention to lodge a Caveat;

    (c)[M] is seeking the rights of a creditor over the property of the wife;

    (d)It is not asserted that there is breach of process of the Transfer of Land Act;

    (e)This question has been answered above; and

    (f)This question is not relevant to the determination of the case.

13. At [31] Mr Lapirow asks the Court to decide:

    (a)That [M] acted properly.

    For reasons set out above the Court makes that finding.

    (b)That the steps taken by [M] were appropriate.

    The Court can see reasons why a creditor would be satisfied with a Guarantee/Charged executed by one director of a company.

14. The Court finds that the conduct of [M] was not unconscionable so as to disentitle it to the relief it claims.

Interest

1. By s.117B of the FL Act interest is payable at the rate prescribed by the Family Law Rules 2004 (r.17.03) from the date on which the order is made until the payment to [M] of the amount due to it. Interest is to be paid to [M] from the date of these orders up to the date of payment to [M] pursuant to these orders.

I certify that the preceding forty-six (46) paragraphs are a true copy of the reasons for judgment of Judge F. Turner

Associate: 

Date: 3 July 2014