Black & Wilkinson
[2022] FedCFamC2F 629
•18 May 2022
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 2)
Black & Wilkinson [2022] FedCFamC2F 629
File number(s): MLC 10239 of 2020 Judgment of: JUDGE HARLAND Date of judgment: 18 May 2022 Catchwords: FAMILY LAW – application to proceed out of time – application opposed by trustee in bankruptcy – prior agreement to have out of time application determined at the same time as the substantive property application – insufficient evidence – application for adjournment after trustee raises potential negligence by applicant’s solicitor – trustee opposed adjournment and pressed for out of time application be determined – procedural fairness – adjournment granted Legislation: Family Law Act 1975 (Cth) ss 19, 90SM
Federal Circuit and Family Court Rules 2021 (Cth) r 1,04
Federal Circuit and Family Court of Australia, Central Practice Direction – Family Law Case Management, 1 September 2021
Cases cited: Montano & Kinross [2014] FamCAFC 231
Slocomb & Hedgewood [2015] FamCAFC 219
Division: Division 2 Family Law Number of paragraphs: 34 Date of hearing: 11 May 2022 Place: Melbourne Counsel for the Applicant: Ms Wald Counsel for the Respondent: Did not participate Counsel for the Second Respondent: Mr Culshaw Solicitor for the Applicant: Bramham Lawyers Solicitor for the Second Respondent: Wallmans Lawyers ORDERS
MLC 10239 of 2020 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 2)
BETWEEN: MR BLACK
Applicant
AND: MS WILKINSON
Respondent
MR PERKINS AND MR MANNING ATF THE BANKRUPT ESTATE OF MS WILKINSON
Second Respondent
ORDER MADE BY:
JUDGE HARLAND
DATE OF ORDER:
18 MAY 2022
THE COURT ORDERS THAT:
1.The proceeding is adjourned for a compliance mention and possible interim argument on 14 July 2022 at 9.30am.
2.All parties are to note and comply with Central Practice Direction – Family Law Case Management paragraph 5.1-5.20 at
3.The parties are to file and serve any further affidavits with respect to the out of time application by 1 July 2022 and written submissions by 7 July 2022.
4.The costs of the hearing on 11 May 2022 are reserved.
AND THE COURT NOTES THAT:
A.The purpose of the compliance mention is to determine the future progress of the matter. If the extension of time application remains in dispute any further argument may be heard on 14 July 2022.
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 a pseudonym Black & Wilkinson has been approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
REASONS FOR JUDGMENT
JUDGE HARLAND:
This matter was listed before me on 11 May 2022 for one-day defended hearing. The hearing was with respect to both the applicant’s application to proceed out of time and the substantive property proceedings. The applicant is the husband and the second respondent is the trustee in bankruptcy for the bankrupt estate of the first respondent wife.
The applicant husband sought an adjournment of the defended hearing in circumstances where counsel for the trustee in bankruptcy raised serious concerns about potential negligence by the applicant’s solicitor and a potential conflict of interest. Despite raising these very serious issues, counsel strenuously opposed the applicant’s adjournment application and pressed for the Court to determine the out of time application. For the reasons that follow I grant the adjournment.
BACKGROUND
The pool is modest. The primary asset is the home the applicant lives in. The property is in the applicant and the first respondent’s joint names subject to a mortgage. The property has not been valued. The estimated equity is approximately $300,000. The parties were in a de facto relationship for 17 years. The parties had two children together and the respondent had 3 children from other relationships for whom the applicant provided financial and other support. The applicant is a tradesman.
It is not disputed that in 2017, after the parties separated, the applicant drew down on the mortgage and paid the first respondent $39,000. Since 2017 the applicant has remained living in the house with some of the children. In his late filed material the applicant refers to improvements he has made to the property post separation and has been solely responsible for paying the mortgage and other expenses for the house. He says the payment to the first respondent was for a property settlement and relies on the statutory declaration signed by the first respondent which is annexed to one of his affidavits. He says he has acted in reliance on that agreement and was unaware of the need to formalise the agreement and transfer the house and refinance the mortgage. He says by the time he realised the first respondent refused to cooperate he was out of time. He does not say when this occurred. Nor does he say when he first sought legal advice. The first respondent became bankrupt in September 2020 days after the applicant filed his initiating application.
The trustee in bankruptcy’s position is that the house should be sold and the proceeds distributed in accordance with the legal title and he seeks summary judgment and what the trustee’s counsel referred to as “the usual orders” in these types of bankruptcy matters. That would have the effect of the proceeds of sale being divided equally between the applicant and the first respondent’s estate. The trustee’s position is that the debts of the first respondent’s estate and the trustee’s costs would be satisfied from the first respondent’s share.
APPLICATION TO PROCEED OUT OF TIME AND SUBSTANTIVE APPLICATION
The trustee’s counsel observed that in the applicant’s initiating application and affidavit he says the relationship ended in January 2017 which means he had until January 2019 to bring his application within time. The trustee refers to the later material being inconsistent referring to the relationship ending in April 2017. The applicant did not file his initiating application until September 2020 and did not seek leave to proceed out of time until 25 May 2021. He provides no explanation for this further delay although one can surmise that the explanation may lie with his lawyer.
Counsel for the trustee pointed out that whilst the applicant changed firms during the proceedings the solicitor with carriage of the matter has been the same throughout. The trustee’s counsel, who was briefed by the trustee earlier in the proceedings, referred to the conciliation conference where the registrar referred to the need for the applicant to seek leave to proceed out of time and directed the applicant to file an amended initiating application. The applicant’s material is silent as to why leave was not sought until 8 months after he filed his initiating application.
The applicant’s position has consistently been that he should receive the whole of the equity in the property, which would leave the creditors and trustee out-of-pocket. The wife became bankrupt some three years after the parties separated and the debts subject of the bankruptcy were acquired by the wife post separation and without the husband’s knowledge.
For reasons yet to be explained the applicant filed further substantial material on 6 May and 9 May 2022 very late in circumstances where the material should have been filed in March 2022. That late filed material further articulates the applicant’s case. The written submissions filed on the applicant’s behalf refer to equitable arguments with respect to a constructive trust, estoppel and unconscionability. The applicant’s case is that the first respondent holds her legal title to the property on trust for him as a consequence of the informal property agreement. If his argument is successful then the wife does not have an equitable interest in the property and the creditors and trustee in bankruptcy will not be able to satisfy their claims against that interest. This argument raises a number of issues including whether or not the trustee stands in the shoes of the first respondent wife such that the trustee is bound by any constructive or resulting trust and/or is estopped in equity. In order to determine that argument it will be necessary to consider the circumstances surrounding the informal property arrangement and whether or not that settlement would have been considered as just and equitable. There is no valuation of the home. The applicant seeks to retain the home. It will be necessary for the home to be valued as at the date of the informal property settlement and currently.
The trustee’s position has consistently been that the applicant should not be granted leave to proceed out of time. The effect of that would be that the trustee would sell the property and after the mortgage is discharged the net proceeds of sale would be divided equally between husband and wife. The trustee’s argument is that that would be the likely outcome in these proceedings given it was a 17 year de facto relationship where the applicant refers to the parties assuming “traditional roles”. I reject this submission.
As noted above, the pool is modest. When the matter was before me in August 2021 counsel who appeared had discussions and agreed that the out of time application could be heard together with the substantive property case. The more usual course is for the out of time application to be determined as a threshold issue. That hearing is interlocutory in nature without cross-examination, and is not a full examination of an application under section 79 or 90SM of the Family Law Act 1975 (Cth) on its merits. Certainly, given that it was a joint position of counsel and appeared a sensible approach, this matter was listed for a two day hearing in March 2022. In the days leading up to the March trial, it became clear to me that I had a priority part heard case that was taking longer than expected with another priority case behind it, which meant I would not be able to hear this matter. Rather than have the parties incur costs of attending Court I caused my chambers to write to the parties advising of the situation and offering to relist the matter administratively to new dates. Chambers was advised that it would only need one day and a date was settled upon that was convenient for all and the matter was given priority.
The matter should have been ready for trial in March. Given the relatively short delay there should have been no need for further material. But what became very clear after receiving the court book the day prior to the May hearing was that the applicant filed material incredibly late that the trustee says was shifting the applicant’s case and of which the trustee did not have prior notice.
The trustee’s complaint about the late filed material, the evolving nature of the husband’s case and the unfairness to the trustee in being able to properly consider this late filed material is justified. The adjournment will give him that opportunity.
Despite the agreement reached by the parties through their counsel in August 2021 as to the future conduct of this matter, it is apparent that counsel appearing for the husband in May 2022 was not aware of the matter being listed for both the threshold and substantive argument. What was also apparent was that despite further material being filed the material was still deficient. The most significant deficiency is the failure to adduce evidence as to the circumstances surrounding the 2017 informal property settlement. As a result it was not possible to determine that the outcome would be just and equitable.
APPLICATION FOR ADJOURNMENT
During the course of oral submissions, Counsel for the trustee raised the possibility of the applicant’s solicitor being negligent with respect to the delay in filing the application to proceed out of time.
The matter was stood down so that the applicant’s counsel could confer with her instructor. Whilst the matter was stood down the parties tried to resolve the matter unsuccessfully. Unsurprisingly, given the allegations raised by counsel for the trustee, the applicant pressed the adjournment applicant. More surprisingly the trustee pressed its opposition to it.
During the period it was stood down, the parties made serious efforts to resolve the matter overall. Once it was apparent that that was not possible, the applicant’s counsel continued to seek an adjournment, and the trustee’s counsel continued to oppose it and pressed for the Court to determine the out of time application. Counsel for the applicant further raised the possibility of there being a conflict of interest now between the applicant’s solicitor and the applicant. It was inevitable that the applicant’s adjournment application would be successful after counsel for the trustee raised the possibility of the applicant’s solicitor being negligent. Whilst the trustee’s submission was that this was something that should have been obvious before the hearing and that the trustee does not have any obligation to point out that negligence in advance, the issue becomes an important one in terms of procedural fairness to both the applicant’s lawyer as it is a serious matter for any practitioner and also for the applicant.
That well and truly should have indicated to the second respondent that whilst it would be possible for the Court to determine the out of time aspect of the matter on the material filed, doing so would be fundamentally a breach of procedural fairness that runs contrary to the administration of justice.
Procedural fairness is about ensuring that the parties have a reasonable opportunity to argue their case. A potential negligence issue against a solicitor is a serious matter. Regardless of whether or not it is arguable the solicitor should have turned her mind to this issue before it was raised during the course of argument, it is clear that it has taken her by surprise. Given the serious nature of such an allegation it would be unfair to deny her an opportunity to properly consider her position and get independent advice. The trustee’s counsel himself raised the possibility of the solicitor needing to give evidence in the future. This is not something that can reasonably be done with the matter being stood down.
It is also necessary to consider the position of the applicant. Hearing these arguments raised would have been disconcerting and stressful for him. He also needs to be given procedural fairness and given the nature of the issues raised during the course of argument that includes the opportunity of obtaining independent legal advice. I reject the submissions made by the trustee’s counsel that allowing the adjournment would be contrary to the interests of justice. Assuming that there is no obligation to put the other party on notice of a potential negligence claim, once it is raised and an adjournment is sought such an adjournment is inevitable. The prejudice to the applicant and the applicant’s solicitor if the adjournment was not granted far outweighs the prejudice to the trustee and the creditors in the further delay.
It is unfathomable to me as to why the adjournment application was so strongly opposed by the trustee given the serious nature of the issues raised by his counsel. No doubt there was a considerable element of frustration on the trustee’s part given that this matter was listed for hearing in March 2022 but was unable to be reached. The trustee’s position is that he was ready to proceed in March 2022.
In urging that the out of time application be determined, the trustee’s counsel submitted that the applicant has a remedy elsewhere (being a negligence claim against his lawyer) and that therefore the Court should not find hardship. Following this line of reasoning the applicant may also have a claim in an equitable jurisdiction resisting the sale of the property on the basis of an equitable estoppel and or constructive trust argument. Such an action would have the potential to involve considerable further costs and delays for both the applicant and the trustee in bankruptcy.
Counsel for the trustee placed much reliance on the applicant’s failure to explain adequately the further eight month delay from the date of filing to the date the initiating application was amended. This raises an issue as to whether or not it is necessary for the applicant seeking leave out of time to give an adequate explanation for delay for the entire period. It also raises the question as to whether the out of time extends past the date of filing the initiating application or not.
Counsel for the trustee also opposed the adjournment arguing that even if the Court found that the applicant had established hardship, the Court would not exercise its discretion in granting leave because the applicant’s explanation of delay is inadequate for part of the period and non-existent for the other. The applicant simply says he was unaware of the necessity to have a formal property settlement and that by the time he became away he was out of time. He does not provide any detail including when he first became aware of this and when he first sought legal advice.
The trustee’s argument raises the question as to whether there must be an adequate explanation for delay that covers the whole of the period of delay and whether or not there must be an explanation for the delay from the date of filing the initiating application to the date of filing the amended initiating application seeking leave to proceed out of time.
I have some doubts as to the correctness of this submission noting Montano & Kinross [2014] FamCAFC 231 where the Full Court allowed an appeal after the trial judge placed a great deal of emphasis on there being no explanation for part of the period of delay. The Full Court refers to the fact that the fundamental issue in out of time applications is the Court’s ability to do justice between the parties. I also refer to Slocomb & Hedgewood [2015] FamCAFC 219. It would be necessary to give further consideration to the authorities dealing explanations for delay. It is not necessary to consider that now because of my view that the adjournment must be granted. The adjournment will mean that the applicant may put on further evidence that explains the delay. Both parties will also have opportunity to make further submissions. The purpose of referring to these matters is to highlight that this matter is not as straightforward as it may have appeared at first glance.
COSTS
The trustee in bankruptcy sought costs in the sum of $13,000 inclusive of GST and further sought an order that it be made jointly and severally against the applicant and his lawyer and that it be payable within 30 days. With respect to the trustee’s counsel of course again that very submission raises the issue of an adjournment. Both the applicant and the applicant’s solicitor would need the opportunity to put submissions in response, which again only strengthens the argument in favour of an adjournment.
I had asked if the sum could be quantified of the costs reserved but that was resisted by the applicant’s counsel and one of the tensions is knowing what costs relate to the trustee’s obligations in bankruptcy distinct from the family law proceedings. The costs disclosed in the cost disclosure required by the rules are substantial and are significantly higher than the applicant’s to date. The trustee’s counsel submitted that those costs include costs related to the bankruptcy administration separate to these proceedings.
I consider the appropriate course is to simply reserve the costs of the 11 May 2022 hearing generally. The costs argument can be fully argued at a later date.
CONCLUSION
The parties will need to give consideration as to how this matter can best proceed, particularly if the opposition to the out of time application is pressed whether it is still appropriate to determine that issue with the substantive application. In my view it would make sense to hear any further argument about that issue on the next occasion.
This matter has been before the Court on several occasions but has not progressed. I observe that one of the difficulties has been a failure to consider forensically the evidence needed to support the applicant’s case. It is depressingly common to see applications and responses with unparticularised orders which in turn leads to a lack of focus as to the issues in dispute and the evidence needed to support a party’s case. I draw attention to the core principles of the Central Practice Direction – Family Law Case Management.
Granting the adjournment means further Court resources have to be utilised for this case, delaying other cases. The adjournment will also mean further delay for the creditors. Costs orders may ameliorate some prejudice but are not a complete answer to delay. However in the circumstances of this case it would be a denial of procedural fairness and would impose an injustice on both the applicant’s solicitor and the applicant not to grant the adjournment.
The applicant’s counsel in written submissions complained about the trustees’ conduct in this matter. The case management rules and the overarching purpose under the Federal Circuit and Family Court of Australia Act direction applies to both parties. The concept of parties and their advisers having obligations to the Court to assist in the orderly administration of justice is not new. Active case management has been a feature in all kinds of the courts in recent years reflecting the volume of work and demand for court resources. Criticisms can be made of both parties failing to abide by their obligations pursuant to rule 1.04 (being the overarching purpose of the Federal Circuit and Family Court Rules). The applicant’s counsel objects to the trustee’s costs being fixed and reserved as the quantum may be challenged. On balance in my view costs should simply be reserved.
For the reasons given I will grant the applicant’s adjournment application and list the matter for a compliance mention in my next interim hearing week in July 2022. I will list the matter in an interim slot allowing time for argument if necessary. I will also direct that the parties file any further affidavits 14 days before the next day and any submissions 7 days before the next court date.
I certify that the preceding thirty-four (34) numbered paragraphs are a true copy of the Reasons for Judgment of Judge Harland. Associate:
Dated: 18 May 2022
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