Bloomfield v Grainger
[2014] FCCA 2074
•24 September 2014
FEDERAL CIRCUIT COURT OF AUSTRALIA
| BLOOMFIELD & GRAINGER & ANOR | [2014] FCCA 2074 |
| Catchwords: FAMILY LAW – Financial – summary dismissal of whole matter – creditor seeks to set aside a binding financial agreement made during a marriage – the wife, a bankrupt at the time the creditor commenced the action – summary dismissal of part of the claim – creditor seeks to set aside the agreement because it does not comply with formal requirements – creditor has no standing to pursue this claim. |
| Legislation: Corporations Act 2001 Bankruptcy Act 1966, ss.58, 82, 107 Family Law Act 1975, ss.4A, 90C, 90G, 90K, 90UM Federal Circuit Court of Australia Act 1999, s.17A |
| ASIC v Rich (2003) 31 Fam LR 667 Clyne v Deputy Commissioner of Taxation (1984) 154 CLR 589 Ejueyitsi v Bond University [2012] FMCA 872 Reamy & Anor & Milne [2012] FMCAfam 143 Spencer v Commonwealth of Australia (2010) 241 CLR 118 Trustee for the Bankrupt Estate of N Lasic v Lasic (2009) 41 Fam LR 369 |
| Applicant: | MS BLOOMFIELD |
| First Respondent: | MR GRAINGER |
| Second Respondent: | THE BANKRUPT ESTATE OF MS GRAINGER |
| File Number: | BRC 89 of 2014 |
| Judgment of: | Judge Cassidy |
| Hearing date: | 27 June 2014 |
| Date of Last Submission: | 27 June 2014 |
| Delivered at: | Brisbane |
| Delivered on: | 24 September 2014 |
REPRESENTATION
| Counsel for the Applicant: | Mr Jones |
| Solicitors for the Applicant: | Tucker & Cowen Solicitors |
| Senior Counsel for the First Respondent: | Mr Looney QC |
| Junior Counsel for the First Respondent: | Dr Greinke |
| Solicitors for the First Respondent: | Morgan Conley Solicitors |
| Solicitors for the Second Respondent: | No appearance |
ORDERS
That paragraphs 35, 36, 37, 38, 43, 44, 45 and 46 of the statement of claim be struck out.
That paragraph 2 of the relief sought in the initiating application be struck out.
That otherwise the application in a case filed 1 May 2014 be dismissed.
That any application for costs be filed by no later than 4.00pm on 8 October 2014 and be dealt with by way of written submissions.
That any response by way of written submissions be filed by no later than 4.00pm on 22 October 2014.
That this matter be adjourned for judgment of the costs application (if any) at 9.30am on 18 November 2014 in the Federal Circuit Court of Australia at Brisbane.
That all parties be granted leave to appear by telephone for the delivery of the costs judgment (if any).
NOTATION:
(A)That the matter may be transferred to the Family Court of Australia on 18 November 2014 in the event there is no opposition from the parties. The parties be at liberty to either relist the matter for submissions in relation to the transfer or, file written submissions within the same time frame as for the costs.
IT IS NOTED that publication of this judgment under the pseudonym Bloomfield & Grainger & Anor is approved pursuant to s.121(9)(g) of the Family Law Act 1975 (Cth).
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT BRISBANE |
BRC 89 of 2014
| MS BLOOMFIELD |
Applicant
And
| MR GRAINGER |
First Respondent
| THE BANKRUPT ESTATE OF MS GRAINGER |
Second Respondent
REASONS FOR JUDGMENT
Introduction
This is the first respondent’s application for summary judgment. The first respondent seeks to strike out the statement of claim and to dismiss the proceedings as a whole, or alternatively in part.
The Background to the Proceedings
The common ground is that the applicant, Ms Bloomfield, is the judgment creditor of Ms Grainger. The first respondent is Ms Grainger’s husband.
Ms Grainger owned a property at Property E, in Queensland (“the Property E property”). From 2008, Ms Grainger borrowed $2.6 million from (omitted) bank. That loan was secured by a registered mortgage over the Property E property.
On 1 November 2012, Mr and Ms Grainger entered into a financial agreement under s.90C of the Family Law Act 1975 (Cth) (as amended) (“the Act”). The section provides for parties to enter into a binding financial agreement during the currency of a marriage. The effect of the financial agreement is that Ms Grainger transferred her interest in the Property E property to her husband. Property E property remained subject to the mortgage that had been placed on the property and the husband indemnified Ms Grainger in respect of the loan.
Ms Grainger became a bankrupt on 7 January 2013. The applicant seeks to set aside the financial agreement pursuant to s.90K of the Act. The applicant is further seeking an order that the first respondent transfer to the bankrupt estate of Ms Grainger, the Property E property free from mortgage or other encumbrance, or alternatively an order that the first respondent pay to the bankrupt estate the market value of the Property E property at the date of transfer of the property.
The trustee in bankruptcy is named as a second respondent in these proceedings, as is properly the case in circumstances where the wife is currently a bankrupt. However at this stage, the trustee of the wife’s estate has not entered an appearance.
The Law
Section 17A of the Federal Circuit Court of Australia Act 1999 (Cth) provides for summary judgment:
“17A Summary judgment
(1) The Federal Circuit Court of Australia may give judgment for one party against another in relation to the whole or any part of a proceeding if:
(a) the first party is prosecuting the proceeding or that part of the proceeding; and
(b) the Court is satisfied that the other party has no reasonable prospect of successfully defending the proceeding or that part of the proceeding.
…
(3) For the purposes of this section, a defence or a proceeding or part of a proceeding need not be:
(a) hopeless; or
(b) bound to fail;
for it to have no reasonable prospect of success.
(4) This section does not limit any powers that the Federal Circuit Court of Australia has apart from this section.”
Federal Magistrate Jarrett (as he then was) summarised the approach taken in Ejueyitsi v Bond University [2012] FMCA 872 where Jarret FM opined:
“[24] The approach taken in cases dealing with s.31A of the Federal Court of Australia Act 1976 are generally seen as apposite in cases dealing with s.17A of the Federal Magistrates Act 1999: George v Fletcher (Trustee) [2010] FCAFC 53 at [75] and [105].
[25] The words of s.31A mean what they say and there is little point in attempting to formulate other phrases to encapsulate their meaning: Spencer v Commonwealth of Australia (2010) 241 CLR 118, per Hayne, Crennan, Kiefel and Bell JJ at [58] – [59]. The Court must embark upon a “practical judgment…as to whether the applicant has more than a ‘fanciful’ prospect of success”: per French CJ and Gummow J at [25]. What is required by the section is set out by the Hayne, Crennan, Kiefel and Bell JJ as follows at [60]:
… The Federal Court may exercise power under s 31A if, and only if, satisfied that there is “no reasonable prospect" of success. Of course, it may readily be accepted that the power to dismiss an action summarily is not to be exercised lightly. But the elucidation of what amounts to "no reasonable prospect” can best proceed in the same way as content has been given, through a succession of decided cases, to other generally expressed statutory phrases, such as the phrase “just and equitable” when it is used to identify a ground for winding up a company. At this point in the development of the understanding of the expression and its application, it is sufficient, but important, to emphasise that the evident legislative purpose revealed by the text of the provision will be defeated if its application is read as confined to cases of a kind which fell within earlier, different, procedural regimes.”
I was referred by Mr Jones, Counsel for the applicant, to paragraph 24 of Spencer v Commonwealth of Australia (2010) 241 CLR 118:
“[24] The exercise of powers to summarily terminate proceedings must always be attended with caution. That is so whether such disposition is sought on the basis that the pleadings fail to disclose a reasonable cause of action (51) or on the basis that the action is frivolous or vexatious or an abuse of process (52). The same applies where such a disposition is sought in a summary judgment application supported by evidence. As to the latter, this Court in Fancourt v Mercantile Credits Ltd [(1983) 154 CLR 87 at 99] said:
“The power to order summary or final judgment is one that should be exercised with great care and should never be exercised unless it is clear that there is no real question to be tried.”
More recently, in Batistatos v Roads and Traffıc Authority (NSW) (54) Gleeson CJ, Gummow, Hayne and Crennan JJ repeated a statement by Gaudron, McHugh, Gummow and Hayne JJ in Agar v Hyde (55) which included the following:
“Ordinarily, a party is not to be denied the opportunity to place his or her case before the court in the ordinary way, and after taking advantage of the usual interlocutory processes. The test to be applied has been expressed in various ways (56), but all of the verbal formulae which have been used are intended to describe a high degree of certainty about the ultimate outcome of the proceeding if it were allowed to go to trial in the ordinary way.”
There would seem to be little distinction between those approaches and the requirement of a “real” as distinct from “fanciful” prospect of success contemplated by s 31A (57). That proposition, however, is not inconsistent with the proposition that the criterion in s 31A may be satisfied upon grounds wider than those contained in pre-existing Rules of Court authorising summary dispositions.”
[Footnotes omitted.]
I accept the guidance that Spencer v Commonwealth of Australia (supra) provides and is of assistance in coming to the decision.
The Issues in Dispute
The questions of law in issue (as set out in the first respondent’s submissions) are:
“Q1 Where a party to a financial agreement has become bankrupt, does a creditor of the bankrupt have standing to apply to set aside a financial agreement or seek relief under s 90K(3)?
Q2 Does the power in s 90K(3) to make orders adjusting the rights of persons extend to adjustments other than for the purpose of substantially restoring the position existing before the financial agreement?
Q3 In seeking to set aside a financial agreement under s 90K may a creditor rely on any grounds other than the ground specified in s 90K(1)(aa)?”
Standing – Bankruptcy
The first respondent argues that upon sequestration, Ms Grainger’s estate became vested in her trustee in bankruptcy. Section 58 of the Bankruptcy Act 1966 (Cth) relevantly provides:
“58 Vesting of property upon bankruptcy—general rule
(1) Subject to this Act, where a debtor becomes a bankrupt:
(a) the property of the bankrupt, not being after‑acquired property, vests forthwith in the Official Trustee …”
I note in the present case Ms Bloomfield is a judgment creditor of Ms Grainger and she was at the time when Ms Grainger became a bankrupt.
I was referred by Mr Looney QC to Clyne v Deputy Commissioner of Taxation (1984) 154 CLR 589 (“Clyne”). Mr Looney QC submits that Clyne (supra) is authority for the proposition that on sequestration, all provable debts owing by the bankrupt are converted from rights of action into a right to share in the distribution of the bankrupt’s estate as vested in the trustee.
Section 82 of the Bankruptcy Act 1966 (Cth) provides in s.82(1):
“82 Debts provable in bankruptcy
(1) Subject to this Division, all debts and liabilities, present or future, certain or contingent, to which a bankrupt was subject at the date of the bankruptcy, or to which he or she may become subject before his or her discharge by reason of an obligation incurred before the date of the bankruptcy, are provable in his or her bankruptcy.”
Section 58(3) of the Bankruptcy Act 1966 (Cth) relevantly provides:
“(3) Except as provided by this Act, after a debtor has become a bankrupt, it is not competent for a creditor:
(a) to enforce any remedy against the person or the property of the bankrupt in respect of a provable debt; or
(b) except with the leave of the Court and on such terms as the Court thinks fit, to commence any legal proceeding in respect of a provable debt or take any fresh step in such a proceeding.”
The first respondent notes this matter comes within the jurisdiction of the Act because a matrimonial cause is defined within s.4 of the Act as:
“matrimonial cause means:
…
(eab) third party proceedings (as defined in section 4A) to set aside a financial agreement; …”
Section 4A of the Act states:
“4A Third party proceedings to set aside financial agreement
(1) For the purposes of paragraph (eab) of the definition of matrimonial cause in subsection 4(1), third party proceedings means proceedings between:
(a) any combination of:
(i) the parties to a financial agreement; and
…
(b) any of the following:
(i) a creditor;
…
being proceedings for the setting aside of the financial agreement on the ground specified in paragraph 90K(1)(aa).
…
(2) In this section:
creditor means:
(a) a creditor of a party to the financial agreement; …”
The first respondent argues that at the time that the applicant commenced these proceedings, the applicant was not a creditor of Ms Grainger within the meaning of that expression, as used in the definition of third party proceedings and he relies on the case of the Trustee for the Bankrupt Estate of N Lasic v Lasic (2009) 41 Fam LR 369 (“Lasic”).
The first respondent argues on the authority of Lasic (supra), that upon Ms Grainger’s bankruptcy, the rights of the bankrupt’s creditors are regulated in accordance with the Bankruptcy Act 1966 (Cth). The headnote accurately sets out the position the first respondent takes:
“(vii) The ability of the court to order a payment by one party directly to a creditor is not dependent on the provisions of Pt VIIIAA of the Act. There are many instances where, in appropriate circumstances, as part of an order adjusting property interests of the parties, one party may be ordered to meet the whole or part of a debt of the parties. Subject to the provisions of the Bankruptcy Act, when the trial judge determined to vary the consent orders he could have ordered W to pay a creditor of one or both of the parties, provided any affected third party had appropriate notice and the new orders were “just and equitable”: at [198]–[200].
Deputy Cmr of Taxation v Kilman and Kilman (2002) 29 Fam LR 301; (2002) FLC 93-113 ; [2002] FamCA 629, followed
(viii) From the time of H’s bankruptcy the rights of his creditors were regulated in accordance with the provisions of the Bankruptcy Act and H’s unsecured creditors’ rights were converted into a right to prove in the administration of his bankrupt estate (s 82 Bankruptcy Act) and share rateably with other unsecured creditors in accordance with the priorities contained in s 109 of the Bankruptcy Act. At the date of the hearing, Mr M’s rights to recovery of the judgment debt were governed by the provisions of s 109 of the Bankruptcy Act. Having regard to the provisions of the Bankruptcy Act his position could not have been superior to, or different from, a secured creditor who forgoes his security and proves in a bankruptcy or any other creditor who proved in the bankruptcy. Having proved in the bankruptcy he did not retain an independent right to enforce the judgment (subject to any applicable limitation provision) (see s 58(3)(a) of the Bankruptcy Act) nor receive payment of the judgment debt: …”
The first respondent submitted that the applicant had no standing to commence these proceedings.
The applicant argues that there is no dispute, that a creditor has standing to bring a claim under s.90K(1)(aa) of the Act:
“90K Circumstances in which court may set aside a financial agreement or termination agreement
(1) A court may make an order setting aside a financial agreement or a termination agreement if, and only if, the court is satisfied that:
…
(aa) a party to the agreement entered into the agreement:
(i) for the purpose, or for purposes that included the purpose, of defrauding or defeating a creditor or creditors of the party; or
(ii) with reckless disregard of the interests of a creditor or creditors of the party; …”
The applicant’s counsel, Mr Jones, submitted that a creditor does not cease to be a creditor when the debtor becomes bankrupt. He argues that the consequences of the sequestration order referred to in Clyne’s (supra) case do not destroy the debtor / creditor relationship. What changes, he submits, are the remedies available to the creditor as was discussed in Clyne (supra) at page 594. The debts remain but the debts are no longer still owing once a sequestration order is made. The obligation to make payment converting to a right on the part of the creditor to prove in the bankruptcy.
The applicant points to references to “creditors” in the Bankruptcy Act 1966 (Cth), for example creditors meetings that occur after the bankruptcy event. Mr Jones submits that there is no reason to read “creditor” in s.4A of the Act differently from creditor in its ordinary sense. In particular in the sense in which it is used in the Commonwealth legislation, such as Bankruptcy Act 1966 (Cth) and the Corporations Act 2001. He cites s.107 of the Bankruptcy Act 1966 (Cth) as an example of a creditor existing in that guise during the administration of the bankrupt estate:
“107 Creditor not to receive more than the amount of his or her debt and interest
Subject to the operation of the provisions of section 91, a creditor is not entitled to receive, in respect of a provable debt, more than the amount of the debt and any interest payable to him or her under this Act.”
The applicant distinguished Lasic (supra). He argued that that case was authority for the proposition that, regardless of the date on which the consent order was to take effect, for different reasons that are clear on reading the facts of the case, Mr M was not a creditor. He submits that Lasic (supra) can be distinguished from the present case because in the present case, Ms Bloomfield was a creditor. She had a money judgment from the Court of Appeal proceeding. There was no doubt that she was a creditor at that time.
The question in Lasic (supra) was whether Mr M could directly enforce his judgment against the husband. That is whether Mr M could recover money from the husband directly. Paragraph 207 sets out the position in Lasic’s (supra) case:
“[207] Thus we are satisfied that at the date of the hearing, [Mr M’s] rights to recovery of the judgment debt were governed by the provisions of s 109 of the Bankruptcy Act. Having regard to the provisions of the Bankruptcy Act his position could not have been superior to, or different from, a secured creditor who forgoes his security and proves in a bankruptcy or any other creditor who proved in the bankruptcy. Having proved in the bankruptcy he did not retain an independent right to enforce the judgment (subject to any applicable limitation provision) (see s 58(3)(a) of the Bankruptcy Act) nor as we have explained receive payment of the judgment debt.”
Mr Jones for the applicant argues that nothing in Clyne (supra) nor Lasic (supra) stands as authority for the proposition stated by the first respondent that, at the time the applicant commenced this proceeding, she was not a creditor of the wife. He says, according to the words “ordinary meaning” she was clearly a creditor of the wife. Under s.4A of the Act, she was a creditor.
The applicant submits that there is nothing in Clyne (supra) that supports the first respondent’s submissions. Indeed, he cites at page 594 the joint judgment of Gibbs CJ, Murphy, Brennan and Dawson JJ, where they say:
“…At that time the Deputy Commissioner “was not a mere creditor. [He] was a creditor whose claim was in proof. [His] claim was no longer a mere right of action for a debt. [He] could no longer have maintained an action as for a debt. The debt had been, at any rate provisionally, merged in an equitable execution …”: see In re Higginson & Dean; Ex parte Attorney-General … [[1899]1 Q.B. 325]; Ex parte Trustee of the Property of Cork … [(1932) 5 A.B.C. 1]; and In re Cole; Ex parte Richards … [(1966) 9 F.L.R. 190].”
[Footnotes omitted.]
I accept the submissions of counsel for the applicant that she is a creditor for the purposes of s.90K(1)(aa) of the Act. I therefore answer the question at paragraph 10 of the first respondent’s submissions:
“Q1 Where a party to a financial agreement has become bankrupt, does a creditor of the bankrupt have standing to apply to set aside a financial agreement or seek relief under s 90K(3)?”
Yes.
The s.90K(3) of the Act Relief
With respect to the second question of law proposed in the first respondent’s submissions, s.90K(3) of the Act relevantly provides:
“(3) A court may, on an application by a person who was a party to the financial agreement that has been set aside, or by any other interested person, make such order or orders (including an order for the transfer of property) as it considers just and equitable for the purpose of preserving or adjusting the rights of persons who were parties to that financial agreement and any other interested persons.”
The question posed in the context of this part of the respondent’s case is:
“Q2 Does the power in s 90K(3) to make orders adjusting the rights of persons extend to adjustments other than for the purpose of substantially restoring the position existing before the financial agreement?”
I note that the word “may” in s.90K(3) indicates that the section provides for a discretion as to whether the financial agreement is set aside. The first respondent argues that the section is restricted in its operation in the sense that the discretion is constrained by the words:
“…for the purpose of preserving or adjusting the rights of persons who were parties to that financial agreement and any other interested persons.”
Mr Looney QC argues that s.90K(3) is analogous to the equitable jurisdiction to set aside contracts. Counsel for the first respondent submitted that the language of s.90K(3) is the same as the language of s.90UM(6). This was considered by Burnett FM (as he then was) in a case of Reamy & Anor & Milne [2012] FMCAfam 143 (“Reamy”):
“[18] In other words the discretion enlivened under s.90UM(6) arises only after the “financial agreement … has been set aside” pursuant to subsection (1).
[19] I agree with the respondent’s submission in that employing the permissive “may” in each of s.90UM(1) and s.90UM(6) the relief provided for in each instance is discretionary with the discretion being enlivened upon the satisfaction of respective conditions.
[20] I consider the respondent’s contention that an analogy with equity is sound, in this instance particularly, because s.90UM(1) seeks to discharge the contract on grounds which have form in equity and not law. Likewise s.90UM(6) proceeds from the premise of rescission, the customary equitable remedy available to a party unfairly or unconscionably induced into a contract. That is to say, the effect of the initial order is to dissolve the contract ab initio. With the contract then having been dissolved, the FLA enlivens the rights of the parties for such an order or orders as it considers just and equitable. This invites a consideration of the general principles applicable to that concept under the Family Law Act.
[21] This approach is entirely consistent with the principle of restitutio in integrum which requires that upon termination of an executed contract in circumstances where such a contract is deemed to have never been made then each party must get back what he has given under the contract or in other respects be put in the same position as if there had been no contract. However, and more significantly for the purpose of construing the power under s.90UM(1) the remedy is discretionary in the sense that it would only be afforded if, despite precise restitutio in integrum not being possible “… the situation is such that, by the exercise of its powers, including the power to take accounts of profits and to direct inquiries as to allowances proper to be made for deterioration, it can do what is practically just between the parties, and by so doing restore them substantially to the status quo.” That matter invites inquiry and in my view informs the Parliament’s inclusion of the word “may” in s.90UM(1).
[22] Although the remedy of rescission is one only available to the parties of a contract the plain import of s.90UM is to extend the operation of those principles to third parties (in this case creditors) in the event of demonstrated unconscionability (in this case being by a contractual arrangement intended to defraud or defeat their rights). However as noted above their rights are subject to the customary discretionary considerations required by equity.
[23] Plainly in a case such as this where following the entry into the BFA the parties to that transaction altered their respective interests including their financial interests the matter of restoration of the status quo is enlivened and is relevant in equity and must be considered.
[24] It follows in my view that s.90UM(1) enlivens a discretion in the Court to entertain the relief provided for in ss.1 upon being satisfied of the matters identified in ss.(1)(b)(i) or (1)(b)(ii) and a right to relief under that provision it is not merely a matter of satisfying those matters simpliciter.”
[Footnotes omitted.]
The first respondent submits that setting aside this agreement would return the parties to a status quo where the wife’s trustee in bankruptcy would take the Property E property encumbered with a mortgage and that the utility of proceeding is not obvious in terms of a remedy for the creditor.
The creditor argues, through her counsel, that s.90K(3) is of a broader nature. I consider, while Burnett FM’s reasoning is attractive and, unless it was clearly wrong it is likely to be applied by other judges in relation to s.90UM(6), the section that is now under consideration is s.90K(3). The analysis set out in Reamy (supra) is not determinative of the matter in this case. It is a trial-able issue that, in my view, should be taken to a hearing to fully explore submissions on the extent of the power under s.90K(3).
The first respondent argues that the applicant has no prospects of obtaining the relief sought at paragraphs 3, 4 and 5 of the final orders sought in the initiating application:
“[3] An order pursuant to section 90K(3) of the Family Law Act 1975 that Mr Grainger transfer to the estate of Ms Grainger (a bankrupt) the real property located at Property E, in the State of Queensland, more particularly described as (omitted) on (omitted), County of (omitted), Parish of (omitted) (“the Property E Property”), free from mortgage or other encumbrance.
[4] In the alternative, an order prusuant (sic) to section 90K(3) of the Family Law Act 1975 that Mr Grainger pay to the estate of Ms Grainger (a bankrupt) an amount of money being the market value of the Property E Property as at the date of transfer of that property, in an amount to be assessed.
[5] Further, or in the alternative, a declaration that Mr Grainger is liable to exonerate the estate of Ms Grainger (a bankrupt) in respect of any mortgage, encumbrance, lien or other charge or liability secured over or connected to the Property E Property.”
In the present case the extent of the s.90K(3) power is not authoritively defined and the issue is a trial-able issue. Furthermore the trustee in bankruptcy is still a party to the proceeding even though he has elected not to participate in this part of the proceeding. He may decide that it is appropriate to participate in the hearing once the summary judgment matter has been finalised.
I do not consider that this is a matter where I can give summary judgment on the basis that s.90K(3) is a power limited to returning the parties to their positions prior to the agreement and therefore the orders the applicant seeks would not be available.
In relation to “Q2”:
“… Does the power in s 90K(3) to make orders adjusting the rights of persons extend to adjustments other than for the purpose of substantially restoring the position existing before the financial agreement?”
I consider this is a matter where the applicant is entitled to argue the extent of the s.90K(3) power at the trial.
Jurisdiction / Standing – Independent Advice
The final question for me to consider is:
“Q3 In seeking to set aside a financial agreement under s 90K may a creditor rely on any grounds other than the ground specified in s 90K(1)(aa)?”
The first respondent argues that the only basis upon which a creditor can set aside a financial agreement is pursuant to s.90K(1)(aa) of the Act, where the purpose of the financial agreement included defrauding or defeating creditors of Ms Grainger. The other basis that the applicant makes claim to set aside the financial agreement is because she alleges that it is unenforceable by reason of lack of independent advice required by s.90G of the Act. She relies on s.90K(1)(b) of the Act in that regard. The statement of claim sets out this claim at paragraphs 43 – 46.
The first respondent argues that the creditor does not have standing to apply to set aside a financial agreement on the basis of the alleged lack of independence of Mr Pitman, a solicitor who provided advice to Ms Grainger before she entered into the agreement. The applicant alleges that this is a breach of s.90G(1)(b) of the Act. The applicant asserts, as a consequence of that, that the financial agreement is not binding and not enforceable.
The first respondent argues that the creditor does not have standing to set aside the financial agreement on that ground. The conclusion, her Counsel says, arises from the following features of the Act (as set out in the first respondent’s submissions):
“[46] A creditor does not have standing to apply to set aside a financial agreement on such grounds. This conclusion arises from the following features of the Act:
[46.1] under s 39, original jurisdiction is conferred on the Family Court and on this Court in respect of “matrimonial causes”;
[46.2] in s 4, “matrimonial cause” is defined exhaustively in sub-paragraphs (a) through (f);
[46.3] sub-paragraph 4(eab) provides that “matrimonial cause” includes “third party proceedings … to set aside a financial agreement”, which is more specifically defined by s 4A;
[46.4] s 4A exhaustively defines “third party proceedings” and, where a creditor is a party, the proceedings are limited to proceedings:
… being proceedings for the setting aside of the financial agreement on the ground specified in paragraph 90K(1)(aa).”
[Footnotes omitted.]
The first respondent submits that it is apparent that parliament did not intend to provide creditors with grounds to challenge a financial agreement, other than the ground in s.90K(1)(aa) of the Act. Mr Looney QC submits that this is consistent with the objectives of the Act, since this is a ground relevant to the interest of the creditors. I was referred to ASIC v Rich (2003) 31 Fam LR 667 and indeed it was that case that prompted the 2003 amendment that introduced s.90K(1)(aa).
I accept the submission that the scope of the Court’s jurisdiction is circumscribed by the definition of “matrimonial cause” and the definition in s.4A of the Act restricts the challenge a creditor can make to the agreement to the grounds set out in s.90K(1)(aa) of the Act.
The only parties who could rely on the failure to obtain independent advice are the husband and the wife, were she not a bankrupt and now that she is a bankrupt, her trustee in bankruptcy. They are the only proper parties to a claim that relates to the question of whether Ms Grainger obtained independent legal advice.
In answer to “Q3”:
“… In seeking to set aside a financial agreement under s 90K may a creditor rely on any grounds other than the ground specified in s 90K(1)(aa)?”
No. The creditor is only entitled to rely on s.90K(1)(aa) in seeking to set aside a financial agreement.
I will therefore strike out paragraphs 35, 36, 37, 38, 43, 44, 45 and 46 of the statement of claim, as well as paragraph 2 of the relief sought in the initiating application and so order.
I certify that the preceding fifty-one (51) paragraphs are a true copy of the reasons for judgment of Judge Cassidy
Date: 24 September 2014
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