Cao & Trong
[2022] FedCFamC1F 754
Federal Circuit and Family Court of Australia
(DIVISION 1)
Cao & Trong [2022] FedCFamC1F 754
File number(s): MLC 2555 of 2016 Judgment of: WILSON J Date of judgment: 4 October 2022 Catchwords: FAMILY LAW – ALTERATION OF PROPERTY INTERESTS – tax debt exceeding value of pool – wife seeking entirety of pool – tax debt a joint debt – wife contending she is not liable for tax debt – child support debt – husband asserting that child support agreement was executed in circumstances of unconscionability – held, ATO and CSA take entirety of pool.
FAMILY LAW – TAXATION – joint liability – revenue authority entitled to all funds.
FAMILY LAW – EQUITY – unconscionable conduct – extensive review of authorities.
FAMILY LAW – STATUTORY UNCONSCIONABLE CONDUCT – extensive review of authorities.
Legislation: Australian Securities and Investments Commission Act s 12CB(1)
Child Support (Assessment) Act 1989 s 136(2)(b)(ii)
Child Support (Registration and Collection) Act 1988 s 116
Competition and Consumer Act 2010 (Cth) schedule 2, s 21
Evidence Act 1995 (Cth) s 128
Family Law Act 1975 (Cth) ss 75 and 79
Income Tax Assessment Act 1997 (Cth) ss 5-5(2) and 995
Income Tax Assessment Act 1936 (Cth) ss 116 and 174
Tax Administration Act 1953 (Cth)ss 8AAZA, 8AAD, 8AAE, 255 and 350
Property Law Act 1958 (Vic) s 172
Cases cited: Adair v Milford [2015] FamCAFC 29
Allied Pastoral Holdings Pty Ltd v Commissioner of Taxation [1983] NSWLR 1
Ascot Investments Pty Ltd v Harper (1981) 148 CLR 337
Attorney-General (NSW) v World Best Holdings (2005) 63 NSWLR 557
Australian Competition and Consumer Commission v Lux Distributors Pty Ltd [2013] FCAFC 90
Australian Competition and Consumer Commission v Medibank Private Ltd (2018) 267 FCR 544
Australian Competition and Consumer Commission v Samton Holdings Pty Ltd (2002) 117 FCR 301
Australian Competition and Consumer Commission v South East Cleaning Pty Ltd (in liq) (formerly known as Coverall Cleaning Concepts South East Melbourne Pty Ltd) [2015] FCA 25
Australian Competition and Consumer Commission v Quantum Housing Group Pty Ltd [2021] FCAFC 40
Australian Securities and Investments Commission v Kobelt (2019) 267 CLR 1
Australian Securities and Investments Commission v National Exchange Pty Ltd (2005) 148 FCR 132
Bacall & Zagar [2020] FamCA 350
Barker v Barker (2007) 36 Fam LR 650
Black v Kellner (1992) 15 Fam LR 343
Blomley v Ryan (1956) 99 CLR 362
BOM v BOK [2018] SGCA 83
Bridgewater v Leahy (1998) 194 CLR 457
Browne v Dunn (1893) 6 R 67
Carr v State of Western Australia (2007) 232 CLR 138
Chang v Su (2002) 29 Fam LR 406
Child Support Registrar v HFS 19 (2021) 287 FCR 52
Chu Kheng Lim v Minister for Immigration Local Government & Ethnic Affairs (1992) 176 CLR 1
Colin R Price & Associates Pty Ltd v Four Oaks Pty Ltd (2017) 251 FCR 404
Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447
Commissioner of Taxation v Worsnop (2009) 40 Fam LR 552
Commonwealth Bank of Australia v Kojic (2016) 249 FCR 421
Commonwealth v Baume (1905) 2 CLR 405
Commonwealth of Australia v Yarmirr (2001) 208 CLR 1
Cooper Brookes (Wollongong) Pty Ltd v Commissioner of Taxation (1981) 147 CLR 297
Deputy Commissioner of Taxation v Kliman [2002] 29 Fam LR 301
Director of Public Prosecutions (Vic) v Le (2007) 232 CLR 562
Earl of Chesterfield v Janssen (1751) 28 ER 82
Federal Commissioner of Taxation v Futuris Corp Ltd (2008) 237 CLR 146
Flight v Robinson (1844) 50 ER 9
Good Living Co Pty Ltd v Kingsmede Pty Ltd (2021) 284 FCR 424
Hart v O’Connor [1985] AC 1000
Hicks & Trustee of the Bankrupt Estate of Hicks [2021] FamCAFC 19
Hill v Zuda Pty Ltd (2022) 96 ALJR 540
Huguenin v Basely (1807) 33 ER 526
In the Marriage of Bailey (1989) 13 Fam LR 652
In the Marriage of Biltoft (1995) 19 Fam LR 82
In the Marriage of Briese (1985) 10 Fam LR 642
In the Marriage of Clauson (1995) 18 Fam LR 693
In the Marriage of Farnell (1995) 20 Fam LR 513
In the Marriage of Giunti (1986) 11 Fam LR 160
In the Marriage of Kowaliw (1981) FLC 91-092
In the Marriage of Marinko (1983) 8 Fam LR 849
In the Marriage of Mezzacappa (1987) 11 Fam LR 957
In the Marriage of Morrison (1994) 18 Fam LR 519
In the Marriage of P (1985) 9 Fam LR 1100
In the Marriage of Prince (1984) 9 Fam LR 481
In the Marriage of Rowell (1989) 96 FLR 449
In the Marriage of Stein (1986) 11 Fam LR 353
In the Marriage of Suiker (1993) 17 Fam LR 236
In the Marriage of Weir (1992) 16 Fam LR 154
In the Marriage of Zdravokovic (1982) 8 Fam LR 97
Jams 2 Pty Ltd v Stubbings [2020] VSCA 200
Jams 2 Pty Ltd v Stubbings (No 3) [2019] VSC 150
Jams 2 Pty Ltd v Stubbings (No 4) [2019] VSC 480
Jenyns v Public Curator (Qld) (1953) 90 CLR 113
Johnson v Johnson (1999) 26 Fam LR 475; [1999] FamCA 369.
The Juliana (1822) 165 ER 1560
K & S Lake City Freighters Pty Ltd v Gordon & Gotch Ltd (1985) 157 CLR 309
Kakavas v Crown Melbourne Ltd (2013) 250 CLR 392
Kannisv Kannis (2002) 30 Fam LR 83
Louth v Diprose (1992) 175 CLR 621
Minister for Lands (NSW) v Jeremias (1917) 23 CLR 322
Monte & Monte [1986] FamCA 1
National Exchange Pty Ltd v Australian Securities and Investments Commission [2004] FCAFC 90
Northern Territory v Collins (2008) 235 CLR 619
Oriolo v Oriolo (1985) 10 Fam LR 665
Paciocco v Australia and New Zealand Banking Group Ltd (2015) 236 FCR 199
Paciocco v Australia and New Zealand Banking Group Ltd (2016) 258 CLR 525
Panwar v Panwar (2020) 63 Fam LR 44
Piper v Talbot [2021] FCCA 511
Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355
R v Berchet (1794) 89 ER 480
Richter v Richter (2021) 63 Fam LR 102
Roy Morgan Research Centre Pty Ltd v Commissioner of State Revenue (Vic) (2001) 207 CLR 72
South West Water Authority v Rumble’s [1985] AC 609
Stanford v Stanford (2012) 247 CLR 108
Stevens v Kabushiki Kaisha Sony Computer Entertainment (2005) 224 CLR 193
Stone & Stone [2015] FamCAFC 18
Stubbings v Jams 2 Pty Ltd [2022] HCA 6
Taylor v Public Service Board (1976) 137 CLR 208
Thorne v Kennedy (2017) 263 CLR 85
Toronto Suburban Railway Co v Toronto Corporation [1915] AC 590
Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107
Trustee of the Property of Lemnos v Lemnos (2009) 41 Fam LR 120
Unique International College Pty Ltd v Australian Competition and Consumer Commission (2018) 266 FCR 631
Waterman v Waterman [2017] FamCAFC 23
Yanner v Eaton (1999) 201 CLR 351
Division: Division 1 First Instance Number of paragraphs: 183 Date of last hearing: 26 November 2021 Date of last submissions: 19 April 2022 Place: Melbourne Counsel for the Applicant: Dr R. Ingelby Solicitor for the Applicant: Westminster Lawyers Pty Ltd Counsel for the Respondent: Mr W. Smith Solicitor for the Respondent: JK Lawyers Counsel for the First Intervener: Mr P. Sest KC with
Mr H. MazloumSolicitor for the First Intervener: Australian Government Solicitors Counsel for the Second Intervener: Mr J. Grant Solicitor for the Second Intervener: Hunt & Hunt ORDERS
MLC 2555 of 2016 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 1)
BETWEEN: MR CAO
Applicant
AND: MS TRONG
Respondent
COMMISSIONER OF TAXATION
First Intervener
CHILD SUPPORT REGISTRAR
Second Intervener
order made by:
WILSON J
DATE OF ORDER:
4 October 2022
THE COURT ORDERS THAT:
1.On or before 4:00pm on 11 October 2022 the CSR must file and serve an updated statement certifying the sum due to CSR by the husband.
2.If any party seeks to challenge the document produced pursuant to paragraph 1 hereof, he, she or it must file and serve an affidavit setting out the basis of any challenge by 4:00pm on 14 October 2022.
3.If the commissioner seeks to challenge the document produced pursuant to paragraph 2 hereof, he must file and serve an affidavit setting out the basis of any challenge by 4:00pm on 24 October 2022.
4.If any party seeks to make objections to any document produced pursuant to paragraphs 1, 2 or 3 hereof, he, she or it must file and serve an affidavit setting out the basis of any challenge by 4:00pm on 3 November 2022.
5.I direct the parties bring a minute giving effect to these reasons by noon on 25 October 2022.
6.The further hearing of this proceeding adjourned to 2:15pm on 11 November 2022 for mention.
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 the pseudonym Cao & Trong has been approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
REASONS FOR JUDGMENT
WILSON J
introduction
In this application under s 79 of the Family Law Act, the parties sought competing orders concerning the distribution of the sum of $3,099,868 being the remaining proceeds of the sale of the applicant’s and first respondent’s former matrimonial home. It was argued –
(a)by the respondent,[1] that she should have the whole of the proceeds;
(b)by the Child Support Registrar (“CSR”) and by the Commissioner of Taxation (“Commissioner”) that each should receive a rateable distribution of the whole of the proceeds; and
(c)by the applicant,[2] that the Commissioner should be paid in full.
[1] She is called “the wife” in these reasons.
[2] He is called “the husband” in these reasons.
These reasons explain why in my view the whole of the proceeds of sale of the former matrimonial home should be applied rateably as between CSR and the Commissioner. The husband and the wife should receive no funds.
the major issue in this case – The parties’ liability to the commissioner
This proceeding was commenced in 2016 and suffered a lamentably slothful passage on its way to trial.
At the date of the trial the husband was 53 years of age. He was born in Country DD. He undertook secondary and tertiary studies in Australia. He is an accomplished businessman.
At the date of the trial of this proceeding the wife was 47 years of age. The husband and wife met in 2002, commenced cohabitation in 2003, married in 2010 and separated either in 2015 or 2016. They have three children.
No challenge was made to the husband’s success in business. While they were married, the husband and wife lived a very opulent lifestyle, buying and selling real estate in Melbourne’s most expensive suburbs and educating their children at Melbourne’s finest private schools.
The husband fell into disagreement with the Commissioner in relation to liability for income tax. He retained one of Australia’s best firms of solicitors to assist him. He succeeded in reducing some of that indebtedness to the Commissioner but he did not extinguish that indebtedness. It was not disputed before me that the husband’s liability for income tax and other tax related debts presently stands at an amount in the vicinity of $7,000,000.
Self-evidently, the amount claimed by the Commission (whether taken in isolation or in combination with the amount claimed by CSR) very substantially eclipsed the sum held in the controlled monies account representing the amount available for division among the parties to this litigation.
One of the more important issues for determination in this case was whether the husband’s liability to the Commissioner was to be borne solely by him or whether that liability was joint as between the husband and the wife. Counsel for the wife invited me to carefully consider statements in this court[3] about the correct principle to be applied. Counsel for the wife submitted that the Full Court has not developed a consistent approach. Naturally, as a trial judge I must apply the law as higher courts have pronounced it.[4] The correct approach, according to orthodox application of the doctrine of precedent and principles of stare decisis requires that.[5] However, it is not the role of a trial judge like me to pronounce the law in a manner that diverges from the law as pronounced by a court higher in the same curial hierarchy.
[3] Commissioner of Taxation v Worsnop (2009) 40 Fam LR 552, Trustee of the Property of Lemnos v Lemnos (2009) 41 Fam LR 120, Adair v Milford [2015] FamCAFC 29 and Hicks & Trustee of the Bankrupt Estate of Hicks [2021] FamCAFC 19.
[4] Hill v Zuda Pty Ltd (2022) 96 ALJR 540.
[5] Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107 (Brennan J) (at 129-130) and Hill v Zuda Pty Ltd (2022) 96 ALJR 540.
Before examining the factual matters in this particular case, it is utile to examine the authorities on which the wife’s counsel relied and then to examine the authorities on which counsel for the Commissioner relied in relation to the tax debt.
The wife’s analysis commenced with the decision in Worsnop. The court’s decision in that case was handed down on 16 January 2009. As Professor Patrick Parkinson has observed,[6] the decision in Worsnop was not the progenitor of the learning on this issue as this court made observations on the issue eight years earlier in Johnson v Johnson.[7] In that case the Full Court[8] coined the expression “a just outcome demanded that the wife take the good with the bad”. That expression has been construed to be a reference to –
The benefits indirectly gained by the wife in having the pool of assets otherwise increased as a result of the availability of funds which would otherwise have been paid out in tax.[9]
[6] Patrick Parkinson, ‘Why Are Decisions on Family Property So Inconsistent?’ (2016) 90 Australian Law Journal 498.
[7] [1999] FamCA 369 (full version).
[8] Ibid (at [20.6]).
[9] [1999] FamCA 369 (full version).
On appeal, the court held as follows –
(a)at paragraph 20.6 –
In the context of an examination of twenty years of financial dealings by the parties, which dealings were almost entirely within the province of the husband, in our view, unless there were compelling circumstances to the contrary, a just outcome demanded that the wife take the good with the bad; and
(b)at paragraph 20.7 –
Absent any suggestion that the husband was on a frolic of his own and acting contrary to the wife’s express wishes, we see no reason for his Honour to have left the husband to shoulder the burden of the tax penalties.
At the trial of this proceeding, the decision in Worsnop was the subject of close attention by counsel for the wife. Relevantly paraphrased, counsel for the wife contended as follows –
(a)no legal principle exists to the effect that a claim of a third party creditor has priority over a claim by a spouse;
(b)a debt owed to the revenue does not have priority over the claim of a spouse; and
(c)no mandatory rule exists to the effect that a party to a marriage who has had the benefit of property or money only as a consequence of that person’s partner’s dishonesty should share equally in the burden of any primary debt thereby created.
In my view, while those submissions are correct, they are not dispositive of the wife’s assertions nor of the Commissioner’s claims in this case. Further, they represent unqualified statements that are not entirely accurate. The use to which funds have been put and the benefit each party has received from those funds is a highly significant consideration when addressing the position of an unsecured creditor (relevantly here, the Commissioner) whose prospects of recovery of the debt are uncertain.[10] The court warned that a creditor who becomes a party to a s 79 proceeding does not, on the basis of justice and equity, improve the creditor’s position than the creditor would otherwise have enjoyed had the creditor pursued the spouse-debtor alone.[11] The court held as follows –
This does not mean that the principles of fairness, justice and equity to a creditor ought not be addressed, where there is in prospect a reduction in the property of the debtor spouse, for the purpose of satisfying the s 79 claim of the other spouse, which reduction might adversely effect the prospects of recovery of the creditor, but this position does not arise because of the application of s 79(2).
[10] Commissioner of Taxation v Worsnop (2009) 40 Fam LR 552, 556 (at [63]).
[11] Commissioner of Taxation v Worsnop (2009) 40 Fam LR 552, 569 (at [80]).
As was argued in Worsnop, in this case the wife contended that during the epoch when tax liabilities were not paid by the husband the wife continued to make contributions of a nature recognised by s 79 of the Family Law Act.
The Commissioner’s status as a creditor attracted comment in Worsnop. The court there held that a commercial creditor has a choice about the person to whom the creditor extended credit. Conversely, the court said in relation to the Commissioner that the Commissioner stood in a different position, observing –
… the position of the commissioner as a creditor of taxpayers is of a completely different origin. The onus is on taxpayers to make full and proper disclosure to the commissioner. The commissioner does not extend credit at all, but becomes a creditor by virtue of the conduct of the affairs of the taxpayer.[12]
[12] Ibid, 554.
To my mind, that is to state the obvious. It is entirely erroneous to suggest that the Commissioner is a commercial creditor. Equally, it is entirely erroneous to suggest that the Commissioner “extends credit” to the taxpayer. The taxpayer’s indebtedness to the Commissioner arises from a complex statutory regime pursuant to which a taxpayer is compelled by law to remit to the Commissioner sums of money calculated by reference to a taxpayer’s income. The statutory indebtedness thereby created becomes a liability enforceable at law. The taxpayer does not apply to the Commissioner for the extension of terms of credit nor do the provisions of the Taxation Administration Act or the Income Tax Assessment Act operate in any way, shape or form even remotely analogous to the manner in which a commercial trader might agree with another to accept payment over time on certain terms, with or without interest or with or without security. Nor is any element of choice involved in the imposition of liability for tax. Consequently, the statement in Worsnop that “commercial creditors have a choice about (the person) to whom the creditors extend credit” is entirely inapposite to the Commissioner. Once a liability to the Commissioner arises under statute requiring the taxpayer to pay to the Commissioner a money sum, that indebtedness must be discharged by the payment of that money sum in full, absent compromise by the Commissioner.
Parallels of reasoning apropos the status of the Commissioner and a commercial creditor entirely miss the point. Under no circumstances could it be said that the Commissioner is a commercial lender. Still less could it be said that the Commissioner extends “credit” to taxpayers.
Counsel for the wife relied on the decision in Adair v Milford.[13] A careful reading of the court’s reasons in that case reveals that it was fact-specific and no point of general principle should be taken to have emerged from the case. At paragraph 47 of the reasons, the court applied statements from Lemnos to the effect that no principle of general application exists that merely because a taxation debt is accrued prior to separation, must it be brought to account as a joint matrimonial liability. To my mind that statement seemed to encapsulate little more than the general statement that a tax liability, even one allegedly owed solely by one party, is a matter falling for the exercise of the court’s discretion under s 79.
[13] [2015] FamCAFC 29.
Counsel for the wife also took me to the decision in Trustee of the Property of G. Lemnos, a bankrupt v Lemnos.[14] However, beyond stating that on appeal Coleman J held that the exercise of the trial judge’s discretion miscarried, counsel for the respondent wife did not draw from the holding in Lemnos any particular proposition that he contended should be applied in the circumstances of this case. However, counsel for the wife argued that no analysis was given of Lemnos in the decision in Worsnop, possibly explained by the fact that the decision in Worsnop was published after the date on which argument was heard in Lemnos.
[14] (2009) 41 FamLR 120.
So far as the decision in Hicks was concerned, counsel for the wife contended that, while it remains the most recent pronouncement in relation to tax liabilities, that decision was best understood as representing a statement that the decision in Worsnop and others were no more than guidelines although they did not propound any particular principles of general application.
The Commissioner’s submissions on the proper treatment of the tax liability in this case was sophisticated, structured and well-reasoned. I found the Commissioner’s submissions to be very helpful. It is utile to record the Commissioner’s submissions, in présis, as follows –
(a)the starting point in any s 79 application is the correct application of the three propositions espoused in Stanford v Stanford;[15]
[15] (2012) 247 CLR 108 (at [37] to [40]).
(b)section 79(4) of the Family Law Act identifies the matters the court must take into account in considering what orders, if any, are to be made;[16]
[16] Ibid (at [22], [35], [40] and [51]).
(c)in any s 79 application, the court must take the property of a party as the court finds it and the court cannot ignore the interests in property of third parties;[17]
[17] Ascot Investments Pty Ltd v Harper (1981) 148 CLR 337, 355 and In the Marriage of Biltoft (1995) 19 Fam LR 82.
(d)a court dealing with a s 79 application should not proceed without due regard to the liabilities of a party where those liabilities are either established or are in the process of being determined, especially in circumstances where those liabilities are of such magnitude that they are at risk of being defeated by the orders sought in the s 79 application;[18]
[18] In the Marriage of Bailey (1989) 13 Fam LR 652.
(e)once the court has ascertained the assets and the liabilities of the parties to the marriage, the court ordinarily takes into account the interests of third party creditors as part of that process;[19]
[19] In the Marriage of Prince (1984) 9 Fam LR 481; In the Marriage of Rowell (1989) 96 FLR 449 and In the Marriage of Biltoft (1995) 19 Fam LR 82.
(f)in so doing, the court acts to protect significant third party creditors;[20]
[20] Deputy Commissioner of Taxation v Kliman [2002] 29 Fam LR 301 (at [30], [31], [122] and [123]).
(g)in an interlocutory context, the apparent inconsistences in the reasons in Johnson, Worsnop, Lemnos and Adair were analysed in Panwar v Panwar;[21]
[21] (2020) 63 Fam LR 44.
(h)no principle of law exists to the effect that a debt owed by one party to the marriage must be satisfied solely from the property of that debtor[22] and the position is best expressed in the following terms[23] –
[22] In the Marriage of Zdravokovic (1982) 8 Fam LR 97.
[23] Commissioner of Taxation submissions, 15 (at [71]).
We are, however, of the opinion that in an appropriate case, as part of the adjustment of the financial rights of the parties, the Court may in proceedings under section 79 order the discharge of a debt to a third person, whether such person is an intervenor or not. Once it is clear and beyond doubt that a debt is owing to a third person and that all probabilities are that it will be enforced unless it is discharged by payment, then the Court is not precluded from ordering its discharge by the parties or one of them as a condition or as part of the overall adjustment of the parties’ financial rights if such a course is convenient and just… Amongst the almost innumerable examples which come to mind are the discharge of a debt due under some credit facility granted to both or one of the parties; the payment of existing liabilities of one or both of the parties to a store or for medical or like accounts, or for rates or for income tax liabilities or motor car registration or insurances…
(i)authorities of undeniable veneration have spoken of marriage for most couples being an economic partnership and in circumstances where they seek orders under s 79, both should have the economic fruits of marriage, although not necessarily equally;
(j)the concept that “a just outcome demanded that the wife take the good with the bad”, first espoused in Johnson was embraced and applied by the court in Lemnos;[24]
(k)the statements in Johnson as well as in Lemnos concerning a just outcome demanding the wife take good with the bad were expressed to be subject to “compelling circumstances to the contrary” and on the facts of this case, no such “compelling circumstances to the contrary” exist;
(l)a very relevant consideration concerning the exercise of the discretion conferred by s 79 of the Family law Act is the fact that the parties to a marriage have enjoyed the benefit of the use of money on which a substantial liability for tax has not been discharged by payment;
(m)the plurality in Lemnos held that having regard to the benefit derived from access to untaxed money, it would not be just or equitable for either party to the marriage to escape all responsibility for the payment of tax which was otherwise payable;
(n)the Commissioner is a third party creditor whose rights must be taken into account in this s 79 application[25] because those might “form part of the balancing equation”;
(o)the Commissioner is not entitled to any priority by force of the Commissioner’s status as a statutory creditor, yet the Commissioner is entitled to the same justice and equity as is prescribed by s 79 of the Family Law Act;[26]
(p)in Worsnop, a distinction was drawn between the obligation to pay primary tax on the one hand, and penalties on other hand;[27]
(q)the concept of “primary tax” as is recorded in Worsnop[28] is inextricably bound up with the general interest charge because the latter is imposed by statute independently of any administrative decision made in respect of the quantum of the party’s tax liability to pay taxation;[29]
(r)the authorities do not address the rationale in relation to penalties that are imposed under taxation legislation for non-payment of primary tax;[30] and
(s)the Commissioner has the right to have the debt owed to it recognised in this s 79 application, whatever the ultimate outcome may be of the proceeding.[31]
[24] (2009) 41 Fam LR 120 (at [244]).
[25] In the marriage of Biltoft (1995) 19 Fam LR 82 (at [63]).
[26] Commissioner of Taxation v Worsnop (2009) 40 Fam LR 552 (at [78]).
[27] Ibid (at [99]).
[28] Commissioner of Taxation v Worsnop (2009) 40 Fam LR 552 (at [78]).
[29] Paragraph 98 of the Commissioner’s final written submissions dated 27 October 2021.
[30] Ibid.
[31] Deputy Commissioner of Taxation v Kliman (2002) 29 Fam LR 301 (at [123]).
Various authorities exist,[32] some mentioned on behalf of the wife, about the court’s duty to protect the revenue.[33] It was put that the correct approach is to recognise the public interest in the recovery of tax. However, counsel for the wife in written submissions, paragraph 20, wrote “you [an impolite reference to me as the judge] are not under a duty to protect the revenue”. The Commissioner did not address on that point. In the absence of the Commissioner’s submissions, this case is not the appropriate vehicle on which I might provide a reasoned consideration of the issue and I therefore decline to do so.
[32] Ibid (at [87]) and In the Marriage of P (1985) 9 Fam LR 1100.
[33] Counsel for the wife described this as a “potential duty”.
The husband offered no submissions about taxation matters beyond the very broad contention that he took the view that the Commissioner should be satisfied in full from the money presently held in the controlled monies account.
In the passages below I have addressed factual and evidentiary issues that have led me to conclude that the Commissioner should receive the whole amount from the controlled account, along with CSR, on the basis that the payment of amounts due to each is just and equitable.
another major issue in this case – The amount due to csr
On 21 November 2019 CSR issued a certificate pursuant to s 116(2) of the Child Support (Registration and Collection) Act 1988 to the husband stating that the debt due by the husband was $254,819.24. That sum was made up of –
(a)the child support debt of $240,248.36; and
(b)penalties of $14,570.80.
At the conclusion of the trial of this proceeding, CSR relied on a different certificate in which the debt had increased to $256,416.89 made up of –
(a)the child support debt of $240,248.36; and
(b)penalties of $16,168.53.
The debt owed to the CSR stood in a different category to the debt owed to the Commissioner. The husband challenged the validity of the child support agreement on which CSR relied, the husband contending that the relevant agreement had been procured in circumstances warranting an order under s 136 of the Child Support (Assessment) Act setting aside the relevant agreement. Specifically, the husband argued that another party to the agreement or someone acting for another party engaged in unconscionable or other conduct as was provided for in s 136(2)(b)(ii) of that Act. A threshold debate emerged about the proper construction of s 136(2)(b)(ii) and in particular whether –
(a)the reference to “unconscionable” in that section was to be construed as statutory unconscionability consistent with authorities in the Federal Court of Australia;[34] or
(b)whether reference to “unconscionable” in that sub-section invoked equitable principles that were traceable to Blomley v Ryan,[35] Commercial Bank of Australia Ltd v Amadio,[36] and more recently to Kakavas v Crown Melbourne Ltd.[37]
[34] Australian Competition and Consumer Commission v Samton Holdings Pty Ltd (2002) 117 FCR 301, Australian Competition and Consumer Commission v Lux Distributors Pty Ltd [2013] FCAFC 90, Good Living Co Pty Ltd v Kingsmede Pty Ltd (2021) 284 FCR 424, Australian Competition and Consumer Commission v Quantum Housing Group Pty Ltd [2021] FCAFC 40.
[35] (1956) 99 CLR 362.
[36] (1983) 151 CLR 447.
[37] (2013) 250 CLR 392.
While a little out of chronological context, it is utile to record my views about the proper construction of the word “unconscionable” in s 136(2)(b)(ii) of the Child Support (Assessment) Act 1989.
So far as applicable canons of statutory construction are concerned, in this context I repeat the observations I have made on several earlier occasions[38] about that proper approach. In essence –
(a)the primacy of words used in the legislation itself determines the proper construction of the legislation;[39]
(b)the primary objective of statutory construction is to construe legislation in such manner that is consistent with the language and purpose of the provisions of the statute;[40]
(c)the meaning of a particular legislative provision is to be determined by reference to the language of the instrument viewed as a whole;[41]
(d)the context, general purpose and policy of the provision of a piece of legislation as well as its consistency and fairness are surer guides to meaning than is the topic with which the legislation is concerned;[42]
(e)the process of construction must always begin with an examination of the context of the provision to be construed;[43]
(f)when construing a statute, a court must strive to give meaning to every word of the relevant provision;[44] and
(g)no sentence, clause or word is superfluous, void or insignificant if by any other construction they may all be made useful and pertinent.[45]
[38] See, for example, Richter v Richter (2021) 63 Fam LR 102 (at [144]-[148]).
[39] Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355.
[40] Taylor v Public Service Board (1976) 137 CLR 208.
[41] South West Water Authority v Rumble’s [1985] AC 609 and Cooper Brookes (Wollongong) Pty Ltd v Commissioner of Taxation (1981) 147 CLR 297.
[42] Project Blue Sky op cit (at [69]).
[43] Toronto Suburban Railway Co v Toronto Corporation [1915] AC 590, Minister for Lands (NSW) v Jeremias (1917) 23 CLR 322, K & S Lake City Freighters Pty Ltd v Gordon & Gotch Ltd (1985) 157 CLR 309.
[44] Commonwealth v Baume (1905) 2 CLR 405 and Chu Kheng Lim v Minister for Immigration Local Government & Ethnic Affairs (1992) 176 CLR 1.
[45] R v Berchet (1794) 89 ER 480.
It has been held that the task of statutory construction must begin with a consideration of the text itself.[46]
[46] Yanner v Eaton (1999) 201 CLR 351, Commonwealth of Australia v Yarmirr (2001) 208 CLR 1, Roy Morgan Research Centre Pty Ltd v Commissioner of State Revenue (Vic) (2001) 207 CLR 72, Stevens v Kabushiki Kaisha Sony Computer Entertainment (2005) 224 CLR 193, Carr v State of Western Australia (2007) 232 CLR 138, Director of Public Prosecutions (Vic) v Le (2007) 232 CLR 562 and Northern Territory v Collins (2008) 235 CLR 619.
I have applied those canons of statutory construction in this case.
Here, s 136(1) provides that a party to an agreement prescribed by that section may apply to set aside the agreement. Under s 136(2), if a party has applied under sub-section (1), the court is empowered to set aside the agreement if the court is satisfied that (moving to s 136(2)(b)(ii)) another party to the agreement or someone acting for another party “engaged in unconscionable” or other conduct. No party in this case relied on the words “or other conduct”. Dr Ingleby advanced his contentions by arguing that the relevant agreement should be set aside according to principles of statutory unconscionable conduct. Conversely, counsel for the wife contended that the word “unconscionable” in s 136(2)(b)(ii) had the meaning ascribed to it in equity and that on the facts of this case, the criteria of special disadvantage and the exploitation of any such special disadvantage had not been made out.
Any examination of statutory unconscionability commences with the learning developed in the Federal Court of Australia. The word “unconscionable” appears in s 21 of the Australian Consumer Law, being Schedule 2 of the Competition and Consumer Act 2010 (Cth). Under that section, various judges of the Federal Court have expressed views, described by Allsop CJ in Good Living Company Pty Ltd v Kingsmede Pty Ltd[47] as being in a “consistent way” on the interpretation of “unconscionable”.[48]
[47] (2021) 284 FCR 424 (at [2]).
[48] Australian Securities and Investments Commission v National Exchange Pty Ltd (2005) 148 FCR 132, Australian Competition and Consumer Commission v Lux Distributors Pty Ltd [2013] FCAFC 90, Paciocco v Australia and New Zealand Banking Group Ltd (2015) 236 FCR 199, Commonwealth Bank of Australia v Kojic (2016) 249 FCR 421, Colin R Price & Associates Pty Ltd v Four Oaks Pty Ltd (2017) 251 FCR 404, Unique International College Pty Ltd v Australian Competition and Consumer Commission (2018) 266 FCR 631 and Australian Competition and Consumer Commission v Medibank Private Ltd (2018) 267 FCR 544.
Of the statutory phrase “unconscionable” the views of Allsop CJ predominate. The following is a distillation of those views taken from the 2021 decision in Good Living Company Pty Ltd v Kingsmede Pty Ltd –
(a)the expression “unconscionable” did not introduce a notion of moral obloquy or a requirement for any pre-existing disability or vulnerability (as did equitable notions of unconscionable conduct) and instead, it recognised the seriousness of an evaluative judgment that conduct was against or that it offended good conscience;
(b)the words “conscionable” and “unconscionable” may not be words of daily parlance of many but they have an ordinary meaning derived from an inner human sense of doing right;
(c)those are basal values familiar to business people and ordinary people and find their place in the text, structure and context of the legislation;
(d)in its ordinary and natural interpretation, “unconscionable conduct” means doing what should not be done in good conscience;[49]
(e)the function of the court is to recognise and administer that normative standard in the totality of the circumstances; and
(f)the impugned conduct must depart sufficiently from societal norms of acceptable commercial behaviour as to be characterised as against or offending conscience, recognising that such is a serious matter which Parliament has considered sufficient to warrant censure by the imposition of a civil penalty.[50]
[49] National Exchange Pty Ltd v Australian Securities and Investments Commission [2004] FCAFC 90.
[50] Of course, that last comment was to be construed specifically in the context of s 21 of the Australian Consumer Law and it must at once be recognised that no civil penalty is imposed pursuant to s 136(2)(b)(ii) of the Child Support (Assessment) Act.
In a separate judgment, Jagot J embraced the observations on unconscionable conduct that emanated from Murphy J in Australian Competition and Consumer Commission v South East Cleaning Pty Ltd (in liq) (formerly known as Coverall Cleaning Concepts South East Melbourne Pty Ltd).[51] There, Murphy J held as follows –
(a)in construing the word “unconscionable” in a statutory context, the court is not constrained by general equitable concepts of unconscionability although equity’s exploration of unconscionable conduct may assist the court;
(b)whether or not conduct is unconscionable will depend on a careful consideration of all the conduct and it involves standing back and looking at the whole episode;
(c)the court’s task involves evaluating conduct by reference to a normative standard of conscience which may develop or change over time and which must be understood and applied in the context in which the circumstances arise;
(d)notions of moral obloquy or moral tainting are relevant but it must first be recognised that it is conduct against conscience by reference to the norms of society that is in question;
(e)the statutory construction involved does not necessarily involve dishonesty, sharp practices or conscious wrongdoing; and
(f)a determination of unconscionability involves a broadly based value judgment, applied to the facts on which reliance is placed, to the extent that they are proved.
[51] [2015] FCA 25.
In Australian Competition and Consumer Commission v Quantum Housing Group Pty Ltd (‘Quantum’)[52] judgment which was handed down about a year ago the Court held that while some form of exploitation or predation upon some vulnerability or disadvantage of people will be a feature of conduct satisfying the characterisation of unconscionable conduct under s 21 of the Australian Consumer Law, it is not a necessary feature of the conception or a necessary essence in the embodied meaning of “unconscionable”.
[52] [2021] FCAFC 40.
That decision may, at one level, be seen as the Full Court’s questioning of the High Court’s decision in Australian Securities and Investments Commission v Kobelt (‘Kobelt’),[53] especially of the High Court’s construction of the word “unconscionable” when used in s 12CB(1) of the Australian Securities and Investments Commission Act. Of course, the wording of that section is fundamentally different to s 136(2)(b)(ii) of the Child Support (Assessment) Act even though in both provisions the word unconscionable appears. As the decision in Quantum makes plain, in Kobelt most members of the High Court offered differing reasons about the proper construction of the word unconscionable in s 12CB(1) of the Australian Securities and Investments Commission Act. Whether a binding ratio decidendi exists is none too easy to discern. However, the following is a brief survey of the observations of the Court in Kobelt in respect of the word unconscionable –
[53] (2019) 267 CLR 1.
(a)“unconscionable” is an obscure English word which centuries of use by courts administering equity have transformed into a legal term of art yet in Australia, the central question of concern of a court administering equity in identifying conduct as unconscionable has long been understood to involve relief against a stronger party to a transaction exploiting some special disadvantage which has operated to impair the ability of the weaker party to form a judgment as to his or her interests;[54]
[54] Gageler J in Kobelt (at [81]) citing Blomley v Ryan (1956) 99 CLR 562, Commercial Bank of Australia v Amadio (1983) 151 CLR 447, Bridgewater v Leahy (1998) 194 CLR 457 and Thorne v Kennedy (2017) 263 CLR 85.
(b)unconscionability is not a slight matter and behaviour is only unconscionable where there is some real and substantial ground based on conscience for preventing a person from relying on what are, in terms of the general law, that person’s legal rights;[55]
[55] Gageler J in Kobelt (at [88]).
(c)equating “unconscionable” with moral obloquy is to use arcane terminology that does nothing to elucidate the normative standard involved;[56]
[56] Gageler J in Kobelt (at [91]).
(d)the term “unconscionable” imports the “high level of moral obloquy” associated with the victimisation of the vulnerable;[57]
[57] Keane J in Kobelt (at [118]) citing Paciocco v Australia New Zealand Banking Group Ltd (2016) 258 CLR 525, Attorney-General (NSW) v World Best Holdings (2005) 63 NSWLR 557, Earl of Chesterfield v Janssen (1751) 28 ER 82, Commercial Bank of Australia v Amadio (1983) 151 CLR 447, Louth v Diprose (1992) 175 CLR 621 and Kakavas v Crown Melbourne Ltd (2013) 250 CLR 392.
(e)implicit in the notion of unconscionability is the requirement that the impugned conduct effects a disadvantage on its victim;[58]
(f)the equitable doctrine of unconscionable conduct looks to the conduct of the stronger party in attempting to enforce or retain the benefit of a dealing with a person under a special disability in circumstances where it is not consistent with equity or good conscience that he should do so because the abiding rationale of the doctrine is to ensure that it is fair, just and reasonable for the stronger party to retain the benefit of the impugned transaction;[59]
(g)relief under the doctrine of unconscionable conduct requires the innocent party to have been subject to a special disadvantage in dealing with the other party when the transaction was entered into which seriously affected the ability of the innocent party to make a judgment as to his or her own best interests and the other party unconscientiously took advantage of that special disadvantage;[60]
(h)the existence of those circumstances at the time of the transaction is what affects the conscience of the stronger party and renders the enforcement of the transaction, or the taking of the benefit, “unconscientious” or “unconscionable”;[61]
(i)it is not possible to identify exhaustively what amounts to a special disadvantage, yet the essence of relevant weakness is that it seriously affects the innocent party’s ability to safeguard his or her own interests;[62]
(j)unconscionable conduct does not require a finding of dishonesty nor is it merely concerned with what is fair or just and unconscionable conduct can include the passive acceptance of a benefit in unconscionable circumstances, as was the case in Hart v O’Connor,[63] but it can even be found where the innocent party is a willing participant[64] and the question is how that willingness or intention to participate emerged;[65]
(k)in [Country JJ], the doctrine of unconscionability has been criticised for its vagueness and generality;[66]
(l)conscience is the moral force that acts upon an individual with knowledge yet there is no monolithic moral force to conscience;[67]
(m)statutory unconscionability permits, but does not require, a consideration of special disadvantage and the taking of advantage of that special disadvantage and, like other open-textured criteria such a “unfair” or “unjust”, there is no baseline moral standard for what constitutes “unconscionable”;[68] and
(n)nevertheless, the history of the development of that statutory prescription demonstrates a clear legislative intention that the bar over which conduct will be unconscionable must be lower than that developed in equity even if the bar might not have been lowered to the “unreasonableness” and “unfairness” assessments in the various categories in 19th century equity.[69]
[58] Keane J in Kobelt (at [121]).
[59] Nettle and Gordon JJ in Kobelt (at [145]) citing Commercial Bank of Australia v Amadio (1983) 151 CLR 447 and Kakavas v Crown Melbourne Ltd (2013) 250 CLR 392.
[60] Nettle and Gordon JJ in Kobelt (at [146]).
[61] Ibid.
[62] Ibid (at [147]).
[63] [1985] AC 1000.
[64] Huguenin v Basely (1807) 33 ER 526.
[65] Nettle & Gordon JJ in Kobelt (at [149]).
[66] BOM v BOK [2018] SGCA 83.
[67] Edelman J in Kobelt (at [280]).
[68] Ibid (at [295]).
[69] Ibid.
Before turning to the factual matters urged by the husband and the wife, it is utile to record the contentions advanced by the wife on the issue of statutory unconscionability. Paragraph 162 of the wife’s written submissions provided as follows –
It submitted that it is an error to think that just because a statute uses the term “unconscionable” the legal nature of the test must be “statutory unconscionability” as applied in Kobelt and other cases. When the term “statutory unconscionability” is used in Kobelt, the Court were (sic) determining the correct principles that apply to a very specific statutory provision being section 12CB of the Australian Securities and Investments Commission Act 2001 (Cth) (“ASIC Act”). That section has a number of provisions that indicate an intentional decision by parliament to strike out on a different course to the body of law known as equity. For instance, 12CB(4) says
(4)It is the intention of the Parliament that:
(a)this section is not limited by the unwritten law of the States and Territories relating to unconscionable conduct; and
(b)this section is capable of applying to a system of conduct or pattern of behaviour, whether or not a particular individual is identified as having been disadvantaged by the conduct or behaviour; and
(c)in considering whether conduct to which a contract relates is unconscionable, a court’s consideration of the contract may include consideration of:
(i)the terms of the contract; and
(ii)the manner in which and the extent to which the contract is carried out;
and is not limited to consideration of the circumstances relating to formation of the contract.
While it is true that the High Court in Kobelt was addressing s 12CB of the Australian Securities and Investments Commission Act whereas this case concerns the wording of an altogether different statutory provision, I reject the contention that it is an error to think that considerations of “statutory unconscionability” are invoked merely by the use of the word “unconscionable” in a statute, as counsel for the wife argued. I agree that s 12CB and s 136(2)(b)(ii) are very different, not only in their respective wording but in their contexts and in the statutory role each provision serves. However, the introduction of the word “unconscionable” in s 136(2)(b)(ii) cannot be treated as some legislative accident. It must be construed as the reflection of a deliberate parliamentary intendment to introduce into s 136 of the Child Support (Assessment) Act the concept of unconscionability. While true, the word “unconscionable” is an arcane word of obscure old English origin, since the 19th century equity has ascribed to it a particular meaning and, as the cases in the Federal Court of Australia surveyed above reveal, a particular school of thought exists that the word, in a statutory context, is not to be given the same meaning as equity has historically ascribed to it. But that is an entirely different concept to the broad and undifferentiated submission put forward by counsel for the wife in paragraph 162 of his written submissions.
To my mind, as with any word that appears in a section of legislation, the first task the court faces is one of construction. Expressed slightly differently, whatever may be said of the metes and bounds of the concept of statutory unconscionability as that concept may have emerged in, say, the Australian Securities and Investments Commission Act, the Australian Consumer and Competition Commission Act or, for that matter in the Child Support (Assessment) Act, my first task in approaching s 136(2)(b)(ii) is to construe the word “unconscionable” in accordance with the canons of statutory construction as have been recorded above commencing at paragraph 30 of these reasons. That I have done. On that construction, the court is empowered to set aside the relevant agreement if persuaded that “another party to the agreement or someone acting for another party” engaged (relevantly here) in unconscionable conduct. The other party of whom the section speaks is the wife and here, the reference to “someone acting for another party” of which the section speaks is the wife’s solicitor, Ms LL or the person appointed by her, Mr KK. According to the plain wording of the section, if I am persuaded that Ms LL or Mr KK engaged in unconscionable conduct, scope exists to set aside the relevant agreement. According to the plain meaning of the section, even if I were so persuaded, the section speaks in discretionary terms by the use of the word “may” thereby militating against a conclusion that the relevant agreement must be set aside if I am so persuaded.
Once again, prior to descending into the minutiae, it is necessary to state the legal principles that I have applied in the application of s 136(2)(b)(ii) of the Child Support (Assessment) Act 1989.
In s 136(2)(b)(ii), the term “unconscionable” is not defined. According to Kiefel CJ and Bell J in Kobelt, as that word is not defined it is to be understood as bearing its ordinary meaning.[70] Among the more important considerations to which I have had regard in my assessment of the parties’ contentions about s 136(2)(b)(ii) are the following –
(a)conduct proscribed for being unconscionable is conduct that is so far outside societal norms of acceptable behaviour as to warrant condemnation for being conduct that is offensive to conscience;
(b)in its ordinary meaning, the term “unconscionable” requires an element of exploitation because the term imports a high level of moral obloquy associated with the victimisation of the vulnerable;
(c)the concept of unconscionable conduct requires the unconscientious taking advantage of a special disadvantage of another;
(d)the essence of the relevant weakness is that it seriously affects the innocent party’s ability to safeguard his or her own interests;
(e)a party will have unconscientiously taken advantage of an innocent party when the former knew or ought to have known of the existence and effect of the special disadvantage or, put another way, when the special disadvantage was sufficiently evident at the time of the transaction to make it unconscientious to procure or accept the assent of the innocent party;
(f)unconscionable conduct does not require a finding of dishonesty;
(g)statutory unconscionability permits but does not require consideration of the taking of advantage over a person’s special disadvantage; and
(h)statutory unconscionability involves conduct that will be unconscionable according to standards that are lower than those developed by equity in the 19th century.
[70] (2019) 267 CLR 1, 17 (at [14]).
It is apparent from the above analysis of the various reasons in Kobelt that debate continues to abound concerning whether statutory unconscionability requires (as opposed to, might include) concepts of special disadvantage and the unconscientious exploitation of that special disadvantage.[71] At the very least, as Gageler J held in Kobelt, statutory unconscionability includes conduct “that is so far outside of societal norms of acceptable behaviour as to warrant condemnation as conduct that is offensive to conscience”. As Edelman J held in Kobelt, “conscience is a moral force that acts upon an individual with knowledge”. Keane J had held that unconscionability requires an element of exploitation and a high level of moral obloquy and victimisation.
[71] In Kobelt, Nettle and Gordon JJ have held that it does whereas Edelman J has held that it does not.
During the period when my decision was in this case reserved, on 16 March 2022 the High Court handed down judgment on unconscionable conduct in Stubbings v Jams 2 Pty Ltd.[72] Immediately after that judgment was handed down I invited the parties, if they wanted, to provide further written submissions. All parties responded although the Commissioner said it did not wish to make further submissions. Before going to those further submissions it is utile to record, at least in précis form, the main propositions for which that authority stands.
[72] [2022] HCA 6.
The court divided in its reasons although not in the result with all five members of the court allowing the appeal. The plurality was made up of Kiefel CJ, Keane and Gleeson JJ, with Gordon J delivering separate reasons as did Steward J. The decision was an appeal from the decision of the Court of Appeal[73] in turn an appeal from Robson J.[74] Each set of reasons for judgment of the High Court calls for separate examination.
[73] Jams 2 Pty Ltd v Stubbings [2020] VSCA 200.
[74] Jams 2 Pty Ltd v Stubbings (No 3) [2019] VSC 150 and Jams 2 Pty Ltd v Stubbings (No 4) [2019] VSC 480.
The plurality addressed principles of unconscionable conduct by reference to the equity doctrine rather than by reference to statutory unconscionability. The plurality restated the requirement of the doctrine of unconscionable conduct for one party to be placed at a special disadvantage vis-à-vis the other stronger party such that the stronger party knew of the weaker party’s disadvantage and the stronger party engaged in the unconscientious exploitation of the weaker party’s disadvantage.[75] However, the plurality held that those elements need not be separately addressed as if they were separate elements of a cause of action in tort. The plurality cited Lord Stowell’s famous aphorism about the administration of equity[76] to the effect that equity looks at every connected circumstance influencing its determination upon the real justice of the case and requires, in each case, a precise examination of the particular facts, a scrutiny of the exact relations between the parties and a consideration of the mental capacities, processes and idiosyncrasies of the vulnerable party.
[75] In support, the plurality relied on Kakavas v Crown Melbourne Ltd (2013) 250 CLR 392, Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447, Jenyns v Public Curator (Qld) (1953) 90 CLR 113 and Thorne v Kennedy (2017) 263 CLR 85.
[76] The Juliana (1822) 165 ER 1560.
In the specific context of “special disadvantage”, the plurality held that the phrase meant something that seriously affects the ability of the innocent party to make a judgment as to his or her own best interests.[77]
[77] In support of that proposition the plurality relied on statements in Blomley v Ryan (1956) 99 CLR 362, Commercial Bank Australia Ltd v Amadio (1983) 151 CLR 447 and Louth v Diprose (1992) 175 CLR 621.
In the specific context of the stronger party’s knowledge of the existence of the disabling condition, the plurality cited Kakavas,[78] Amadio,[79] and Thorne v Kennedy,[80] in holding that the stronger party should know or ought to know of the existence of that condition or circumstance and its effect on the innocent party.
[78] (2013) 250 CLR 392.
[79] (1983) 151 CLR 447.
[80] (2017) 263 CLR 85.
The plurality found it unnecessary to analyse whether the appellant was entitled to success pursuant to s 12CB of the Australian Securities and Investments Commission Act because the impugned conduct amounted to unconscientious exploitation of the appellant’s special disadvantage.
In separate reasons Gordon J examined the statutory conception of unconscionable conduct holding that it did more than, and was more broad ranging than, equitable principles, as was held in Australian Securities and Investments Commission v Kobelt[81] and Unique International College Pty Ltd v Australian Competition and Consumer Commission,[82] although it requires a focus on all the circumstances as was held in Paciocco v Australia and New Zealand Banking Group.[83]
[81] (2019) 267 CLR 1.
[82] (2018) 266 FCR 631.
[83] (2016) 258 CLR 525.
Gordon J held that the assessment of whether conduct was unconscionable involves the evaluation of facts by reference to the values and norms recognised by statute and thus involves a normative standard of conscience which is permeated with accepted and acceptable community standards. Applying the observations in Kobelt,[84] Australian Competition and Consumer Commission v Lux Distributors Pty Ltd[85] and Paciocco,[86] Gordon J held that the statutory conception of unconscionable conduct involves considerations of whether the conduct in question is outside societal norms of acceptable commercial behaviour so as to warrant condemnation for being offensive to conscience.
[84] Op cit.
[85] [2013] FCAFC 90.
[86] Op cit.
In separate reasons Steward J referred to the observation in Thorne v Kennedy[87] which in turn involved the criteria of special disadvantage, the unconscientious taking advantage of the special disadvantage of the innocent party and the matters addressed in Blomley v Ryan.[88] His Honour emphasised that the special disadvantage must be “special”, meaning not merely a difference in bargaining power but an inability to make a judgment by the innocent party as to her or his best interests which inability is known or ought to be known by the other party.
[87] (2017) 263 CLR 85.
[88] (1956) 99 CLR 362.
Of present relevance was the manner in which Steward J addressed concepts of unconscionable conduct by reference to equitable principles rather than by reference to principles of statutory unconscionability.
As mentioned earlier, all parties in this case were invited to provide submissions that addressed the High Court’s observations in Stubbings v Jams 2 Pty Ltd.[89] For the husband it was put that certain paragraphs of the reasons of Gordon J supported the husband’s contention. I confess to have found that submission less than forensically rigorous.
[89] [2022] HCA 6.
CSR submitted that no matter of the principle was raised by the decision in Stubbings.
On behalf of the wife, it was put that the decision in Stubbings raised issues –
(a)concerning the elements of demonstrating unconscionable conduct;
(b)about the independent advice relevant to unconscionable conduct; and
(c)in relation to the approach to be taken to statutory unconscionability.
Counsel for the wife argued that in respect of the element of special disadvantage found by the plurality as being important, on the facts of this case there was no special disadvantage or vulnerability and it could not be said that the wife or her solicitor actually believed that the husband had no capacity to pay the amounts required under the binding child support agreement.
Counsel for the wife further argued that in the present case there was no special disadvantage or knowing exploitation. And, unlike in Stubbings where the lender knew the transaction would end in disaster for the borrower, no such parallel of fact or reasoning existed as between the relative position of the husband, the wife or the wife’s solicitor. The wife submitted that so far as statutory unconscionability was concerned, no parallels in the legislation in Kobelt or Paciocco existed with the provisions of s 136(2)(b)(ii) of the Child Support (Assessment) Act.
The parties’ submissions on the effect of the High Court’s decision in Stubbings were not of particular assistance, in my view.
As is explained below, in this case I am of the view that –
(a)if the requirement of special disadvantage and the exploitation of that special disadvantage apply to s 136(2)(b)(ii) of the Child Support (Assessment) Act, they were not demonstrated on the facts of this case; and
(b)if “unconscionable” conduct in that section requires the proscribed conduct to be so far outside of societal norms of acceptable behaviour as to warrant condemnation as conduct that is offensive to conscience, then again the conduct in this case was not properly so characterised.
In my view the contention that the relevant agreement should be set aside for being the product of unconscionable conduct fails.
That conclusion therefore means that the sums due by the husband in child support are due in law and CSR is entitled to payment of them from the sum held in the controlled monies account.
It became necessary to delve into the relevant facts about the entry into the impugned agreement for child support.
So far as the husband’s business experience was concerned, he deposed to his secondary and tertiary education in his trail affidavit. In addition, in cross-examination he gave evidence to the following effect –
(a)in 2000, in Country DD, the husband commenced his own consultancy business, providing corporate restructuring advice and capital raising; [90]
[90] T 24 May 2021 T 10, L 30.
(b)he operated in Country DD, Country JJ and City MM;[91]
[91] T 24 May 2021 T 11, L 3.
(c)between 2003 and 2005 the bulk of his income of $5 million was derived from share trading;[92]
[92] T 24 May 2021 T 12, L 42.
(d)in 2009 he borrowed $2 million to acquire real property in F Street, Suburb C, informing the lender he had assets in the vicinity of $3 million;[93]
[93] T 24 May 2021 T 20 L 46.
(e)in 2010 he commenced working for NN Pty Ltd, as its managing director, a company listed on the Australian Stock Exchange which acted as a platform for bridging investments between Country OO and Australia; [94]
[94] T 24 May 2021 T 22 L 13-36.
(f)in 2011 he applied to ANZ to borrow $3 million in order to refinance the Westpac facility of $2 million and to add $1 million;[95]
[95] T 24 May 2021 T 26 L31-33.
(g)the husband is a professional with more than 15 years of experience in management and administration of companies in Country DD and Australia;[96]
[96] T 24 May 2021 T 28 L 43.
(h)his expertise lays in the restructuring and financing of entities including the preparation of prospectuses and other requirements for listing on Country DD Stock Exchange (formerly known as the City PP Stock Exchange) as well as on the Australian Stock Exchange; [97]
[97] T 24 May 2021 T 29 L 17-20.
(i)he invested his own funds in QQ Company and B Pty Ltd;[98]
[98] T 24 May 2021 T 29 L 45.
(j)he established a Melbourne based company called E Pty Ltd which, up to 2018, was involved in capital raising and corporate restructuring; [99]
[99] T 24 May 2021 T 30 L 30-44.
(k)in November 2012 he applied to the Federal Court of Australia to be permitted to act as a director despite having been made a bankrupt, which application was refused;[100]
(l)the husband was involved in road-shows for RR Company, SS Company and TT Company;[101]
(m)from 6 September 2012 the husband’s title was head of corporate in E Pty Ltd;[102]
(n)he retained UU Solicitors as his solicitors to represent him in a dispute with the taxation authorities;[103]
(o)the husband was associated with companies registered in Country Q;
(p)in 2015 the husband pledged a large sum of money to D School; [104]
(q)the husband previously sued Mr VV for unpaid money due to the husband;[105]
(r)the husband received sums from the liquidator of WW Company and XX Company, two Country Q Companies; [106]
(s)since late 2018 the husband had been working mostly outside Australia; [107] and
(t)the husband’s solicitors then acting for him in connection with taxation issues wrote by letter dated 28 November 2013 that the husband held attributable interests in S, WW Company, XX Company, YY Ltd and E1 Pty Ltd. [108]
[100] T 24 May 2021 T 33 L 39.
[101] T 24 May 2021 T 44 -T 45.
[102] T 24 May 2021 T 48 T 35.
[103] T 24 May 2021 T 53 L 21.
[104] T 24 May 2021 T 65 L 43.
[105] T 25 May 2021 T 95 L 38.
[106] T 25 May 2021 T 101.
[107] T 25 May 2021 T 106.
[108] T 25 May 2021 T 109 L18-22.
The husband was cross-examined about the extent of his familiarity with a solicitor whose full name was Mr KK. He said he did not know Mr KK but that he was instructed by his solicitor, Ms LL to “get the documents signed and affirmed”.[109]
[109] T 25 May 2021 T113 L23.
On behalf of the Commissioner Mr Sest KC cross-examined the husband. Among the more important responses given by the husband to questions put to him in cross-examination by Mr Sest were the following –
(a)the wife knew about the ATO investigations from 2008 because the wife answered questions from the ATO and directed answers through the tax agent Mr ZZ;[110]
(b)the husband was originally the holder of a 457 visa, the wife was an Australian citizen and the husband was at the time legally married to his first wife;[111]
(c)in addition to UU Solicitors, the husband engaged AB Partners as well as AC Company for taxation accounting advice;
(d)the husband and his family lived in Suburb C, the children attended D School, they holidayed twice yearly (one overseas one domestically), they skied overseas and within Australia and when flying they flew business class;[112]
(e)the husband drove Motor Vehicle 1 and his wife drove Motor Vehicle 2;
(f)they employed a nanny to assist at all times with the children;[113] and
(g)they purchased art by the artist Mr AD.
[110] T 25 May 2021 T 128 L6-9.
[111] T 25 May 2021 T 131 L37-43.
[112] T 25 May 2021 T 135-137.
[113] T 25 May 2021 T 142.
Against that backdrop I was required to assess whether or not the husband could successfully assert that he suffered from some form of special disadvantage within the contemplation of Amadio, Blomley v Ryan or Kakavas.
It seemed to me that the special disadvantage contention asserted by the husband failed at the threshold. Far from the husband being unable to protect his own interest by reason of the non-exhaustive list of factors to which Fullagar J adverted in Blomley v Ryan, the husband was a highly educated and sophisticated businessman, and he was well experienced in complicated financial and taxation issues domestically in Australia as well as internationally. In more favourable times, he derived significant revenue from his commercial activities and he enjoyed a luxurious lifestyle. The husband obtained secondary education at one of the country’s finest private schools. He then obtained tertiary education in Australia. It could not be said that he was unable to read or write in the English language. He had prior experience in the creation of prospectuses. He was sufficiently commercially adept to surround himself with legal and accountancy experts. He was sufficiently aware of his status as a bankrupt that he needed permission from the Federal Court of Australia to be reinstated as a director. That application failed, however he was engaged in multimillion dollar transactions. It seemed to defy logic that he could concurrently assert that he was unable to protect his own interests when entering into the child support agreement.
The husband did not descend into the minutiae of his unconscionable conduct assertions. To the extent that he is to be taken to have asserted that he suffered from a special disadvantage that was known or ought to have been known prior to his execution of the child support agreement and that the procurement of his execution of the child support agreement was thereby unconscionable, I reject that assertion. The husband exhibited a comprehensive command of and familiarity with documents shown to him in the witness box. He was able to rebut cross-examination by counsel for the wife. He made appropriate concessions in cross-examination by King’s Counsel for the Commissioner. In cross-examination the husband was taken to exacting details on an array of financial documents and he demonstrated to me that he not only understood what was being asked of him but that his response reflected a sophisticated command of the detail. I find it impossible to accept that the husband was unable to fully comprehend the child support agreement produced to him. Equally I find it impossible to accept that he did not possess the wherewithal to consider then execute the agreement upon being satisfied with its provisions.
The events at sign-up were the subject of evidence by Mr KK. His full given name was Mr KK but the longer version was corrupted. For ease of reference I have called him Mr KK. He was examined-in-chief by Dr Ingleby, although the style of questioning by Dr Ingleby was in the nature of cross-examination as Dr Ingleby conceded.[114] Of present relevance, from Dr Ingleby’s questions the following evidence was given by Mr KK –
[114] T 26 May 2021 T 225.
(a)he did not know the difference between a child support agreement and a limited child support agreement; [115]
[115] T 26 May 2021 T 218 L41-42.
(b)Mr KK was requested by the husband to execute a document in front of Mr KK;
(c)as Mr KK went through the document together with the husband, the husband said he understood the effect of the document so the husband was requested to sign the document which he did;[116]
(d)Mr KK was aware that the document the husband was about to sign was a serious document;[117]
(e)Mr KK did not prepare the document but rather he believed Ms LL sent it to Mr KK after the document had been prepared by other solicitors and Mr KK crossed out the name of that other firm replacing it with his own firm’s name;[118]
(f)he did not recall speaking to Ms LL about the matter;[119]
(g)in respect of previous transactions involving different clients, Mr KK saw in proforma form the documents he was asked to witness the husband executing;[120]
(h)he repeated that he was not involved in the preparation of the agreement;[121]
(i)Mr KK did not recall whether he gave advice in relation to the agreement;
(j)Mr KK gave evidence that his time with the husband was about 25 minutes, not 10 minutes as asserted by the husband;[122] and
(k)Mr KK disagreed with the husband’s contention that Mr KK did not provide legal advice to the husband.[123]
[116] T 26 May 2021 T 219.
[117] T 26 May 2021 T 220.
[118] T 26 May 2021 T 221.
[119] T 26 May 2021 T 223.
[120] T 26 May 2021 T 227.
[121] T 27 May 2021 T 243.
[122] T 27 May 2021 T 252.
[123] T 27 May 2021 T 253.
A debate emerged about the degree of detail in which Mr KK engaged when he explained the agreement to the husband. The question originated from me in the following terms –
HIS HONOUR: [Mr KK], can you help me with something. We’ve been debating this for some time now. Different solicitors explain documents to people that they’re asked to explain documents to depending on the sophistication of the client as well as the complexity of the document. But come what may, most people – and tell me if this happened in this case – take the document word for word, read it word for word to the person involved and ask possibly phrase by phrase, sentence by sentence or clause by clause, whether the client understands what has just been read and wishes to ask any questions about what has just been read. What technique did you adopt in this case?
[Mr KK]: I would have gone through the agreement on the basis that this is a document that is required to be understood by you before you sign it and I will go through it paragraph by paragraph so you understand why the agreement is done this way and what the implications of what you are understanding of my advice to you is. And it would have been along the lines of a recital which sets out – sorry – the history and then we go through the actual clause by clause of what is agreed. And I went – I would have gone paragraph by paragraph using my own words of what it is that he was agreeing to. And I pause at the end of every clause and say, “Do you understand?” And then we go on from there. And it – I don’t recall him any – asking any questions or in any way saying, “What do you mean?” or asking any query along the way. And so it would have been clause by clause as to – I said, “This is a clause dealing with A, B and C and this is what the – what it says.” And that – I did that right through in the agreement.
Thank you.
Dr Ingleby asked about the information imparted by Mr KK about the advantages of entering into the binding child support agreement. It was as follows –
What did you say about the advantages of making the binding child support agreement?---I would have said, “This is a very common way of making an agreement with your wife in relation to what your future child support obligations will be and it is required for you to understand what it is that you are agreeing to.” And then I would go section by section through to make you understand. And you can tell me if you think it needs more explanation or – but he didn’t ask me any questions. He nodded and said yes all along the way.
Dr Ingleby then asked about the amendment to the agreement made on 26 February 2018. Mr KK did not recall those.
When the evidence of Mr KK was assessed following Dr Ingleby’s cross-examination of him (and in parts, his examination-in-chief of Mr KK) I was left with the conclusion that Mr KK had been requested by Ms LL to perform a task which to Mr KK’s recollection was relatively unremarkable and therefore that Mr KK’s recall of the events at sign-up were vague and imprecise. I also accept that Mr KK had practised as a solicitor for years and for this activity his fee was very modest. Further, I accept that he had previously practised in the family law jurisdiction but when this agreement was executed by the husband, Mr KK had transitioned or was transitioning out of family law so that Mr KK’s attention to the details that Dr Ingleby regarded as important did not correspond.
Counsel for the wife cross-examined Mr KK. The more important matters that emerged from Mr KK’s evidence in answer to questions put from counsel for the wife were as follows –
(a)over years in practice, Mr KK mostly dealt with property matters involving buying, selling and leasing and occasionally probate;[124]
(b)Mr KK was not involved in the preparation of the relevant agreement; [125] and
(c)his memory was defective having regard to the passage of time.[126]
[124] T 27 May 2021 T 266.
[125] T 271.
[126] T 272.
The husband’s evidence given in answer to questions put by counsel for the wife added very little in the determination of issues pertaining to unconscionable conduct.
Ms LL gave some evidence of relevance to the child support agreement. In answer to questions put by Dr Ingleby, Ms LL gave the following evidence –
(a)a binding child support agreement requires independent legal advice;[127]
(b)she had been a solicitor for years;[128]
(c)she sought and was granted a certificate under s 128 of the Evidence Act;[129]
(d)the word “binding” was omitted; [130]
(e)she denied misrepresenting the nature of the agreement into which she was seeking the husband’s entry;[131]
(f)Ms LL told the husband in many emails that he needed independent legal advice in respect of the binding child support agreement;[132]
(g)Ms LL facilitated the involvement of Mr KK;[133]
(h)Ms LL denied sending Mr KK any proforma documentation;[134]
(i)Ms LL said she seldom had legal matters dealt with by Mr KK;[135] and
(j)she could not recall sending Mr KK a proforma binding child support agreement.[136]
[127] T 517.
[128] T 518.
[129] T 520.
[130] T 532.
[131] T 536.
[132] Ibid.
[133] T 566.
[134] T 567.
[135] T 569.
[136] Ibid.
Mr Sest KC cross-examined Ms LL but mainly on issues relating to the wife’s breaching the injunction previously ordered forbidding her from dealing with certain assets.
At the core of the husband’s contentions in relation to unconscionable conduct as a component of his argument concerning s 136(2) (b)(ii) of the Child Support (Assessment) Act was the need for him to demonstrate that he was at the relevant time subject to a “special disadvantage” which “seriously affects the ability of the innocent party to make a judgment as to his or her own best interest.”[137] I am not at all persuaded that the husband suffered from a special disadvantage. Nor am I persuaded that by reason of such a special disadvantage, he was unable to make a judgment about his own best interests. He was a sophisticated, well-educated, astute businessman.
[137] Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447, 462, Kakavas v Crown Melbourne Ltd (2013) 250 CLR 392, 424-425 and Thorne v Kennedy (2017) 263 CLR 85,103,175.
For those reasons I reject the husband’s contentions about s 136 (2)(b)(ii) of the Child Support (Assessment) Act. The sum claimed by CSR is due.
However, the precise sum now due is likely to be different to the amount adduced in evidence. I propose to allow CSR to adduce evidence of the precise sum now due and I shall give seven days from the date of these reasons for that purpose. If any party challenges that updated certified sum then he, she or it must notify my associates of the fact and the basis of any such challenge by no later than 10 days from the date of these reasons.
The tax debt
As has already been recorded, in my view the amount due to the Commissioner is a joint liability, not merely the husband’s. My path of reasoning is set out hereunder.
The husband and wife acquired real property in M Street, Suburb C in the State of Victoria in late 2004 for $1,150,000. A dispute emerged about their contributions to the purchase price for that parcel of real estate. The husband gave evidence that he contributed the totality of funds for the purchase of that property, derived from his share trading activities. The wife gave evidence that her contribution of funds was derived from an inheritance or from savings. In her affidavit affirmed on 16 January 2020, the wife stated that her source of funds for her contribution towards the purchase price of the property at M Street Suburb C was her return on investments made in a Country DD company, AE Company. She stated that the husband arranged that investment. The husband denied arranging any such acquisition of shares in AE Company. He said that company was dormant at all relevant times. The wife was cross-examined about her shareholding in AE Company. Her answers were discursive and unpersuasive. She did not produce any documentary verification of her assertions. It was common ground that the registered proprietorship of that property was joint. The husband gave evidence that the M Street property was registered in the joint names of the husband and the wife so as to provide the wife with the financial security she was seeking. In early 2005 the husband and wife became the registered proprietors of the land and improvements known in this litigation as the G Street property. No dispute existed about the date of acquisition or the fact that the husband and wife were the registered proprietors of that property. The source of funds for the acquisition of the G Street property was disputed. The husband contended that funds for the acquisition of that property were applied from the proceeds of sale of the M Street property and capital from his resources. The purchase price for the G Street property $2,600,000. The wife’s evidence concerning the source of the funds for the acquisition of the G Street property was different to the husband’s. She stated in affidavit material that–
(a)she and the husband would own the G Street property equally;[138]
(b)the husband agreed with her that the G Street property would be registered in her sole name after she agreed to sell the M Street property and apply the proceeds to meet any shortfall in the acquisition cost of the G Street property; and
(c)the purchase price of the G Street property was sourced from funds standing to the credit of the husband and wife in their joint NAB account being amounts accumulated from joint Country DD earnings, investments and savings.[139]
[138] In written submissions (paragraph [22]) the Commissioner contended no evidence supported the wife’s assertion that she reimbursed the husband in the manner she said.
[139] This was the gravamen of the wife’s defence to the Commissioner’s statement of claim (at [6]) and her further and better particulars (at [7]). The husband stated that the NAB money was made up of proceeds of his share trading activities.
The husband denied that any discussion took place in the manner asserted by the wife. In his affidavit evidence the husband stated that the parties purchased the G Street property because the husband needed to be in Australia more frequently on business, the property had an elevator which suited the husband following surgery and that the wife was content to leave the matter in his hands because he was providing the whole of the funds to acquire the G Street property.
Between late 2005 and early 2019 the wife was the sole registered proprietor of the G Street property. The husband stated that he effected the transfer of his interest solely into the wife’s name for asset protection reasons by reason of his bankruptcy in Country DD.
In this proceeding the Commissioner’s case proceeded on the basis that the husband effected the transfer of his legal interest as registered proprietor of the G Street property to the wife for no consideration.[140] The wife disputed the Commissioner’s contentions in that regard, arguing that –
(a)her consideration was changing the surname of the couple’s eldest child from Trong to Cao as well as her cessation of work so as to look after the child; and
(b)the transfer of the husband’s interest to her was made pursuant to an agreement between the husband and the wife and the amount thereof corresponded with the approximate value of the wife’s shares in the proceeds of the AE Company investment, an assertion the husband denied.
[140] Paragraph 25 of the Commissioner’s written submissions dated 13 March 2020.
The husband asserted that he had an equitable interest in the G Street property in respect of which he lodged a caveat in early 2016. In that caveat he asserted the existence of an implied, resulting or constructive trust. In late 2019 the husband removed the caveat.
Pursuant to orders made in this court on 20 March 2018 by Cronin J, the G Street property was sold for $3,750,000, settlement of which was effected in early 2019. Of the net proceeds of sale, other sums have been disbursed including –
(a)a part property payment to the wife in the sum of $226,440; and
(b)in mid-2019 a further part property payment to the wife of $317,946.52.
The Commissioner contended that the wife’s claim to any interest in the G Street property is without merit and should be rejected.
So far as the Commissioner’s primary contention in this litigation was concerned, namely that the tax debt is a joint debt, the Commissioner relied on several evidentiary and legal matters. As has already been mentioned, the Commissioner argued that parties to a marriage who share in good economic times to generate an asset pool should also generally share in poor economic times.[141] The Commissioner contended that the husband’s tax debt exceeds the ascertainable matrimonial property of the marriage, even putting aside penalties.
[141] For example, In the Marriage of Zdravkovic (1982) 8 Fam LR 97 and In the Marriage of Kowaliw (1981) FLC 91-092.
The Commissioner argued that the wife knew about the husband’s tax issues from 2008.[142] The Commissioner also argued that the husband and the wife enjoyed a lavish lifestyle especially at a time when a significant amount for tax was owing. They lived in one of Melbourne’s most expensive suburbs, their children attended Victoria’s most exclusive and expensive private schools, they regularly travelled overseas, they drove expensive cars and retained live-in nannies. In addition, the husband spent an amount somewhere between $150,000 and $200,000 on paintings by an artist called Mr AD and the husband spent about $300,000 on jewellery for the wife. He wore a $20,000 Rolex watch.
[142] T110 L19-22, T111 L4-5.
Counsel for the wife contended that I should draw an adverse inference against the husband for lack of frankness in relation to his present income. That was a curious submission as counsel for the wife did not say what result would follow even if I were willing to draw such an adverse inference. Nevertheless counsel for the wife contended that I “must conclude that his future earning capacity is high”. Not only am I not required to so conclude, but if I were to so conclude I would be engaging in speculation and no reliable amount would be derived from the process in any event. In other words, even if I acceded to the mandatory conclusion the wife’s counsel said inexorably followed from the adverse inference urged, no dollar amount was thereby derived by way of income. Plus, a conclusion that the husband’s future earning capacity is high is essentially meaningless without there being some means of quantifying the word “high”.
Counsel for the wife addressed the husband’s income in the period 2001 to 2004 submitting that it was extraordinary. The husband was not cross-examined on the matter nor was there any suggestion of why the wife’s counsel attributed the appellation “extraordinary” to the relevant amounts. In any event the years 2001 and 2002 are 20 years in the past, scarcely helpful to events in 2022.
For the period 2005 to 2012 counsel for the wife relied on the Commissioner’s assessments. The husband conceded his liability to the Commissioner in amounts on which Mr Sest KC relied.
For the 10 year period from 2012 to date, counsel for the wife then broke that epoch into smaller component segments. For the period 2012 to 2014 counsel for the wife submitted that there was no reason why the husband did not retain the capacity to continue to earn additional amounts after the husband’s employment with NN Pty Ltd came to an end. That proposition should have been put to the husband for it to have any forensic value. No such proposition was put to the husband. The failure to put that to the husband renders purely speculative whether the husband retained the capacity to continue to earn additional amounts once his employment with NN Pty Ltd came to an end. I am not willing to engage in speculation.
For the period 2014 and 2015, counsel for the wife submitted that the husband arranged for a Country Q company controlled by the husband to pay E Pty Ltd $135,000 but rather than the payment being applied to E Pty Ltd, the amount was paid to the husband. Counsel for the wife then submitted as follows –
If that is the case, he prepared a false document to give the false impression that he was funnelling his income to the [Country Q] but in fact he was getting paid in Australia.
That thesis was not put to the husband in cross-examination. It was a serious allegation of fraud. Counsel for the wife needed a firm evidentiary basis before making such a submission. He had no such firm evidentiary basis.
For the period 2016 and 2017, counsel for the wife made submissions based on entries in documentation. No suggestion was made that any of those matters were the subject of puttage to the husband inviting his acceptance or rejection of points made in paragraphs 92, 93 and 94 of the wife’s final address.
In paragraph 99 of the final submissions by counsel for the wife it was asserted that the husband’s statements should be rejected when he stated that a substantial reduction in income existed in the period 2012 to 2014. Various reason were given about why I should reject the husband’s statement including the following –
(a)the husband had a long and consistent history of earning a high income;
(b)he had good reason to minimise his income;
(c)he was in a position to manipulate his income;
(d)the husband did not objectively substantiate his claim that E Pty Ltd suffered a business downturn;
(e)the husband offered an inadequate explanation for the decrease in his income;
(f)he offered no account of his attempts to increase or maintain his income; and
(g)the husband did not file a tax return in Australia.
Nowhere in his dense written submissions did the wife’s counsel cite a pinpoint transcript reference of any puttage whatsoever of those matters in the immediately preceding paragraph. There should have been puttage of those issues to the husband so that he had an opportunity of accepting or rejecting the propositions now appearing in final address.
Counsel for the wife contended that a s 75(2) adjustment can be made so as to hedge against the possibility of a party having concealed assets, relying on Stone & Stone.[163] Counsel for the wife argued that very little evidence was adduced about the husband’s inheritance from his father. The husband deposed to renouncing any claim the husband may have to the estate. Counsel for the wife argued that the husband should not be believed in that assertion. Further, counsel for the wife asserted that the husband was cross-examined about his late father’s shareholding in SS Company in which two million shares were said to be worth $600,000. Relying on two authorities only,[164] counsel for the wife submitted that a party should not be able to take advantage of his or her own non-disclosure.
[163] [2015] FamCAFC 18.
[164] Black v Kellner (1992) 15 Fam LR 343 and In the Marriage of Weir (1992) 16 Fam LR 154.
Dereliction in compliance with a party’s duty of disclosure goes very much further than these glib references to Black v Kellner and In the Marriage of Weir. On 2 September 2022 I had occasion to delve into the consequences of one party failing to comply with his or her disclosure duties.[165] At paragraph 7 of my reasons in Paviello v Paviello I held as follows –
[165] Paviello & Paviello [2022] FedCFamC1F 592.
7.…the wife argued that authorities such as Black v Kellner,[166] In the Marriage of Briese,[167] Oriolo v Oriolo,[168] In the Marriage of Weir [169] and others contain stipulations about the correct approach to be adopted when one party has been derelict in his or her compliance with the duty of disclosure. In Bacall & Zagar[170] I surveyed the learning in those authorities between the years 1985 and 2020. It is useful to record some of the conclusions set out in that decision –
[166] (1992) 15 Fam LR 343.
[167] (1985) 10 Fam LR 642.
[168] (1985) 10 Fam LR 665.
[169] (1992) 16 Fam LR 154
[170] [2020] FamCA 350.
(a)rule 13.04 of the Family Law Rules, in operation in the lead up to the commencement of the arbitration in this case, imposed a duty of disclosure;
(b)that duty can be traced back to 19th century equitable principles;[171]
[171] Flight v Robinson (1844) 50 ER 9.
(c)the duty is owed to the court as well as to the parties to the proceeding;[172]
[172] Waterman v Waterman [2017] FamCAFC 23.
(d)full and frank disclosure of all material facts is a fundamental requirement in financial matters;[173]
[173] Black v Kellner (1992) 15 Fam LR 343, In the Marriage of Giunti (1986) 11 Fam LR 160 and In the Marriage of Mezzacappa (1987) 11 Fam LR 957.
(e)a party to a financial proceeding has a duty to make full disclosure of his or her financial affairs;[174]
[174] In the Marriage of Weir (1992) 16 Fam LR 154.
(f) the duty to disclosure is absolute;[175]
[175] Kannisv Kannis (2002) 30 Fam LR 83.
(g)the duty is crucial to the functioning of courts administering the Family Law Act;[176]
[176] In the Marriage of Morrison (1994) 18 Fam LR 519.
(h)full and frank disclosure of financial matters between the parties is basic to the process of the court and is one of the elements of the Family Law Act;[177]
[177] In the Marriage of Suiker (1993) 17 Fam LR 236.
(i)parties are expected to cooperate in the conduct of the proceeding in order to bring about an early and prompt conclusion with a minimum of expense;[178]
[178] In the Marriage of Marinko (1983) 8 Fam LR 849.
(j) the duty involves full and frank disclosure in a timely manner;[179]
(k)if a party breaches the duty of full and frank disclosure as outlined above, the uppermost limit of what can be ordered to be transferred to one party in a s 79 application is the whole of the ascertained property of the parties;[180]
(l)it is not open to a party who has failed to fulfil the duty of full and frank disclosure to rely on that failure so as to prevent the making of orders against the party in default;[181]
(m)any failure to disclose relevant financial information may lead a court to draw inferences against the person who failed to disclose the relevant financial information;[182]
(n)where there is clear evidence of non-disclosure the court should not be unduly cautious about making findings in favour of the innocent party;[183]
(o)once there is sufficient evidence to support a finding that a party has not made full and frank disclosure, the court has jurisdiction to make orders in relation to unidentified and undisclosed property;[184]
(p)the duty to disclose is absolute and it is beside the point whether the non-disclosure was wilful, accidental, the result of misfeasance or nonfeasance;[185] and
(q)in the case of deliberate non-disclosure, the court is entitled to draw inferences against the non-disclosing party.[186]
[179] In the Marriage of Briese (1985) 10 Fam LR 642, Waterman & Waterman [2017] FamCAFC 23, In the Marriage of Morrison (1994) 18 Fam LR 519 and In the Marriage of Suiker (1993) 17 Fam LR 236.
[180] Monte & Monte [1986] FamCA 1.
[181] In the Marriage of Giunti (1986) 11 Fam LR 160, Black v Kellner (1992) 15 Fam LR 343 and Oriolo v Oriolo (1985) 10 Fam LR 665.
[182] In the Marriage of Stein (1986) 11 Fam LR 353.
[183] In the Marriage of Weir (1992) 16 Fam LR 154 and Monte & Monte [1986] FamCA 1.
[184] Ibid.
[185] Chang v Su (2002) 29 Fam LR 406, In the Marriage of Weir (1992) 16 Fam LR 154 and Kannis v Kannis (2002) 30 Fam LR 83.
[186] In the Marriage of Stein (1986) 11 Fam LR 353, In the Marriage of Mezzacappa (1987) 11 Fam LR 957, In the Marriage of Giunti (1986) 11 Fam LR 160, In the Marriage of Morrison (1994) 18 Fam LR 519 and Barker v Barker (2007) 36 Fam LR 650.
The statements of principle set out immediately above go vastly further than the submission in paragraph 113 of the wife’s closing written submissions.
It is very difficult to see how the wife’s submissions about allegedly defective disclosure by the husband bears upon s 75(2)(b).
In any event, counsel for the wife devoted several paragraphs of written submissions to assertions under the heading “unsatisfactory explanation of the change of ownership of E Pty Ltd”. In essence, counsel for the wife submitted that the husband’s explanation about the allotment of 3000 shares was unsatisfactory and on the balance of probabilities it was not a genuine transaction. Counsel for the wife failed to put that proposition to the husband while the husband was under cross-examination. To posit in final address that a transaction is not genuine without having put, in terms, to the relevant witness (here, the husband) that the transaction was not genuine was a failure to comply with obligations of puttage set out in Browne v Dunn,[187] as more recently applied in Allied Pastoral Holdings Pty Ltd v Commissioner of Taxation.[188]
[187] (1893) 6 R 67.
[188] [1983] NSWLR 1, 16.
But when properly understood, counsel for the wife used illustrations of disclosure deficiencies as a basis for invoking the observations in Stone & Stone, namely, to hedge against the possibility “that it is still a financial resource of the husband”. [189] Counsel for the wife took me to no authority at all about how those disclosure issues related to a “financial resource” in accordance with case law under s 75(2)(b) of the Family Law Act. I confess to encountering enormous difficulty accepting the contentions urged on behalf of the wife that the deficiencies in the husband’s disclosure, especially in relation to the 3000 shares, was not genuine and that I should hedge against the possibility that “it” (presumably meaning the 3000 shares) was still a financial resource of the husband.
[189] Paragraph 124 of the wife’s written final submissions.
Then counsel for the wife argued that a claim against the husband’s former accountant was a financial resource of the husband. No authority to support that contention was put forward by counsel for the wife. At all events, counsel for the wife submitted in final written submissions that the husband omitted to pay tax because the husband had been given erroneous tax advice to the effect that he (the husband) did not need to pay tax in Australia. In respect of that advice, counsel for the wife contended as follows –
That claim would cover a component of the tax debt. It would not cover the primary tax liability, but it would cover the interest on that primary tax liability, the penalties, and the interest charged on the penalties and his legal and accounting costs that subsequently incurred. That claim can be characterised as a financial resource of the Husband. There is a significant possibility that he will later recover that amount in a proceeding against the accountants.
The legal characterisation of a chose-in-action (a claim in litigation not yet commenced) was not the subject of analysis by counsel for the wife. Instead, without citing any authority on point counsel for the wife asserted that the claim the husband may have against his former accountants “would cover” (injecting an element of speculation) interests, penalties, interest on penalties, legal and accounting costs. No expert evidence on those matters was adduced in this case rendering the submissions by counsel for the wife unsupportable by any evidence. The statement “there is a significant possibility that he (the husband) will later recover that amount in a proceeding against the accountants” was without evidence. It amounted to little more than speculation. In addition, limitation time imperatives were at play because the husband’s new accounts, AC Company, wrote to the former accountants over six years ago in early 2016.
In the absence of less speculative assertions about the so called claim against AB Partners (which, it must not be forgotten has not been commenced even by the filing of a generally endorsed writ), I am not willing to proceed on the basis that the so-called claim against AB Partners is a financial resource.
Counsel for the wife addressed the wife’s liability for legal fees, presently in excess of $674,935. Counsel for the wife addressed the proper treatment of those legal expenses. He submitted I must have regard to those expenses because the wife will need to meet them, calling in aid a 1995 decision.[190] In considering the entirety of the issues I must address in this s 79 application I have had regard to the assertions by counsel for the wife that the wife’s legal expenses will need to be met by the wife.
[190] In the Marriage of Farnell (1995) 20 Fam LR 513.
Section 75(2)(c)
This subsection requires me to take into account whether either party has the care or control of a child under 18 years of age.
Three children of the marriage are relevant, namely –
(a)a boy born in 2004;
(b)a boy born in 2010; and
(c)a boy born in 2013.
Each attends a private school.
The mother has primary care for the children pursuant to a parenting plan executed on 15 November 2017. The father had previously been out of Australia for significant periods although subsequent to COVID-19 lockdowns he said he had no plans to be out of Australia as yet. Whether that means that the father will be away from Australia for significant times cannot be said as the father offered no insight into his travel plans. Counsel for the wife submitted that I should conclude that the father will be out of Australia in view of his long history of being away and that I should find that the mother will have primary responsibility for the children. Faced with the father’s expressed statement that the father has no plans in relation to travel, his evidence about whether he will have care or control of the children is equivocal. It is more probable than not that the wife will have primary care for the children.
Section 75(2)(d)
The wife purported to put forward with dollar-precise particularity details of her living expenses drawn from her 16 January 2020 financial statement. The wife gave evidence that she now lives in housing in Suburb AF in respect of which she pays rental of $651 per week. In that financial statement the wife deposed to paying no tax. She swore to the truth of the entries in her financial statement. Rather than accepting that, counsel for the wife submitted that her statement that she paid no tax “must be an error” because, so he argued, as an Australian tax resident she “must be paying tax” and he then volunteered a collection of calculations none of which was put to the wife, leading to the assertion by counsel for the wife in paragraph 132 of his written submission “after adding the income tax, her expenses per week are $3,325”. That was not her evidence.
Counsel for the wife then asserted that the three children’s private school fees are of significant sums. However, nowhere was it stated that the wife is responsible for those private school fees. If the school fees are not paid, it may transpire that the children or one or more of them is ejected from the school he attends by reason of non-payment of fees. No evidence was adduced to that effect.
Section 75(2)(e) and (f)
The wife made no submissions in relation to those subsections.
Section 75(2)(g)
This subsection invites an examination of divorced parties and a standard of living which is reasonable in all the circumstances.
Counsel for the wife correctly submitted that this subsection does not invite a consideration of the wife’s minimum needs. The subsection does not speak of minimum needs so the wife’s counsel’s submission is to state the obvious. The subsection speaks of “a standard of living that in all the circumstances is reasonable”. While inverting the wording of the subsection, counsel for the wife said this was a matter of “considering what is a reasonable standard of living taking into account all the circumstances”. He said the wife should not be forced to rent a property at the bottom of the rental range. Precisely how the wife’s renting in Suburb AF amounted to renting at the bottom of the rental range was not explained. Counsel for the wife argued that the wife needed to live near the children’s school. One attends school in Suburb C. Suburb AF is a suburb next to Suburb C. Proximity to the child attending AG School was not stated.
A standard of living that in all the circumstances is reasonable must take into account the fact in the circumstances of this case I have found that both parents jointly owe the tax debt so once that is paid, the parties must recalibrate the reasonableness of their standard of living conditioned by their ability to pay for thing they may be unable to afford.
Counsel for the wife argued that in days gone by, the wife contributed as homemaker thereby enabling the husband to travel generating income. I accept that although the force of that submission diminished since the parties had nannies.
Section 75(2)(h)
No submissions were advanced in respect of that subsection.
Section 75(2)(ha)
The wife addressed this subsection in the context of the tax and child support indebtedness. She argued that I must take into account the husband’s future earning capacity. I have done that.
Section 75(2)(j)
No submissions were advanced about this subsection.
Section 75(2)(k)
Counsel for the wife pointed out that the parties’ relationship was 12 years. The following submission was put –
The effect of the marriage has been that she has missed out on building up that career over 12 years, to the detriment of present and future earnings.
That seemed to me to embellish the wife’s position. It must not be overlooked that the wife was provided with nannies for substantial epochs of the marriage. No evidence was adduced to the effect that the wife made any endeavours to maintain her information technology skills during the marriage. It is a considerable overstatement in circumstances where no evidence was adduced by the wife about her pursuit of her career while married that “she missed out on building up that career over 12 years”. A more likely construction of her career path subsequent to marriage is that she made a conscious choice to abandon the workforce along with future earnings that her chosen vocation may have once offered.
Sections 75(2)(l)(m),(naa) and (n)
The wife made no submissions on those subsections.
Section 75(2)(na)
This subsection invited considerations about child support.
My examination of sums due by the husband by way of child support have been already addressed.
Section 75(2)(o)
The wife relied on the fact that she ran out of money and has been forced to borrow money from friends. Her counsel advanced submissions in a vague and unparticularised manner to the effect that the wife’s difficulties in meeting her living expenses since separation is relevant. Details of sums borrowed were not given. Difficulties in meeting living expenses were not explained. The wife received two substantial partial property orders. She continues to live in an affluent Melbourne suburb. Her children continue to attend expensive schools.
Commissioner’s submissions on s 75(2)
Counsel for the Commissioner contended that the relevant justice and equity applied to all parties, not merely to the husband and the wife. The prescribed matters to be taken into account include s 75(2)(ha). Counsel for the Commissioner submitted that subsection required the court to take into account the effect of any proposed order on the ability of a creditor to recover the creditor’s debt. Counsel for the Commissioner contended that in accordance with observations in Ascot Investments Pty Ltd v Harper[191] and in In the Marriage of Biltoft[192] the court cannot ignore interests of third parties in property. Relying on the observations in In the Marriage of Bailey,[193] Mr Sest KC submitted that it is not proper for me to proceed in this s 79 application without having due regard to the established liabilities of a party in circumstances where those liabilities are of such magnitude as likely to be defeated by the orders sought by the husband and wife in the proceeding. Mr Sest KC submitted, correctly in my view, that the indebtedness to the Commissioner is of such a magnitude that it is likely to be defeated if the orders sought by the wife are granted.
[191] (1980) 148 CLR 337, 335.
[192] (1995) 19 Fam LR 82, 96.
[193] (1990) 13 Fam LR 652.
There is considerable force in that submission.
Counsel for the Commissioner highlighted the inconsistencies in the decisions in Johnson,[194] Commissioner of Taxation v Worsnop,[195] Trustee of the Property of Lemnos v Lemnos[196] and Adair v Milford,[197] as surveyed by me in Panwar v Panwar.[198]
[194] (1999) 26 Fam LR 475.
[195] (2009) 40 Fam LR 552.
[196] (2009) 41 Fam LR 120.
[197] [2015] FamCAFC 29.
[198] (2020) 63 Fam LR 44.
They emphasised that no principle of law exists to the effect that a debt must be satisfied out of the property of the debtor alone, calling in the decision in In the Marriage of Zadravkovic.[199] The specific holding in that case was as follows –
We are, however, of the opinion that in an appropriate case, as part of the adjustment of the financial rights of the parties, the Court may in proceedings under section 79 order the discharge of a debt to a third person, whether such person is an intervenor or not. Once it is clear and beyond doubt that a debt is owing to a third person and that all probabilities are that it will be enforced unless it is discharged by payment, then the Court is not precluded from ordering its discharge by the parties or one of them as a condition or as part of the overall adjustment of the parties’ financial rights if such a course is convenient and just.… Amongst the almost innumerable examples which come to mind are the discharge of a debt due under some credit facility granted to both or one of the parties; the payment of existing liabilities of one or both of the parties to a store or for medical or like accounts, or for rates or for income tax liabilities or motor car registration or insurances….
[199] (1982) 8 Fam LR 97.
Income tax liability was among the examples given by the court.
Mr Sest KC highlighted how there was no evidence on which the wife could rely of conduct of the type mentioned in In the Marriage Kowaliw,[200] namely negligence, recklessness or deliberate dissipation of assets by one party (the husband).
[200] (1981) FLC 91-092.
Citing Johnson v Johnson,[201] Mr Sest KC wrote the following –
Absent any suggestion that either party was on a “frolic of their own” or acting contrary to the other’s wishes, there is no reason why one party should shoulder the burden of their own taxation liability, rather than it coming from shared property.
[201] [1999] FamCA 369 (full version).
So far as s 75(2) issues were concerned and the Commissioner’s response to the wife’s contentions in that regard, Mr Sest KC submitted as follows –
The Wife consistently asks the Court to determine the section 75(2) factors in her favour on the basis of hypothetical bases unsupported by any evidence. This is done in the face of a significant tax liability that arose during the marriage and therefore to the detriment of the interest of the Commissioner and therefore the general public.
The Commissioner contended, correctly in my view, that it would be incongruous for me to take into account non-financial contributions to the marriage by the wife while concurrently relieving her of any liability for the tax debt. It was put as follows on behalf of the commissioner –
In other words, the Wife would not have been able to contribute to the family in the way that she did if the Husband was not providing for the family financially and it is that very activity of the Husband’s that gave rise to the tax debt. The nexus between the Husband’s non-payment of tax and the lifestyle enjoyed by the Husband and the Wife is such that the Court ought to require the Husband and Wife to share responsibility for the significant tax liability equally.
There is considerable force in the submission made by Mr Sest KC that it will be incongruous for wife to successfully demonstrate contributions under any one or more subsections of s 75(2) in circumstances where she has personally benefitted from non-payment of tax while living a most opulent lifestyle. I take the view that such a result is very far from being just and equitable. Mr Sest KC is correct when contending that the justice and the equity of the circumstances of this case must prevail not only as between the husband and the wife but also as between the husband and the wife along with the Commissioner and CSR.
In my view counsel for the wife adopted a peculiar approach in this case in failing to acknowledge or recognise that the wife had enjoyed a very luxurious lifestyle, mostly by reason of the fact that her husband failed to pay tax. It is not just and equitable to visit upon him solely the responsibility for meeting the tax liability. She must also meet that debt. As it happens, the only sum presently available to pay the debts due to CSR and ATO is the remaining amount in the controlled money account. The whole of that sum must be applied to CSR and the Commissioner.
CONCLUSION
As has been outlined in paragraph 2 of these reasons, I take the view that it is just and equitable for the whole of the sum presently held in the controlled money account ($3,099,868) to be applied rateably as between CSR and the Commissioner. It is not just and equitable for the husband or the wife to receive any distribution from that sum.
While largely academic, the debt due to the Commissioner and to CSR has increased from the amounts debated when this proceeding was last before me. The proper sum due most proximate to the pronouncement of final orders should be included. In those circumstances I will defer making final orders until CSR and the Commissioner files updated certificates of indebtedness and the husband and wife, if they so choose, indicate whether either seeks to challenge the entries in those certificates.
The orders I make in the interim are as recorded at the commencement of these reasons.
I certify that the preceding one hundred and eighty-three (183) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Wilson. Associate:
Dated: 4 October 2022
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