Degan & Nader (No 2)
[2024] FedCFamC1F 544
•19 August 2024
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 1)
Degan & Nader (No 2) [2024] FedCFamC1F 544
File number: NCC 4292 of 2021 Judgment of: AUSTIN J Date of judgment: 19 August 2024 Catchwords: FAMILY LAW – PROPERTY – De facto relationship – Judgment debts – Where the respondent wife sought to prioritise her claim for property settlement over judgment debts owed by the applicant husband to the second, third and fourth respondents pursuant to judgments of the Supreme Court of NSW – Where at trial she conceded the secured debts should be taken into account as priority liabilities of the husband – Where, as a consequence, there was no property to usefully divide between the parties, aside from their superannuation interests – Superannuation – Where the parties agreed their contributions should be regarded as being equal – Where the applicant contended for a superannuation splitting order which would equalise the parties’ superannuation entitlements – Where the respondent sought a slightly larger adjustment – Order made in the terms sought by the respondent. Legislation: Child Support (Assessment) Act 1989 (Cth) Div 4, Pt 7
Family Law Act 1975 (Cth) Pts VIII, VIIIAA, VIIIAB, ss 79, 90AF, 106B
Civil Procedure Act 2005 (NSW)
Cases cited: Ascot Investments Pty Ltd v Harper (1981) 148 CLR 337; [1981] HCA 1
Bevan & Bevan (2013) FLC 93-545; [2013] FamCAFC 116
Biltoft & Biltoft (1995) FLC 92-614; [1995] FamCA 45
Colburn & Cleese (2022) FLC 94-105; [2022] FedCFamC1A 147
Puddy & Grossvard (2010) FLC 93-432; [2010] FamCAFC 54
Stanfordv Stanford (2012) 247 CLR 108; [2012] HCA 52
Trustee for the Bankrupt Estate of Lasic v Lasic (2009) FLC 93-402; [2009] FamCAFC 64
Trustee of the Property of Lemnos; a bankrupt & Lemnos (2009) FLC 93-394; [2009] FamCAFC 64
Division: Division 1 First Instance Number of paragraphs: 56 Date of hearing: 12 August 2024 Place: Newcastle Counsel for the Applicant: Litigant in person Counsel for the First Respondent: Mr Ford Solicitor for the First Respondent: Robertson Saxton Osborne Counsel for the Second, Third and Fourth Respondents: Mr Klooster Solicitor for the Second, Third and Fourth Respondents: Shore Lawyers ORDERS
NCC 4292 of 2021 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 1)
BETWEEN: MR DEGAN
Applicant
AND: MS NADER
First Respondent
MR B DEGAN
Second Respondent
MS C DEGAN (and another named in the Schedule)
Third Respondent
ORDER MADE BY:
AUSTIN J
DATE OF ORDER:
19 AUGUST 2024
THE COURT DECLARES AND ORDERS THAT:
1.Declaration that the trustee of the Superannuation Fund 1 has been accorded procedural fairness in respect of these superannuation splitting and ancillary orders.
2.Declaration that these orders are binding upon the trustee of the Superannuation Fund 1.
3.Declaration, pursuant to s 90XT(2) of the Family Law Act 1975 (Cth), that the value of the applicant’s interest in the Superannuation Fund 1 is determined to be $145,846, being the value with which the parties agree.
4.Order, pursuant to s 90XT(1)(a) of the Family Law Act 1975 (Cth), that whenever a splittable payment becomes payable in respect of the applicant’s interest in the Superannuation Fund 1:
(a)the first respondent is entitled to, and the trustee shall pay to her or on her behalf, the amount calculated under Pt 6 of the Family Law (Superannuation) Regulations 2001 (Cth) using a base amount of $60,000; and
(b)there shall be a corresponding reduction in the entitlement of the applicant to that splittable payment.
5.Order that these orders shall have effect from the operative time and, for that purpose, the operative time shall be seven (7) days from the date of service of these orders upon the trustee.
6.The interim de facto spousal maintenance order made against the applicant in favour of the first respondent on 2 June 2022 is discharged.
7.The interim injunction made against the second, third and fourth respondents on 21 April 2023 is discharged.
8.In the event of any party refusing or neglecting to sign within seven (7) days of a written request to do so any document necessary to implement the terms of these orders the Registrar of the Federal Circuit and Family Court of Australia (Division 1) is empowered to execute such documents on behalf of the parties pursuant to s 106A of the Family Law Act 1975 (Cth).
9.Costs are reserved for 28 days.
10.Otherwise:
(a)the Reply filed on 10 May 2022 is dismissed;
(b)the Second Further Amended Response to Initiating Application filed on 24 June 2024 is dismissed;
(c)the Amended Points of Claim filed on 24 June 2024 is dismissed;
(d)the Amended Response to the Amended Points of Claim filed on 5 July 2024 is dismissed; and
(e)any and all other outstanding applications are dismissed.
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).
Part XIVB of the Family Law Act 1975 (Cth) makes it an offence, except in very limited circumstances, to publish an account of 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 Degan & Nader has been approved pursuant to subsection 114Q(2) of the Family Law Act 1975 (Cth).
REASONS FOR JUDGMENT
AUSTIN J:
This proceeding involves the determination of a financial cause between former de facto spouses under Pt VIIIAB of the Family Law Act 1975 (Cth) (“the Act”), complicated by the addition of extra parties.
The respondent joined the applicant’s parents and sibling to the proceeding as the second, third and fourth respondents respectively, because the property settlement relief she sought would impinge upon their separate financial interests, albeit that the characterisation of the relief she sought changed as the litigation progressed.
The respondent abandoned her applications against the applicant for a de facto spousal maintenance order under Pt VIIIAB of the Act and for a child support departure order under the Child Support (Assessment) Act 1989 (Cth) (“the Assessment Act”).
BACKGROUND
The applicant and the respondent agree they commenced their de facto relationship no earlier than 2017 and they separated on a final basis in November 2021. They acknowledged jurisdiction under Pt VIIIAB of the Act was enlivened.
The two children of the applicant and the respondent were born in 2018 and 2020 and are now aged six and four years. Final parenting orders were consensually made in respect of the children in November 2023, providing for the children to live with the respondent and to periodically spend time with the applicant. The children have lived with the respondent in New Zealand since late 2023.
These proceedings were initiated by the applicant in December 2021, at which time he sought only parenting orders. When the respondent joined issue in January 2022, she expanded the dispute to include the financial causes and the child support cause, to which the applicant replied in May 2022.
In early 2023, multiple judgments were entered by default in the Supreme Court of NSW against both the applicant and the corporation he controls (H Pty Ltd) in favour of the second, third and fourth respondents. The judgments reflect certain debts due by the applicant and H Pty Ltd, jointly and severally, to the second, third and fourth respondents under two loan agreements struck in early 2018 (“the first loan agreement”) and late 2018 (“the second loan agreement”) and in respect of other miscellaneous liabilities.
On the respondent’s application, the second, third and fourth respondents were joined as parties to this proceeding a few days later in early 2023. Contemporaneously, the second, third and fourth respondents were restrained from executing their judgment debts against the applicant, from selling a parcel of real property owned by him at Town E, NSW (“the Town E property”) or from disbursing any net proceeds realised upon its sale. When the interim injunction was made, the second, third and fourth respondents had already acquired legal possession of the Town E property by order granted by the Supreme Court of NSW, which property they intended to sell to execute the judgment debts.
In June 2023, after the second, third and fourth respondents were joined to this proceeding, the respondent amended her application to include relief claimed directly against them under ss 90AF and 106B of the Act, challenging the validity of their judgment debts obtained against the applicant and the integrity of the underlying loan agreements. However, the respondent later resiled from reliance upon ss 90AF and 106B of the Act when she amended her Response and Points of Claim in June 2024.
The proceeding was heard on 12 August 2024.
RELIEF SOUGHT
All parties amended the nature of their applications at the trial.
The applicant began the trial seeking the orders set out within his Reply, filed on 10 May 2022. He proposed orders requiring him to pay the respondent $10,000 in cash and that another $16,000 be split from his superannuation interest for her benefit, but they otherwise retain their own assets and superannuation interests. However, he ended the trial by agreeing the parties’ superannuation interests should be equalised, which would entail splitting a base amount of $53,183 from his superannuation interest.
The respondent began the trial seeking the orders set out within her Second Further Amended Response filed on 24 June 2024, though her claim for relief was premised (in part) upon the pleadings within her Amended Points of Claim filed on 24 June 2024. She sought her appointment as trustee for sale of the Town E property and her entitlement to 60 per cent of the net proceeds realised on its sale. She otherwise sought superannuation splitting orders to equalise the parties’ superannuation interests. She also applied for de facto spousal maintenance and child support departure orders against the applicant.
The respondent abandoned any claim for relief made directly against the second, third or fourth respondent under ss 90AF or 106B of the Act, which necessarily meant she recanted any attempt to impugn the validity of their judgment debt against the applicant. She recognised that no order of this Court could undercut the undisturbed judgment of the Supreme Court of NSW (Colburn & Cleese (2022) FLC 94-105 at [17]–[42]). Her claim for financial relief by way of property settlement, in so far as it affected the second, third and fourth respondents, was confined to the proposition that their judgment debts should be quarantined, yielding to her prioritised claim against the applicant for property settlement. She contended the applicant should bear exclusive liability for such judgment debts from his share of their property after its anterior division between them under Pt VIIIAB of the Act.
At the trial, the respondent conceded some of the judgment debts entered in favour of the second, third and fourth respondents against the applicant should properly be taken into account in the financial cause between her and the applicant. As a consequence of doing so, there would be no property to usefully divide between the parties, aside from their superannuation interests, so she ended the trial by pressing for only an order splitting a base amount of $60,000 from the applicant’s superannuation interest.
The respondent abandoned her applications for de facto spousal maintenance and child support departure orders – in the former respect because she conceded she could not demonstrate any need for maintenance. Her concession necessarily meant the interim de facto spousal maintenance order in her favour must now be discharged. The order would be discharged by operation of r 5.01 of the Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth) (“the Rules”), but it will be formally discharged for clarity.
Therefore, the entire dispute between the applicant and the respondent distilled to the sum of only about $7,000 – that being whether $60,000 or $53,193 should be split from the applicant’s superannuation interest in favour of the respondent. One cannot help but wonder how such a narrow dispute could have produced such vexation and expense over the last few years.
The second, third and fourth respondents sought the orders set out within their joint Amended Response to Amended Points of Claim filed on 5 July 2024. In effect, they seek the discharge of the interim injunction restraining them from executing their judgments against the Town E property. They opposed the prioritisation of the respondent’s claim against the applicant and the subjugation of the totality of their judgment debts (with accrued interest) because the net value of the applicant’s property would be insufficient to cover the amounts he owes them and, in addition, the extent of the respondent’s original claim against him. However, as it transpired, they only pressed for the recognition and priority of their secured debts and interest (totalling $1,052,109) and did not argue against the subjugation of their unsecured debts (totalling $320,140). The respondent ultimately conceded that approach, as did the applicant.
THE EVIDENCE
The applicant relied upon:
(a)his affidavit filed on 8 August 2024 and the annexures thereto (Exhibit A1); and
(b)his financial statement filed on 29 July 2024.
The respondent relied upon:
(a)her affidavit filed on 22 July 2024 and the annexures thereto (Exhibit 1R1);
(b)her financial statement filed on 22 July 2024;
(c)the affidavit of her mother, filed on 19 July 2024 and the annexures thereto (Exhibit 1R2); and
(d)numerous tendered documents (Exhibits 1R3, 1R4, 1R5, 1R6, 1R7, 1R8 and 1R9).
The second, third and fourth respondents relied upon:
(a)The second respondent’s affidavit filed on 8 August 2024 and the annexures thereto (Exhibit 2R1);
(b)The third respondent’s affidavit filed on 8 August 2024 and the annexures thereto (Exhibit 3R1); and
(c)The fourth respondent’s affidavit filed on 8 August 2024 and the annexures thereto (Exhibit 4R1).
The respondent commendably took no issue with the failures by the applicant, second respondent, third respondent and fourth respondent to comply with the procedural order made on 6 June 2024 requiring them to file their affidavits by 19 July 2024. Nothing is now achieved by castigating them for their cavalier disregard of the procedural orders.
The applicant and the respondent each cross-examined one another briefly. None of the other witnesses was required for cross-examination.
LEGAL PRINCIPLES
Orders under Pt VIIIAB of the Act altering the property interests of former de facto partners may only be made if the Court is first satisfied it is just and equitable to make such orders. It is necessary to begin that inquiry by identifying the existing legal and equitable property interests of the parties. It must not be assumed the parties’ rights to or interests in property are or should be different from those that then exist, or that a party has the right to have the parties’ property divided by reference to the statutory considerations (see Stanfordv Stanford (2012) 247 CLR 108 at [37]–[40] and [50]).
Although in Stanford the High Court was dealing with an application between spouses for property settlement pursuant to Pt VIII of the Act, the principles apply equally to applications between de facto partners pursuant to Pt VIIIAB of the Act.
It is permissible for the factors prescribed by s 90SM(4) (the counterpart to s 79(4)) to inform the inquiry under s 90SM(3) (the counterpart to s 79(2)) of the Act about the justice and equity of making property settlement orders (see Bevan & Bevan (2013) FLC 93-545 at [83]–[89], [163], [169] and [171]–[172]).
If and once determined it is just and equitable for the property interests of the parties to be altered, the process of evaluating the proper orders to make is dictated by the factors enumerated within s 90SM(4) of the Act. The court must necessarily identify and assess the parties’ contributions within the meaning of ss 90SM(4)(a)–(c) and then take account of the relevant matters referred to in ss 90SM(4)(d)–(g) and 90SF(3) of the Act.
EXISTING PROPERTY INTERESTS
In this proceeding, the principal issue in dispute between the applicant and the respondent (and the only issue of interest to the second, third and fourth respondents) was the treatment of the judgment debts owed by the applicant to the second, third and fourth respondents.
When determining the property available for division between parties to a financial cause under the Act, it has been long-standing practice to identify and ascertain the gross value of spouses’ assets and liabilities and to then deduct the secured and unsecured liabilities from the assets to establish the net value of their property. Sometimes in that process, however, liabilities may be disregarded (Biltoft & Biltoft (1995) FLC 92-614 at 82,124–82,128) or allocated exclusively to one spouse for payment from his or her individual share of the property (Puddy & Grossvard (2010) FLC 93-432 at [62] and [101]–[111]; Trustee for the Bankrupt Estate of Lasic v Lasic (2009) FLC 93-402 at [198]–[200]).
In Biltoft, the Full Court said (at 82,127):
Notwithstanding the general practice which has developed, the Court has indicated that it may properly determine not to take into account or to discount the value of an unsecured liability in certain circumstances. Such liabilities would include but are not limited to a liability which is vague or uncertain, if it is unlikely to be enforced or if it was unreasonably incurred.
(Emphasis added)
It is important to note at this point that, first, it is only unsecured liabilities which may be disregarded or discounted and, secondly, only then in the limited circumstances identified.
Once determined a creditor’s unsecured claim upon the property of the spouses (or either of them) should be taken into account as a liability then, as to the priority accorded between the creditor’s claim and the spouses’ claims under the Act, the High Court said in Ascot Investments Pty Ltd v Harper (1981) 148 CLR 337 at 354:
… [I]t would be unreasonable to impute to the Parliament an intention to give power to [the Court] to extinguish the rights, and enlarge the obligations, of third parties … but it does not follow that Parliament intended that the legitimate interests of third parties should be subordinated to the interests of a party to the marriage, or that [the Court] should be able to make orders that would operate to the detriment of third parties. There is nothing in the words of the sections that suggests that [the Court] is intended to have power to defeat or prejudice the rights, or nullify the powers, of third parties, or to require them to perform duties which they were not previously liable to perform.
Of course, that observation of the law in 1981 was before Pt VIIIAA was introduced into the Act in 2004 to specifically empower orders being made to bind third parties in financial causes, but, here, the respondent eschewed any reliance upon s 90AF of the Act to pursue remedies directly against the second, third and fourth respondents.
In the absence of engagement of Pt VIIIAA of the Act, the Full Court in Biltoft affirmed how creditor’s claims should not be subordinated to the claims between the parties to the matrimonial or the de facto financial cause, other than in the rather confined circumstances identified, saying this at 82,128:
… There is no requirement that the rights of an unsecured creditor or a claim by a third party must be considered and dealt with prior to the Court making an order under s 79 [of the Act], nor is there a rule of priority as between a creditor claimant and a spouse. Those rights, however, cannot be ignored. They must be recognised, taken into account and balanced against the rights of the spouse.
Observations to the same effect were later made by the Full Court in Trustee of the Property of Lemnos; a bankrupt & Lemnos (2009) FLC 93-394 at [99], [178]–[181] and [200].
In this instance, the parties agreed the judgment debts owed by the applicant to the second, third and fourth respondents comprised both secured and unsecured debts.
The secured debts were those that accrued under the first loan agreement and the second loan agreement, totalling $924,948. They were secured by the terms of the two loan agreements, granting to the second, third and fourth respondents equitable charges over the Town E property. Interest of $127,161 has since accrued to those particular debts under the provisions of the Civil Procedure Act 2005 (NSW). The sum due is therefore $1,052,109. Ultimately, the parties adopted an agreed position that the secured debts and accrued interest should be taken into account as priority liabilities born by the applicant.
The unsecured debts were those that arose under miscellaneous oral loan agreements, totalling $320,140. The respondent argued for such unsecured liabilities to be disregarded and, while the applicant, second respondent, third respondent and fourth respondent did not give their consent to that approach, none wanted to be heard against it. Consequently, those unsecured liabilities borne by the applicant are disregarded when determining the financial cause between the applicant and the respondent, meaning the respondent will be exclusively responsible for those liabilities from his individual share of the property.
The applicant’s existing assets and liabilities (excluding superannuation) are as follows:
Assets Value Total Town E property 1,400,000 Shares in H Pty Ltd nil Bank accounts 237 Personal chattels 3,500 Sub-total 1,403,737 Liabilities Town E mortgage 430,984 Judgment debts due to the second, third and fourth respondents in respect of the secured liabilities 924,948 Interest accrued on those judgment debts under the Civil Liability Act 2005 (NSW) 127,161 Unpaid income tax 25,375 Sub-total 1,508,468 Net deficit (104,731)
The respondent’s existing assets and liabilities (excluding superannuation) are as follows:
Assets Value Total Motor Vehicle 1 8,500 Personal chattels 3,000 Bank accounts 160 Life policy Not known Sub-total 11,660 Liabilities Credit cards 11,262 Sub-total 11,262 Net surplus 398
The applicant and the respondent have no assets which can be usefully divided between them.
The respondent is a discretionary beneficiary of the J Trust, established in New Zealand, but her interest has not been valued. The evidence demonstrates that, historically, the respondent has received total distributions of only about $1,300 over the last few years. Confusingly, the respondent denied being a beneficiary of any trust in cross-examination, which evidence stood in stark contrast to the unchallenged evidence of her mother. Her denial is rejected.
The applicant has a superannuation interest with Superannuation Fund 1 valued at $145,846.
The respondent has two separate superannuation interests with Superannuation Fund 2 and Superannuation Fund 3, collectively valued at $39,082.
The respondent wanted $60,000 split from the applicant’s superannuation interest, but he was only willing to give her $53,183.
SECTION 90SM(3)
The applicant and the respondent both sought an adjustment of their property interests in the form of splitting orders which operate upon the applicant’s superannuation interest, so it axiomatically follows they each regard an adjustment of their property interests to be just and equitable. There is no reason to disagree with them.
SECTION 90SM(4)
By the time of final submissions, the applicant and the respondent agreed their contributions should be regarded as being equal. That was the respondent’s submission within the Case Outline document she filed on 7 August 2024 and it was the applicant’s oral concession in final submissions.
Their mutual submission does not absolve the Court from making its own finding, but it removes the necessity to immerse in evidentiary detail. Reviewing the largely uncontroversial evidence as to their respective financial and non-financial contributions from the time of the commencement of their relationship up until the time of trial, their contributions were broadly equivalent.
SECTION 90SF(3)
The respondent contended an adjustment in her favour was warranted upon consideration of the factors stipulated by s 90SF(3) of the Act – but only to the extent that it would inflate the base amount split from the applicant’s superannuation interest by about $7,000, because that was the zenith of her claim.
Both parties are of similar age and enjoy satisfactory physical and psychological health. Both are employed, though the applicant’s income exceeds the respondent’s income. The respondent has the ongoing primary care of their two young children and will likely continue to bear the primary expense associated with their care. The applicant admitted he was about $30,000 in arrears with child support payments and gave no indication the arrears would be rectified any time soon. The applicant sought to emphasise the financial resource the respondent has by reason of her status as a discretionary beneficiary of the J Trust, but he chose not to cross‑examine the respondent’s mother on the evidence she gave about the trust.
The evidence justifies an adjustment in the respondent’s favour, measured in the approximate sum of $7,000, even though such extra money will be deposited into a superannuation account and (absent any hardship application being made to the superannuation trustee) will not be readily available for use by the respondent in the near future.
JUST AND EQUITABLE ORDERS
It is just and equitable to split a base amount of $60,000 rather than the lesser sum of $53,183 from the applicant’s superannuation interest.
The superannuation trustee has been accorded procedural fairness and consents to orders being made in those terms (Exhibit 1R9).
DISPOSITION
The sum of $60,000 will be split from the applicant’s superannuation interest for the benefit of the respondent.
The respondent’s application for de facto spousal maintenance under Pt VIIIAB of the Act is formally dismissed.
The respondent’s application for child support departure orders under Division 4 of Part 7 of the Assessment Act is formally dismissed.
I certify that the preceding fifty-six (56) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Austin. Associate:
Dated: 19 August 2024
SCHEDULE OF PARTIES
NCC 4292 of 2021 Respondents
Fourth Respondent:
MS D DEGAN
2
2
3