Dillon and Dillon and Anor
[2011] FamCA 409
•7 June 2011
FAMILY COURT OF AUSTRALIA
| DILLON & DILLON AND ANOR | [2011] FamCA 409 |
| FAMILY LAW – PROPERTY – where wife filed an application for orders pursuant to s 79 in 2006 – where wife amended application numerous times before including an application pursuant to s 106B to have certain dispositions by the husband set aside – where the last of the attacked dispositions occurred two days after the wife first filed an application for property orders – where the husband entered bankruptcy and subsequently passed away – whether dispositions should be set aside – whether dispositions likely to defeat s 79 orders. |
| Bankruptcy Act 1966 (Cth) Bankruptcy and Family Law Legislation Amendment Act 2005 (Cth) Evidence Act 1995 (Cth) Family Law Act 1975 (Cth) Family Law Rules 2004 (Cth) |
| Ascot Investments Pty Ltd v Harper (1981) 148 CLR 337 B Pty Ltd and Ors & K & K (2008) 39 FamLR 488; (2008) FLC 93-380 Gould & Gould; Swire Investments Ltd (1993) FLC 92-434 In the Marriage of Af Petersens (1981) FLC 91-095 Official Trustee in Bankruptcy & Bassola (No 3) (1986) FLC 91-760 Whitaker & Whitaker (1980) FLC 90-813 |
| APPLICANT: | Ms Dillon |
| 1ST RESPONDENT: | Mr Dillon |
| 2nd RESPONDENT: | Ms Wayne |
| FILE NUMBER: | BRC | 2537 | of | 2007 |
| DATE DELIVERED: | 7 June 2011 |
| PLACE DELIVERED: | Brisbane |
| PLACE HEARD: | Brisbane |
| JUDGMENT OF: | Murphy J |
| HEARING DATE: | 16 June and 12 July 2010 |
REPRESENTATION
| COUNSEL FOR THE APPLICANT | Ms M Howe |
| SOLICITOR FOR THE APPLICANT: | Sempre Vero Lawyers |
| COUNSEL FOR THE 2ND RESPONDENT | Ms N A Martin |
| SOLICITOR FOR THE 2ND RESPONDENT: | Berk and Associates |
Orders
Paragraphs 1.1, 1.2, 1.3, and 2 to 7 inclusive of the Further Amended Application filed by the wife on 16 June 2010 be struck out.
So much of paragraphs 8 and 10 of the Further Amended Application filed by the wife on 16 June 2010 as refer to property or debts of the husband be struck out.
Save as otherwise ordered, the application by the second respondent to summarily dismiss the wife’s application is dismissed.
The wife’s Further Amended Application, as varied by these Orders, be listed before a Registrar at a date and time to be fixed for the making of all such directions as might be necessary so as to allow the matter to be determined at a final hearing.
There be no order for costs SAVE IN THE EVENT that written submissions – sent via e-mail to the associate to Murphy J at … and back-copied contemporaneously to all other parties ‑ are received within 21 days of the date of these orders. In that event, unless it is submitted to the contrary, submissions will be considered, and orders made, in chambers without the necessity for further appearance
IT IS NOTED that publication of this judgment under the pseudonym Dillon & Dillon and Anore is approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth)
| FAMILY COURT OF AUSTRALIA AT BRISBANE |
FILE NUMBER: BRC2537 of 2007
| Ms Dillon |
Applicant Wife
AND
| Mr Dillon |
1st Respondent Husband
AND
| Ms Wayne |
2nd Respondent
REASONS FOR JUDGMENT
In its current form, the wife’s Further Amended Application seeks orders for settlement of property and orders pursuant to s 106B of the Family Law Act 1975 (Cth) (“the Act”). The application seeks the latter orders against a third party to the marriage, Ms Wayne.
Ms Wayne seeks an order “striking out”, or summarily dismissing, the much amended application by the wife. The current proceedings, and these reasons, relate to that application.
The delay between the delivery of final submissions and this judgment is a source of embarrassment and is deserving of criticism. The reasons are many; none provide an excuse. Some, at least, of the delay was unavoidable, but that provides cold comfort to the parties who have had to wait for this decision. The delay is very much regretted and I apologise to the parties for it.
The Path to the Current Application
The current application is the latest step in a long and chequered path of litigation in both this court and the Federal Magistrates Court. The history of that litigation gives context to the current application and should be set out.
The wife’s application for orders for settlement of property was filed five years ago, on 3 May 2006. The application sought an order that the wife be paid “a sum equivalent to fifty five percent (55%) of the matrimonial asset pool including the following assets”. The application goes on to refer to a number of specified pieces of real and personal property.
An Application in a Case filed the same day sought, in part, specific orders against Ms Wayne and referred to her in one of the orders as the husband’s “de facto partner”. Yet, Ms Wayne was not joined to that Application.
The Application also referred to the husband as being “the former registered proprietor” of specified property. Yet, although s 79 relief was sought in respect of that property, the (apparently different) registered proprietor or proprietors were not sought to be made parties.
It will be appreciated that the wife’s application (which had initially been filed in the Federal Magistrates Court) was significantly flawed.
On 16 April 2007, the first of a number of attempts were made by a court to require of the wife particularisation of orders which specified the case apparently sought to be made out by her. On that date, Slack FM ordered the wife to file an Amended Application “particularising the orders sought in respect of property settlement and in particular any orders sought against the property of any third party”. His Honour also ordered:
That if the applicant seeks any order pursuant to s 106B against the property of a third party then the applicant serve a copy of the Application on the owner of that property by no later than 4.00pm on 30 April 2007.
On 26 April 2007, the wife filed the first of what was to become many Amended Applications.
In its initial manifestation, the Amended Application sought an order that Ms Wayne be joined to the proceedings. A number of other specific orders were sought. Remarkably, despite Slack FM’s order (and, it might respectfully be said, intimation) no order pursuant to s 106B was sought.
The issue of Ms Wayne’s joinder came before Spelleken FM in August 2007. The Federal Magistrate refused the wife’s application to join Ms Wayne. Subsequently, on 5 December 2007, a further application by the wife to join Ms Wayne was made. That application resulted in Purdon-Sully FM permitting joinder. Still no order had been sought by the wife pursuant to s 106B.
The wife’s application remained significantly flawed: in allowing an appeal against Purdon-Sully FM’s order, Warnick J held that “an application (many times amended) by the wife [contains] no known ‘claim’ at law”.
Subsequently, the wife filed, on 19 March 2009, a yet further Amended Initiating Application, again naming Ms Wayne as the Second Respondent. That application did seek, for the first time since initial filing nearly three years previously, orders pursuant to s 106B.
Two highly significant events occurred in close proximity to the filing of that yet further Amended Application. First, the husband became a bankrupt in early 2009, shortly prior to the filing of the application. Secondly, a few months after the application was filed, the husband died.
Procedural hearings occurred in this court consequent upon the transfer of the wife’s application from the Federal Magistrates Court and the events just referred to. On 20 July 2009, Barry J ordered Ms Wayne to file material responding to the applicant’s claim pursuant to s 106B and “to the pleadings exhibited at ‘ERD-2’ to the affidavit of [the wife] filed 19 March 2009”.
On 19 April 2010, by way of an Amended Application in a Case, the wife amended her pleadings to, relevantly, record the death of the husband, (although, it should be noted, she did not refer to s 79(8) nor “plead” any case in respect of the requirements of that section). That Amended Application also sought to include in her s 79 claim, relief in respect of an amount of damages paid to the husband, in respect of a mesothelioma claim – the disease which, apparently, ultimately caused his death.
On 27 April 2010, Bell J ordered that the proceedings be adjourned to the judicial duty list for short cause hearing on 16 June 2010. The orders reveal that, on that date, the executors of the estate were granted leave to withdraw. The trustee in bankruptcy (apparently) also elected on that date not to participate in the proceedings.
The proceedings were adjourned by Bell J to 16 June 2010 for hearing before me. Subsequently, written submissions were received, the last on 12 July 2010.
The Wife’s Case as Now “Pleaded”
Given the history of this matter earlier referred to, it is important to set out the current, Further Amended, application in full, and to set out that document exactly as it currently appears. In its current form, it contains underlining and bolding and indicates by asterisk matters referred to within it as the “latest amendments – June 2010”.
The document is as follows:
1.That pursuant to section 106B of the Family Law Act 1975 (Cth) the following instruments, dispositions and payments be set aside:
1.1 The sale of Unit [14 A] Street [C] on 7 June 2002 to [MS WAYNE] under market value, such undervalue having provided a benefit to [MS WAYNE] of $30,000.
1.2 The sale [W Property] on 12 June 2002 to [MS WAYNE] under market value, such undervalue having provided a benefit to [MS WAYNE] of $37,500.
1.3 The advance to [MS WAYNE] of $71,349.60 from the sale of the former matrimonial home at [W] to her by the Husband, such monies having been retained by [Ms Wayne] and providing a benefit to her.
1.4 The instrument known as the “Deed of Settlement [Mr Dillon] as Trustee for the [E] Trust” dated 16 September 2003 and the appointment by the Husband of [MS WAYNE] as the sole beneficiary.
1.5 The transfer of the Husband’s ½ share interest in [E Property] QUEENSLAND (described as Lot … in Registered Plan …) from the Husband’s personal name into “The [E] Trust” on 7 November 2003.
1.6 The disbursement to [MS WAYNE] under “The [E] Trust” as sole beneficiary of $400,000 from the sale of the property at [E] on 8 May 2006, such monies having been retained by [Ms Wayne] and providing a benefit to her.
**1.7 The monies from the Husband’s mesothelioma/asbestosis claim as paid directly to [Wayne], being $63,000.
2.That [Ms Wayne] account for any benefits she has received from the abovementioned dispositions.
**3.That [Ms Wayne] account for interest on the benefits received as and from the acquisition of those benefits by her at the rate prescribed by the applicable Rules of Court.
**4.That [MS WAYNE’s] interest in the properties at [W] be charged with the payment of monies due as detailed in Orders 1.1 to 1.7 above.
**5.That, in circumstances where the charge against the property at [W] referred to in Order 4 above cannot be satisfied, [MS WAYNE’s] interests in her other real estate properties be charged also, such properties including but not limited to:
(i) 1/4 [S] Court, [B] (Lot … SP …) – sole proprietor – registration date 06/01/2006; and
(ii) 2/14 [S] Court, [B] (Lot … SP …) – sole proprietor – registration date 06/01/2006.
**6. That payment of monies due as detailed in Orders 1.1. to 1.7 above, being a total of $596,849.60 plus interest be paid into the Law Practice Trust Account of the solicitors for the Wife, Sempre Vero Lawyers, pending determination by the Court of the proper adjustment under Section 79 Family Law Act 1975 as and between the parties.
7.That pending compliance with Order 6 above, Ms [WAYNE] be restrained from doing any act or thing or signing any document in relation to or causing or permitting any sale, transfer or disposition encumbrance by further mortgage charge or
**otherwise lease or otherwise dealing with the properties at [W] (described at Lot 2 on Registered Plan … and registered in the sole name of [MS WAYNE]) and those detailed in Order 5 above, other than with the prior consent in writing of the Wife or any sale in accordance with the directions of the Court.
8.That subject to these Orders the Husband and the Wife each be declared to be the owner in law and equity of all property in their possession or under their control.
**9.That the property pool be divided as between the parties 85% to the Wife and 15% to the late Husband’s estate.
10.That subject to these Orders, the Husband and the Wife each be declared to be solely responsible for payment of all other debts in their names.
11.That in the event that either party or Ms [WAYNE], refuses or neglects to execute any deed, instrument or document that he or she is required to execute pursuant to the Orders in order to give effect to these Orders, a Registrar or Deputy Registrar of the Court be appointed pursuant to Section 106A of the Act to execute such document in the name of that party OR [Ms Wayne] and to do all acts and things necessary to give validity to the operation of the document.
12. Such further or other orders as the Court deems fit.
Section 106B And “Striking Out”
Although the remedy prescribed by s 106B of the Act is, in essence, discretionary, it is also clear from the terms of the section that a number of essential pre-conditions must be satisfied before the discretion can be exercised. (see e.g. Gelley & Gelley(No 2) (1992) FLC 92-291).
The question is whether the case agitated by the wife as against Ms Wayne is “doomed to fail” (as distinct from a “case which appears weak”). Put another way, does the wife’s case involve “a serious legal question” which should be the subject of a trial. (Lindon v Commonwealth of Australia (No 2) (1996) 136 ALR 251 at 256 per Kirby J. See, too, Bain Pacific Associations and Ors v Kelly & Ors (2006) FLC 93-270 at [33] – [35]; Bigg v Suzi (1998) FLC 92-799.)
“The guiding principle is doing what is just” and, within that principle:
… If it is clear that proceedings within the concept of the pleading under scrutiny are doomed to fail, the court should dismiss the action to protect the defendant from being further troubled, to save the plaintiff from further costs and disappointment and to relieve the court of the burden of further wasted time which could be devoted to the determination of claims which have legal merit.
[per Kirby J in Lindon, above, at 256]
The task in the current context should be carried out by reference to “the usual approach” which “has been to determine the application by reference to material in the case for the respondent together with any non-contentious facts”. (Miller v Harrington (2008) 39 FamLR 654 at 664; (2008) FLC 93-383 citing Bain Pacific, above, at [21]).
The claim pursuant to s 106B is doomed to fail if it can clearly be said that the impugned dispositions did not have the effect of likely defeating any s 79 claim by the wife (leaving aside, as irrelevant for present purposes, the alternative, and more onerous evidentiary task of proving an intention to do so). That is, if “the order was, or would in any event have been, defeated by other supervening circumstances, it cannot be said that the order was defeated by the disposition or was at any time likely to have been defeated”. (per Nygh J, Whitaker & Whitaker (1980) 5 FamLR 769 at 773; (1980) FLC 90-813. See, similarly, Official Trustee in Bankruptcy & Bassola (No 3) (1986) FLC 91-760 per Nygh J; Public Trustee (SA) & Keays (1985) FLC 91-651 at 80,247-8; Gould & Gould; Swire Investments Ltd (1993) FLC 92-434 per Fogarty J; Halabi & Artillaga (1993) 17 FamLR 675; (1994) FLC 92-470).
The Claims in Respect of A Street and the W property
The wife’s claim pursuant to s 106B seeks to attack two specific dispositions, namely the transfer to Ms Wayne of a unit in A Street (on 7 June 2002) and the husband’s transfer to her of the former matrimonial home at W about a week later (on 12 June 2002).
It is asserted that each was sold “under market value” and an amount is specified as fitting that description in each case. The material, and the thrust of the proceedings before me, dwelt on this allegation and an associated allegation by Ms Wayne that she was owed $130,000 by the husband (a debt said to have been incurred in circumstances that can be seen to be, on any view, unusual).
I am by no means convinced that either property was sold at “an undervalue”. The evidence reveals that each property was valued (by, an apparently reputable valuer, apparently independent of any party). While the nominated consideration in each case was lower than the valuation, neither property involved the incurring of any commissions or other costs of sale that might usually be attracted by any such sale and the difference between the value and the consideration can be seen, in my view (see s 144 Evidence Act1995 (Cth)) to bear a relationship to such costs and fees.
Be that as it may, what is much more important for present purposes is that far less attention – indeed scant attention – is given to an uncontroversial fact central to the relief sought by the wife: each of those two properties has been on-sold by Ms Wayne. In an affidavit filed 31 October 2007 – that is, approximately 18 months prior to the claim being made pursuant to s 106B – the wife deposes to living in the A Street unit “until it was sold by [Ms Wayne] on 22 February 2003”. In respect of the W property, paragraph 20 of Ms Wayne’s affidavit filed 6 October 2009 deposes simply: “on 9 June 2009, the property situated at [W] in the state of Queensland was sold for the sum of $680,000.00”.
A title search annexed to the affidavit of the wife’s solicitor filed on 20 July 2009, confirms that Ms Wayne sold the W property to X Enterprises Pty Ltd on 9 June 2009 for $680,000.00.
Neither the evidence nor the submissions of either party appear to address this vitally important matter. Indeed, it might be said that each barely acknowledges its existence. (An example is paragraphs 4.4.1.8 to 4.4.1.11 of the written submissions on behalf of the wife). Paragraph 20 of Ms Wayne’s affidavit earlier referred to is not at all referred to in the wife’s reply to that affidavit (filed 15 April 2010). Similarly, while detailed written submissions are made on behalf of the wife about the transfer of that property from the husband to Ms Wayne (see, e.g. [63]), remarkably, no submissions at all are directed to, or refer to, the fact of its subsequent on-sale.
Despite the wife’s October 2007 affidavit exhibiting a series of title searches, transfer documents and the like, it exhibits no documents at all relating to the subsequent disposition of the A Street unit from Ms Wayne to the purchaser/s. The affidavit of Ms Wayne filed on 6 October 2009, despite replying to issues such as the alleged undervalue of the initial transactions, makes no mention of either on-sale. The written submissions on behalf of Ms Wayne are to similar effect.
Neither purchaser is otherwise identified. It is not suggested in any material that either purchaser is anything other than a bona fide purchaser for value without notice.
The current proceedings do not seek to impugn either transaction; neither disponee is joined and no application has been made to join either.
There is no evidence to suggest that the subsequent A Street disposition was made on behalf of the husband or at his direction. The W property on-sale was, on the wife’s own evidence, made after the husband had died.
The wife’s claim (para 1.4) in respect of the so-called “advance” to Ms Wayne of $71,349.60 made “from the sale” of the property is not otherwise explained. There is no evidence read before me by which it can be concluded that this payment was a disposition made by, or on behalf of the husband or at his direction.
In my judgment, paragraphs 1.1 to 1.3 inclusive of the wife’s Further Amended Application should be struck out as doomed to fail.
As a result, the claims made at paragraph 4 and, in terms, paragraphs 5 through 7 inclusive should consequentially be struck out.
The Claim for Ms Wayne “To Account for Benefits”
As a general proposition, the power of this court to make orders affecting persons who are not parties to the marriage is significantly curtailed, specifically when any such orders “will…deprive a third party of an existing right or to impose on a third party a duty which the party would not otherwise have to perform”: Ascot Investments Pty Ltd v Harper (1981) 148 CLR 337 at 354 per Gibbs J.
Exceptions exist. The court’s powers contained in Part VIIIA of the Act provide an example. The court’s accrued jurisdiction is another example. (See e.g. In the Marriage of Warby (2002) FLC 93-091). But, in circumstances where remedies are sought against a third party, the source of the court’s power to make those orders must be specifically identified and a case specifically made out that such power/s should be invoked.
Section 106B is itself an example of where the court has power to make orders affecting the substantive rights of third parties. (Gould, above). But, the remedy against a third party pursuant to that section lies so as to make available property which is necessary to effect justice and equity between parties to a marriage:
… the purpose of sec 85 [now s106B] is to assist applicants whose claims may be defeated by certain dispositions. This can be achieved either by bringing the asset in question within the control of the Court under s 85(2) or by having it revested in the disponor and then dealt with as his or her property…(Ioppolo and Conti (1987) FLC 91-852 at 76,444-5, per Nygh J (in dissent, but not on this point)).
Section 106B does not provide, as between a party to the marriage and a third party, a cause of action separate from that purpose (save as might be ordered by way of enforcement or security – see s 106B(2)). While the section itself provides for a remedy in matrimonial proceedings for those who act in collusion, it is significant that this “cause of action” is restricted to a potential liability only for costs (s 106B(4)). (It should be noted that: (a) any such claim would need to be specifically alleged and proved; and (b) no such claim is made here, nor ever has been). The section does not separately provide for, as against a third party, what might be called a “compensatory cause of action” in respect of the disposition or dispositions involving them, even in circumstances where “collusion” can be alleged and proved.
If it is said that a separate cause of action lies against a third party emanating from actions (or acquiescence) by that third party in and about the attacked dispositions, any such cause of action must be specifically set out (and, preferably, pleaded – see B Pty Ltd and Ors & K & K (2008) 39 FamLR 488 at [43] – [44]; (2008) FLC 93-380) and proved in the usual way. In so far as it is said that this court has the power to deal with any such claim - and make orders in respect of it - the facts constituting the basis for the court’s power must be specifically set out (or, preferably, pleaded) and established by admissible evidence.
No such pleaded cause of action attends the claim that Ms Wayne should “account for benefits received” as a result of alleged actions or acquiescence in and about the impugned transactions. The claim as pleaded appears to have overtones of earlier versions of the claim by the wife which appeared to assume that a finding (as sought by her) that the husband and Ms Wayne were in a de facto relationship would lead, ipso facto, to relief against Ms Wayne by the wife – a claim which has no foundation in law.
In my view, s 106B does not provide a basis for the claim that Ms Wayne “should account for any benefits she has received” from the impugned transactions (even if the wife is successful in setting them aside). Neither the wife’s Further Amended Application nor any evidence read before me provides a basis for any such claim nor provides a basis upon which it is said that the court has power to make any such order in this case.
Precisely the same considerations apply to the claim for “interest on the benefits received” as sought at paragraph 3 of the Further Amended Application.
In my judgment, paragraphs 2 and 3 of the wife’s Further Amended Application should be struck out as disclosing no “cause of action”.
“Catch-All” Orders Sought
Paragraphs 8 and 10 of the wife’s current application are “catch-all” orders applicable to, respectively, “property in their possession” and “all other debts in their names”. What is said to constitute each is not specified in the submissions by either party nor is it possible to discern that from the evidence. It would seem that it is intended to cover what might be described as “miscellaneous chattels”.
Despite the lack of attention given to each by the parties, the bankruptcy and subsequent death of the husband might be thought to have the potential to impact significantly on that order (and, indeed, more generally). Each issue will be addressed in more detail below. For present purposes, no evidence read before me establishes that there is any property (save for the property the subject of specific reference in the s 106B claim) that could fit the description of “property in the possession” of the husband. His property vested in his trustee in bankruptcy upon becoming bankrupt (s 58 Bankruptcy Act 1966 (Cth) (“BA”)), unless it was exempt (s 116 BA), and proceedings in bankruptcy extend beyond the death of an undischarged bankrupt (save as a court might otherwise order) – s 63 BA.
If property owned by the husband and in his possession was exempt, it should have formed part of his deceased estate. No evidence read before me identifies any such property, the terms of any will, or the nature, extent and value of any property exempt from the application of the BA and what became of it upon death (including whether the estate has been administered).
But, as it seems to me, on no view could a finding be made that there was property “in the husband’s possession” that could be subject to an order vesting it in his estate as sought in the application.
Similar considerations apply to the order sought in respect of the husband’s debts; they are either proved in the bankruptcy or otherwise payable by his estate. In neither case can, as the order contemplates, the husband be held responsible for them.
In my view, those parts of paragraphs 8 and 10 as apply to the husband cannot be sustained and should be struck out.
The Pleaded Order for Settlement of Property
Paragraph 9 of the current application seeks an order that “…the property pool be divided as between the parties 85% to the wife and 15% to the late Husband’s estate”.
By reference to the principles earlier described an order sought in those terms is not susceptible to being struck out. It should be observed, however, that the orders sought are – as in so very many cases in this court – meaningless and unenforceable.
An application should set out with precision the orders sought. It is not for a court to work out the specific relief which a party seeks from the court; that is the task of a party and, when represented, it is certainly the task of those who represent and advise a party.
The Balance of The Wife’s s 106B Claim
Consequent upon the findings just made, the substantive claim by the wife becomes, relevantly:
1. That pursuant to section 106B of the Family Law Act 1975 (Cth) the following instruments, dispositions and payments be set aside:
…
1.4 The instrument known as the “Deed of Settlement [Mr Dillon] as Trustee for the [E] Trust” dated 16 September 2003 and the appointment by the Husband of [MS WAYNE] as the sole beneficiary.
1.5 The transfer of the Husband’s ½ share interest in [E Property] QUEENSLAND (described as Lot … in Registered Plan …) from the Husband’s personal name into “The [E] Trust” on 7 November 2003.
1.6 The disbursement to [MS WAYNE] under “The [E] Trust” as sole beneficiary of $400,000 from the sale of the property at [E] on 8 May 2006, such monies having been retained by [Ms Wayne] and providing a benefit to her.
**1.7 The monies from the Husband’s mesothelioma/asbestosis claim as paid directly to [Wayne], being $63,000.
…
9. That the property pool be divided as between the parties 85% to the Wife and 15% to the late Husband’s estate.
10. That subject to these Orders, the Husband and the Wife each be declared to be solely responsible for payment of all other debts in their names.
…
The Context To The Wife’s Claim
It is necessary to give a brief overview of the history, and, particularly, the transactions which led to the position which currently exists with respect to property that might be the subject of a s 79 claim by the wife.
The parties were divorced in 2005 some seven years after they separated. The wife instituted proceedings for settlement of property on 3 May 2006, shortly prior to the expiration of the period prescribed by s 44(3) of the Act.
It will also be recalled that, at that time, the wife did not seek relief pursuant to s 106B and, despite the orders of Slack FM in 2007 and the subsequent litigation earlier referred to, did not do so until 19 March 2009.
A great deal occurred in the financial life of this relationship in the period spanning the separation (1998), the transactions approximately contemporaneous with the initial impugned transactions and the husband’s financial difficulties (2002 – 2003), and, subsequently, the bankruptcy of the husband (early 2009) and later death (mid 2009).
The evidence and submissions give a great deal of attention to the early part of this period and what occurred within it. Much, I consider, bears little relation to the significant issues before the court and the ultimate result. But, whether the s 106B application is, in the unusual circumstances of this case, “doomed to fail” requires consideration of, among other things, whether the events subsequent to the dispositions render the s 79 claim nugatory, including, in particular, whether, if the relevant dispositions are set aside, the wife would otherwise have a fairly arguable s 79 case.
It is, then, necessary to traverse at least some of the multitude of issues raised in the voluminous material put before the court.
The Period from Separation to the Date of Filing
At separation in 1998, the wife took up residence with the parties’ daughter in the A Street property (owned in the husband’s sole name), which had been acquired about six months previously. She remained there for about five years, until February 2003. She then moved to a property in respect of which the husband (or, as the wife alleges, Ms Wayne) paid the rent.
At that later time, it is plain that the husband was, as the wife’s own material reveals, experiencing significant financial difficulties, including, as she deposes, the husband owing a debt to the Building Services Authority (“BSA”) of about $200,000 in September 2002. She deposes that those financial difficulties included one of the husband’s trading companies (D Pty Ltd) being placed into receivership on 21 May 2002.
Lengthy written submissions on behalf of the wife purport to reconstruct a picture of the “property of the parties or either of them” at separation. That attempt is significantly flawed, albeit, I note, that the wife alleges significant recalcitrance on the part of the husband in complying with his duty of disclosure. Whilst acknowledging that, it should be said that the written submissions on behalf of the wife contain, in respect of the asserted property of the parties, a series of assumptions, not justified on the evidence read before me. Examples can be seen at paragraph 4.6 of the written submissions, and particularly 4.6.14. Those assumptions have, in turn, been used to construct an ultimate assumption, or series of assumptions not justified by the admissible evidence (e.g.: “…there were significant assets in the matrimonial ‘pool’ at the date of separation”).
A number of significant transactions occurred in the period between about the middle of 2002 until the end of 2003.
(a) 12 C Street, S
The property at 12 C Avenue, S was purchased by the husband’s company, D Pty Ltd in 1994. It is asserted that the property was sold (to a purchaser not identified on the evidence read before me, but presumably a third party) in June 2002.
The wife deposes to significant debts secured upon it being repaid upon its sale. As referred to above, there is said to have been about $15,000 credit in the company’s overdraft account left as a result. But, no debts of the company are deposed to in circumstances where, it might be noted, it was in receivership.
(b) W Property (the former matrimonial home)
This property was acquired some 11 years prior to separation in April 1987 in the name of a company controlled by the husband (O Pty Ltd). It was transferred to Ms Wayne on 12 June 2002 and, as earlier observed, later on-sold to a third party.
(c) The Unit at 14 A Street, C
This property was acquired by the husband in September 1997, some six months prior to separation. It was transferred to Ms Wayne on 7 June 2002. Again, its on-sale to a third party has earlier been referred to.
(d) The Property at C Drive, V
A title search annexed to the wife’s affidavit filed 31 October 2007 reveals that on 10 January 2003, the husband and Ms Wayne purchased land at C Drive, V as tenants in common in half shares. The husband confirmed this in his affidavit filed 29 May 2006.
A letter annexed to the wife’s affidavit dated 9 January 2003 reveals that the husband and Ms Wayne obtained a loan (apparently jointly) in the amount of $133,000 to purchase the property at C Drive.
The husband deposes to being forced to sell his half interest in the property as a result of financial pressures “approximately four months” after the property was purchased. The wife annexes to her affidavit the first page of a Contract for Sale between the husband, Ms Wayne and N Pty Ltd which resulted in a half share in the property being sold to N Pty Ltd for $113,000.00. Yet another title search annexed to the wife’s affidavit reveals that, following the sale of the half share to N Pty Ltd, Ms Wayne and the husband each held quarter interests in the property at C Drive.
The husband subsequently transferred his remaining quarter interest in the property to Ms Wayne for $30,000. A copy of the transfer is annexed to the wife’s affidavit. Ms Wayne deposes to paying the husband $30,000 for his quarter interest and a letter from Ms Wayne to the Commonwealth Bank dated 21 March 2002 (annexed to the wife’s affidavit) contains instructions from Ms Wayne to draw a bank cheque in favour of the husband in the amount of $30,000.00. (Somewhat perplexingly, the date of that letter is prior to the date Ms Wayne and the husband purchased the land at C Drive). Again, the husband deposes to having to “dispose of my share in [[C] Drive] approximately [four months]” after the property was purchased and that “I received no proceeds from this sale”.
Whilst the husband ostensibly was entitled to a half share in the purchase price paid by N Pty Ltd (namely, $56,500), the husband deposes to receiving “no proceeds from [the] sale” of his “share in the property”. It is unclear whether this refers to the sale to N Pty Ltd or the subsequent transfer of the husband’s interest to Ms Wayne. Either way, there is no evidence before the court to clarify whether or not the husband in fact received any monies from the sale of his share in the property (either to N Pty Ltd or to Ms Wayne).
While the title searches and transfer documents annexed to the wife’s affidavit refer to the transfer/s, no documents or other evidence before the Court indicates whether or not the husband actually received any monies from the sale to either N Pty Ltd or to Ms Wayne.
(e) The Property at G Drive, V
The evidence of the wife refers to a “joint venture” in respect of this property between the husband, Ms Wayne and others and to that joint venture failing. Later (it seems as a result of the failure of that joint venture), this property was purchased by the husband and Ms Wayne on 10 May 2002. The wife then deposes to sub-division occurring and to the affidavit of Ms Wayne referring to the borrowing of almost $800,000 by Ms Wayne “and a further $70,000”. Despite this assertion, “Mortgage Reports” exhibited to the wife’s affidavit refer, on their face, to those borrowings being made jointly by the husband and Ms Wayne.
It seems implicit in the wife’s affidavit that she contends that the husband and Ms Wayne developed the sub-divided lots; the wife goes on to depose to the construction of four townhouses, three of which “settled on 27 November 2003 and the last on 9 December 2003”. The wife deposes (in her affidavit filed October 2007) to a list of the payments made on settlement of those townhouses. She asserts, relevantly, that payments of $290,000 and $67,848 were made to, respectively, Ms Wayne and “[the husband] and [[Ms Wayne]]”. The wife then asserts:
[Ms Wayne] needs to explain the $290,000 and the husband needs to account for where his share of $67,848.18 was applied. Further, the Husband has advised, but not substantiated, that he received only $25,000 in payment for his building effort.
No evidence before the court indicates what might have become of those funds, but it is noted that the settlement statement, at least, appears to recognise a sum due to Ms Wayne that is distinct from a sum due to the husband and Ms Wayne. No evidence suggests why that distinction exists.
It needs to be observed that the affidavit filed by the wife in October 2007 was in respect of an application which, at that time, did not seek relief pursuant to s 106B and which sought relief which Warnick J described as containing “no known claim at law”.
(f) The E Property
This property was acquired by the husband about two months prior to separation for $103,000. It is asserted by the wife that the husband transferred his half share in this property from his own name into the “[E] Trust”.
Only a short extract of the trust deed is in evidence before me. The husband was the trustee of the E Trust. The sole beneficiary of that trust was Ms Wayne. The trust was created in September 2003. The transfer of the husband’s interest in the E property to the trust was effected on 7 November 2003. I am content to assume, solely for the purposes of the instant application, that the husband had sole control of the trust such that, for the purposes of s 79, its assets could be considered property of the husband.
The evidence in respect of the E property is somewhat confusing:
§The title search reveals that the husband purchased a half-share interest in the property in 1998 with his then business partner, Mr L (who held his one-half interest with his wife as joint tenants inter se). Subsequently, from 20 July 2002, Mr L’s half share was held by P Pty Ltd. As and from November 2003, the husband held his half share as trustee of the E Trust until the property’s sale to F Ltd on 8 May 2006.
§Ms Wayne deposes to being approached by the husband, at a time not specified, and being informed by the husband “that there was a mortgage over this property which was paid out to [Mr K]”. The title search reveals that there was never a mortgage to Mr K. But, there was a mortgage to P1 Nominees Pty Ltd and, subsequently (in 2001) a mortgage to R Pty Ltd. These corporations are not identified in any evidence read before me. There is no connection with those companies and Mr K identified in any evidence read before me.
§Ms Wayne deposes, curiously, that “[the husband] retained his quarter share”. The title search shows no such holding at any time. The apparent discrepancy is not explained in either party’s evidence or submissions. The husband’s affidavit suggests that the husband was under the impression that upon the sale of a half interest in the property to P Pty Ltd, both the husband and Mr and Mrs L each retained a quarter interest in the property. A title search annexed to the wife’s affidavit reveals that, contrary to the husband’s belief, P Pty Ltd purchased Mr and Mrs L’s half interest in the property and, at all times, the husband retained a half interest.
§Ms Wayne goes on to depose that she and “[Mr K] … spent several thousand dollars making improvements to the land. I state that at no stage did [the husband] pay any money towards the property”. On the wife’s evidence, Mr K’s relationship to the property stems from his position as the “sole director” of P Pty Ltd. Ms Wayne then goes on to depose to a number of specific payments made upon the sale of the property in 2006.
§In the current context, it would seem that, such as the admissible evidence is, there is an assertion that money was spent on the property that did not emanate from the husband in the lead up to its sale.
§There is no evidence read before me from which a conclusion might be drawn as to its value as at the date upon which the application for s 79 orders was made in May 2006 or at any time between its purchase and ultimate sale.
The evidence reveals that the husband had lost his building licence in 2005 and, like the wife, was in receipt of a pension (although the wife alleges that he remained active in development projects with Ms Wayne).
As earlier noted, in the wife’s written submissions, an assertion is made that there existed at separation a credit balance in an overdraft account held by D Pty Ltd. No reference is made to the apparently undisputed fact that the corporation was, on the wife’s case, placed into receivership in May 2002. In that respect, no information is given as to any debts of the company at that time, save for the (implicit) assertion that about $767,000 in “settlement monies” from the sale of the C Street property was used to pay down debt.
The Date of Filing (May 2006)
Assets
As at the date that the wife’s application for settlement of property was filed (3 May 2006), the “property of the parties or either of them” within the meaning of s 79 consisted, on the face of the evidence read before me, only of personal chattels (of unspecified value, but, significantly, not asserted to have substantial value).
In respect of other property that may have earlier fitted that description and, accordingly, have potentially been the subject to s 79 orders:
§A Street had been sold to an unidentified third party against whom no allegation is made and who is not, and never has been, a party to these proceedings;
§Ms Wayne owned the W property;
§There is no evidence before me as to any bank accounts or other repositories for the proceeds of the sales of C Street, G Drive or A Street;
§It seems tolerably clear that, in any event, proceeds from C Street (which belonged to D Pty Ltd – a corporation in receivership at, or not long after, the sale) were minimal;
§The equity in A Street was $28,000 when transferred to Ms Wayne and it was on-sold shortly thereafter. There is no evidence read before me which deposes to what happened to those proceeds. Again, it is to be noted that the sale occurred at a time which, the wife admits, coincided with financial difficulties being experienced by the husband;
§The proceeds of the G Drive sale, which had occurred about three years previously, were, on the wife’s case, distributed in a manner that saw Ms Wayne receiving $290,000 and the husband and Ms Wayne receiving about $68,000. Ms Wayne explains this in her 2007 affidavit. She deposes to her being, in effect, the financier of the project by utilising her borrowing capacity. In essence, she deposes to the husband receiving $25,000 in total in respect of that project;
§The husband had transferred a half-share interest in the E property to a trust of which he was the trustee and Ms Wayne the sole beneficiary. There is no evidence before me of the value of this half-share interest at that time. It is asserted by Ms Wayne that she and Mr K spent “thousands of dollars” (whatever that might mean) in improvements (whatever that might mean) and that the husband spent no money on the property.
Liabilities Generally
The wife deposes to the husband – who was a builder – owing the BSA over $200,000 in 2002. She also deposes to him owing the BSA in March 2006 (i.e. two months prior to her instituting proceedings) over $450,000. She deposes that “this may have increased due to interest accumulating” and goes on to depose:
I say that the husband has been irresponsible in ignoring this debt and allowing it to accumulate over 5 years. I say that [Ms Wayne] was aware of this debt and should have encouraged the payment of this debt.
A number of observations might be made about this passage of the wife’s affidavit, not the least of which is that it does not constitute evidence. It would appear to be a comment directed to the possibility of establishing a case of what, within the s 79 context, is often called “waste”. (See, e.g. In the Marriage of Kowaliw (1981) FLC 91-092).
But, there is no evidence whatsoever before me that the acquisition of the debt, or its accumulation, was conduct of the type described by Baker J in that case. There is no evidence to suggest that the amount of over $450,000 resulted from the “accumulation” of a five-year-old debt (as distinct, for example, from the aggregation of different claims), nor is there evidence that it had been “allowed to accumulate”.
Indeed, in that respect, the (hearsay) evidence from the BSA (Exhibit ERD-33 to the wife’s affidavit) is a letter dated 25.9.02 which refers in the body of it to a debt as at that date of over $200,000, but which appends a somewhat mysterious signed notation ostensibly on the same date which says: “Please note the date of this demand, the total debt for [the husband] is $451,826.92. Proceedings have only issued for this demand”.
The husband’s building business was the primary source of income for both the husband and wife whilst they were married and post-separation.
Liabilities – The Alleged Loan Owed to Ms Wayne
A series of financial transactions and interrelationships are said by Ms Wayne to have occurred between her, the husband, her former de facto partner Mr J and the husband’s former business partner Mr L.
Mr J and Ms Wayne resided together from about March 1996 to early 2001 in a property situated near the residence owned by the husband and wife. The parties became friends. At that time, the husband was working as a builder through the corporate vehicle D Pty Ltd. The husband and Mr L were each directors of that company.
The relationship between Ms Wayne and Mr J ended in 2001. Mr J gave evidence that he has not kept in touch with Ms Wayne since. Mr J says that he lent money to Mr L and the husband in 2001, at a time when the building project at C Street was in difficulties.
Mr J said that this loan was documented. In oral evidence, he deposed to having destroyed the document: “since I’ve shifted into our new property, I’ve just got a new property [in New Zealand] I’ve just burnt and got rid of everything. I had no use for it”. He says that the loan document was never given to Ms Wayne. The separation from Ms Wayne occurred shortly after the agreement was made.
Upon their separation, it is alleged by each of Ms Wayne and Mr J that they came to an agreement that she would pay him $130,000 and she would take over the loan owing from the husband and Mr J. Mr J said that that agreement between him and Ms Wayne was not reduced to writing because “we never ever needed to”. He said that it didn’t strike him as strange that Ms Wayne would take over the debt despite the project’s difficulties, because “she was interested in carrying on with the building project, so it was all just part of our settlement”. He also said that he did not contemplate that Ms Wayne would not get paid, saying “I wouldn’t have put the money in myself [initially] if I didn’t think I would get paid”.
It is asserted at para 4.4.1.12 of the written submissions on behalf of the wife that the husband and Ms Wayne:
…have asserted that there is an agreement between them that, in effect, would amount to an assignment of a debt allegedly owing by the [husband] and [Mr L] to [Mr J], the former de facto partner of the Second Respondent.
That assertion is made purportedly relying upon what is deposed to by Ms Wayne at paragraphs 6 and 7 of an affidavit filed 6 October 2009.
A number of comments might be made about that statement (including as to whether it is, in fact, correct). For present purposes, however, what is relevant is whether, at a trial, there is a fairly arguable case, that there was, for the purposes of s 79 proceedings, a debt owing to Ms Wayne. The wife would, it would seem, seek to argue that the debt should be “ignored” (in the sense referred to in decisions such as Biltoft & Biltoft (1995) FLC 92-614; and In the Marriage of Af Petersens (1981) FLC 91-095).
The written submissions on behalf of Ms Wayne are accompanied by 14 typed pages of what purport to be an “Estimate of money owed by [the husband] to [Ms Wayne].” The tabulated sum spans a period from 2001 until 2007. The whole of that period pre-dates the husband’s bankruptcy.
As will be seen, no reference is made in those same submissions to the effect of the husband’s bankruptcy (or death) on any such loan/s, including the not insignificant matter of whether Ms Wayne proved – or sought to prove – in the bankruptcy the alleged debt owing to her and, further, for example, any provisions of the BA specifically dealing with alleged accretions to it.
Events Between the Application and the Date of Bankruptcy
The E Property Sale
The evidence in respect of the E property is that:
§it was purchased in January 1998 (two months before separation) for $103,000, that some thousands of dollars were spent (in a manner, it is presumably asserted, that increased its value);
§In May 2006, eight years after purchase and two days before the wife commenced proceedings, the property was sold;
§It was sold (to an apparently independent third party) for $1million;
§At that time, the property was apparently unencumbered;
§The E Trust received $400,000 being its (apparently half) share after, apparently, some (unspecified) deductions.
Shortly thereafter, that sum was distributed to Ms Wayne as a beneficiary of the trust. It is alleged by Ms Wayne that she was made a beneficiary of the trust, and had distributed to her that sum because she was owed money (it seems, she would allege, that sum and more). I have already referred to the tabulation of alleged amounts owing forming part of her submissions and the failure to refer at all to the husband’s bankruptcy.
The Husband’s Damages Award
In about April 2007 (that is, about nine years post-separation and about a year after the wife filed her s 79 claim) the husband instituted proceedings in the Victorian Supreme Court seeking damages arising from his contracting mesothelioma, a condition that ultimately led to his death about two years thereafter.
The evidence in relation to the claim consists almost exclusively of a ledger from the law firm Slater & Gordon (Exhibit ‘W6’). It records the husband receiving, in about August and September 2007 a total of approximately $289,640.70 in damages arising from his claim. The ledger reveals that, from this amount, $63,000 was paid to Ms Wayne; $37,100 was paid to …; and $95,456.48 was paid to the husband. Costs were also taken from the settlement monies.
The only disposition from those settlement monies which the wife seeks to set aside is the $63,000 paid to Ms Wayne. Ms Wayne contends that that amount was reimbursement for various outgoings paid by her on behalf of the husband (as set out in the table entitled “Estimate of money owed by [the husband] to [Ms Wayne]”).
Other Events
As earlier referred to, within about two months of the wife first filing a claim pursuant to s 106B, the W property was on-sold by Ms Wayne to a third party (June 2009).
Early that same year, the husband had become bankrupt. He died in April that year, about one month after the wife amended her application to seek s 106B relief.
The Wife’s Position
In my view, it is clear that the wife has a fairly arguable case in respect of at least some of required elements of the s 106B claim. Consequent upon my earlier findings, that claim relates to payment of a component of the husband’s damages and what I will call the E property transactions.
In Proceedings?
The claim is clearly made in proceedings under the Act, namely proceedings for s 79 relief.
Dispositions?
Each of the transactions at the centre of these claims can, in my view, be seen to be “dispositions” within the wide meaning of the term evident in the definition of the term (s 106B(5)).
It is clearly arguable in my view that the payment of part of the husband’s damages claim to Ms Wayne is a disposition made by or on behalf of the husband. (See s 106B(5) and, eg. In the Marriage of Bassola; Official Trustee in Bankruptcy (Intervener) (No 2) (1985) FLC 91-623 at 80,043).
It also seems to me clearly arguable that the creation of the E Trust (in 2003); the subsequent transfer to the trust of the husband’s interest in the E property (November 2003) and the subsequent distribution of its sale proceeds (May 2006) to the trust’s only beneficiary (Ms Wayne) is each a “disposition” within the meaning of the Act.
Also, it is clear that a disposition can include more than one transaction (see Official Trustee in Bankruptcy & Bassola (1986) FLC 91-760). Notwithstanding the time delay between the first two and the third of the transactions just referred to, it seems to me arguable at a trial that they together form part of one disposition within the meaning of the Act.
By or at Direction of the Husband?
It also seems tolerably clear, and certainly well arguable, that the E property transactions (whether seen as separate or as one) were made by the husband or at his direction. In that respect, there is plainly an arguable case that the husband had at all times complete control of the E Trust.
I should say that I strongly suspect that the husband’s intention in respect of the E property disposition/s was to avoid the property being available to meet claims by creditors (principally the BSA). The creation of a trust might also, I suspect, have been an attempt to avoid the property being susceptible to a claim by a future bankruptcy trustee (see e.g. s 116(1)(a) BA). But, intention is not essential to the application of s 106B; dispositions can be caught irrespective of intention by reason of the likelihood of the defeat of a claim.
Likely to Defeat Anticipated Order?
Does the wife have a fairly arguable case that, irrespective of intention, the dispositions were likely to defeat an anticipated s 79 order in her favour?
It is necessary to consider whether “…the reasonable disponor, at the time of the disposition, properly considering all of the circumstances of the case” would have reasonably anticipated the making of an order under s 79 (see e.g. In the Marriage of Pflugradt (1981) 7 Fam LR 188 at 192). Put another way, “would a reasonable person in [the disponor’s] position have considered there was a real chance, as distinct from a remote possibility, that such a situation would occur?” (In the Marriage of D & D (1984) 10 Fam LR 73 at 83; (1984) FLC 91-593).
The potential to defeat an anticipated s 79 order could plainly have been foreseen at the time that the component of the damages claim was paid to Ms Wayne; the wife’s s 79 proceedings had been on foot for some time when the payment was made and, for example, issues such as disclosure had already attended those proceedings.
In relation to the E property transactions, it is, in my view, plainly arguable that the defeat of a s 79 order could reasonably have been anticipated at the time of the sale of the E property by the trust and the distribution by it of the sale proceeds to Ms Wayne. The timing of those transactions, in light of the state of proceedings, plainly leads to a triable issue in that respect.
The transfer of the property to the trust, however, occurred in November 2003 – that is, more than two years prior to the institution of s 79 proceedings. The temporal distance may well be very relevant to arguments about lack of the requisite foreseeability. In that respect, Nygh J held in Whitaker & Whitaker (1980) 5 FamLR 769 at 783; (1980) FLC 90-813:
…the disposition must be shown to have the direct effect, or the likely effect, of defeating an existing or anticipated order, in the sense that if the disposition had not taken place, the order would have been effective. Hence, if the order was or would in any event have been, defeated by other supervening circumstances, it cannot be said that the order was defeated by the disposition, or was at any time likely to have been defeated.
I have already said that I consider there is an argument fit for trial that the E property transactions can be seen as one disposition notwithstanding the delay between the first of its components and the remaining two.
Even if that argument failed, it seems to me that, in light of the events that were occurring at about the time of the creation of the trust, and those which occurred subsequently in the financial lives of the parties, a case fit to be tried can be made out that a reasonable person in the husband’s shoes would have considered that there was a “real chance” that proceedings would occur.
Discretion?
It is clear that even if all of the elements of a s 106B claim are made out, the court nevertheless retains a discretion whether to grant the relief. A number of matters must be considered, including, of course the legitimate interests of third parties.
It will be appreciated that the unusual circumstances of this case potentially give rise to a number of arguments that the discretion would not be exercised in the wife’s favour. None were the subject of the written submissions on behalf of Ms Wayne – or, at least, expressed in that way. (Nor were they the subject of any evidence from Ms Wayne).
The tortured path of litigation earlier set out that saw the wife failing to seek s 106B relief at an earlier time (including, it might be pointed out, at a time before the W property had been on-sold by Ms Wayne) might itself be relevant to arguments that might be mounted in that respect.
Other arguments pertain to the wife’s potential for s 79 relief even should her s 106B application be successful.
For example, it might be argued (although it wasn’t in the proceedings before me) that circumstances relevant to the award of damages see the wife having very little, if any, s 79 entitlement to same, particularly if it can be argued that the damages should form part of a “separate pool” (See Coghlan & Coghlan (2005) FLC 93-220).In that respect, although there is no evidence before the court as to the components of the damages award; the timing of the action seeking those damages; the length of time between separation and the bringing of the claim; and the length of time between separation and the receipt of the damages would appear (among other things) to make the wife’s case in respect of, for example, contributions, very weak. An alternative argument might be that the facts and circumstances surrounding the transactions involving the husband and Ms Wayne earlier outlined, when seen as a whole, would see the property falling into one pool and other arguments relating to s 75, including, for example, s 75(2)(o) having greater weight than they might absent those factors.
So, too, it might be argued that the “remoteness” of any current property owned by Ms Wayne from the initial dispositions occurring some four and five years ago may (particularly in light of the history of false steps in the wife’s litigation path) be relevant to the exercise of discretion inherent in the application of s 106B.
It is Ms Wayne who bears the onus of convincing the court that the wife’s application should be struck out. I consider that the court should be very cautious about doing so where other elements of the claim are arguable and the court is being asked to strike out on the basis that there is no realistic prospect of the discretion being exercised in favour of the wife.
It may be otherwise, however, if, in this most unusual of factual circumstances, the husband’s bankruptcy and/or death make the wife’s s 79 claim effectively futile.
The Effect of Bankruptcy and Death
The husband died in April 2009, that is, approximately one month after the wife had amended her application to seek s 106B relief. At the time of his death the husband was, it would appear, an undischarged bankrupt.
The totality of the submissions made by either party in respect of the effect of death upon the wife’s claim, or the proceedings themselves, consist of a footnote in the written submissions on behalf of the wife which says: “It is noted that if an adjustment is made it will now, due to the death of the husband since the commencement of these proceedings, be pursuant to s 79(8) …”.
Bankruptcy and its potential effect is not at all addressed in either party’s submissions filed in the proceedings before me. It is however, addressed, along with the husband’s death, in an Application in a Case filed on behalf of the wife on 13 July 2009 and in submissions filed on behalf of the wife on 20 July 2009. In both instances, the wife, in accordance with Rules 6.15(2) and 6.17(2), sought procedural directions in relation to the future conduct of the case in light of the husband’s death and bankruptcy respectively. It is by no means clear whether this Application resulted in any directions or orders related directly to that Application.
If the s 79 proceedings instituted by the wife are not to abate upon the death of the husband, specific statutory criteria must be met (s 79(8)):
79(8) [Death of a party] Where, before property settlement proceedings are completed, a party to the marriage dies:
(a)the proceedings may be continued by or against, as the case may be, the legal personal representative of the deceased party and the applicable Rules of Court may make provision in relation to the substitution of the legal personal representative as a party to the proceedings;
(b)if the court is of the opinion:
(i)that it would have made an order with respect to property if the deceased party had not died; and
(ii)that it is still appropriate to make an order with respect to property
the court may make such order as it considers appropriate with respect to:
(iii)any of the property of the parties to the marriage or either of them; or
(iv)any of the vested bankruptcy property in relation to a bankrupt party to the marriage; and
(c)an order made by the court pursuant to paragraph (b) may be enforced on behalf of, or against, as the case may be, the estate of the deceased party.
The husband’s death has an immediate impact upon the s 79 proceedings themselves. First, until the requirements of s 79(8) (and Rule 6.15) are met, the wife’s proceedings in respect of settlement of property are “suspended” and “no legally effective step [could] be taken either to continue or discontinue them”. (Inthe Marriage of Strelys (1988) 12 Fam LR 437 at 445, per Nygh J).
The orders of Barry J made on 20 July 2009 and earlier referred to do not, on their face, refer to the issue of Rules 6.15(2) (or 6.17(2)). The wife’s Application in a Case and submissions, however, clearly reveal that, in accordance with Rules 6.15 and 6.17, the wife sought procedural directions for the future conduct of the case. The position is unclear. Neither party makes submissions about the issue. I cannot see any prejudice to either party if, to the extent necessary, I dispense with compliance with the Rules so as to permit these proceedings to continue.
The requirements of s 79(8)(b)(i) and (ii) cannot, of course, be dispensed with. The questions required to be answered by the court pursuant to that section can be seen to be similar to those which need to be asked about the potential futility of s 79 proceedings in answering the question whether the wife’s application is doomed to fail. (If there is a reasonable prospect that s 79 proceedings are futile, it is very difficult to see how s 79(8)(b)(i) could be satisfied. The issue of discretion in the s 106B context earlier discussed might, similarly, be seen to be relevant to s 79(8)(b)(ii)).
Similarly, the husband’s bankruptcy might be seen to be relevant to both the prospects of the s 106B claim and to the requirements of s 79(8). That might be particularly so if, for example, the net available funds consequent upon the setting aside of the relevant dispositions is potentially exceeded by the liabilities which the parties should share in arriving at just and equitable s 79 orders.
The husband was, it seems, made bankrupt early in 2009. While the precise date (and circumstances) are not addressed in the evidence read before me, it is clear that the bankruptcy occurred after the commencement of the Bankruptcy and Family Law Legislation Amendment Act 2005 (Cth) (“the Amending Act”) on 18 September 2005. The terms of that legislation have a significant impact on these proceedings.
There is no evidence before me as to what property (if any) vested in the husband’s bankruptcy trustee, (s 58 BA) or whether any such property as he had was exempt (s 116 BA). Again, though, it seems a tolerably safe assumption that any vested or exempt property was negligible. It has already been observed that the transfer of the husband’s E property interest to the trust and the subsequent transactions with it are likely to have occurred beyond the “relation back” period.
As earlier observed, death does not bring an end to a bankruptcy and, in the usual course, the bankrupt’s estate is administered as if death did not occur.
But, the Amending Act has a significant impact upon the position of a non-bankrupt party to matrimonial proceedings. Section 59A of the BA provides that “Sections 58 and 59 have effect subject to an order under Part VIII or VIIIAB of the Family Law Act 1975”. Section 75(2)(ha) of the Act provides that, in the exercise of the court’s s 79 discretion, it must, where relevant, take account of “the effect of any proposed order on the ability of a creditor of a party to recover the creditor's debt, so far as that effect is relevant”.
Within the Act, the definition of “matrimonial cause” has been amended (s 4(1)(cb), and so, too, has the definition of “property settlement proceedings” (s 4(1)). Section 79 has been amended and provides relevantly:
(1) In property settlement proceedings, the court may make such order as it considers appropriate:
…
(b) in the case of proceedings with respect to the vested bankruptcy property in relation to a bankrupt party to the marriage--altering the interests of the bankruptcy trustee in the vested bankruptcy property; including:
(c) an order for a settlement of property in substitution for any interest in the property; and
(d) an order requiring:
(i) either or both of the parties to the marriage; or
(ii) the relevant bankruptcy trustee (if any);
to make, for the benefit of either or both of the parties to the marriage or a child of the marriage, such settlement or transfer of property as the court determines.
(1A) An order made under subsection (1) in property settlement proceedings may, after the death of a party to the marriage, be enforced on behalf of, or against, as the case may be, the estate of the deceased party.
Relevant to the issue posed above, Coleman J (with whom in these respects, Thackray and Ryan JJ agreed) held in Lemnos & Lemnos (2009) FLC 93-394:
57. In my view, by the express wording of the amendments to the FLA and the BA, the legislature revealed an intention that the rights of unsecured creditors of a bankrupt spouse to a share of the bankrupt’s estate were no longer to be automatically preferred to the property settlement rights of the non-bankrupt spouse. To the extent that support for this construction of the legislation is required, the Second Reading Speech provides it. The more vexing question is how such rights are to be regarded.
…
59. In my view, it is clear that Parliament intended by the 2005 amendments to change bankruptcy and family laws so as to avoid the situation where a non-bankrupt spouse could only make a s 79 claim against non vested property and whatever other property might remain after the completion of the bankruptcy.
His Honour went on to say:
97. Accordingly, in cases where there is “property” of the parties to the marriage or either of them, the effect of the 2005 amendments is that the Court has jurisdiction to make orders which have an adverse impact upon unsecured creditors. In this regard the term “property” includes property vested in the trustee of a bankrupt spouse.
98. Although not so expressed, implicit in the submission of Counsel for the trustee that there could be no property with respect to which an order could be made in favour of the wife in this case is the reality that, if correct, such approach potentially and significantly enhances the position of an unsecured creditor. Rather than having to “take its chances” on being paid, the unsecured creditor would be paid after the entitlements to secured creditors were satisfied, and without regard to the rights of the non-bankrupt spouse. That would be a fundamental change in the law. The fortuitous breakdown of the marriage of the debtor would, on that scenario, result in the unsecured creditor potentially being able to recover more than would have been possible had the debtor remained married. There is no apparent legislative foundation for such propositions. As Counsel for the trustee fairly outlined to this Court, by the Insolvency (Tax Priorities) Legislation Amendment Act 1993 the priority previously enjoyed by the ATO has been removed and it now ranks equally alongside other unsecured creditors.
99. It follows that I agree with the alternative proposition made on behalf of the trustee which I have earlier set out, namely that the effect of the insertion of section 79(1)(b) in the FLA is that the interests of unsecured creditors do not automatically “trump” the interests of the non-bankrupt spouse and that the legislation now requires the Court to balance their competing claims in the exercise of the wide discretion conferred upon the Court by s 79.
The BA also makes provision for “after-acquired property” to form part of the divisible estate of a bankrupt (s 58(1)(b) BA). That expression is defined:
(6) In this section, after‑acquired property, in relation to a bankrupt, means property that is acquired by, or devolves on, the bankrupt on or after the date of the bankruptcy, being property that is divisible amongst the creditors of the bankrupt.
Not all after-acquired property falls into the estate; certain property is statutorily exempt. Relevantly, the damages received by the husband may be held to be exempt. (s 116(2)(g) BA). If, however, property is exempt from vesting in the trustee in bankruptcy, any such property vests upon death in the husband’s legal personal representative/s.
If the E property transactions are set aside, the proceeds of sale would, in the usual course of events, become susceptible to s 79 orders.
It will be appreciated that neither the wife’s nor Ms Wayne’s pleaded case, nor their evidence or submissions, address what might occur as a result of the husband’s bankruptcy and death.
Arguments potentially open to the wife emerge. For example, if the proceeds are “after-acquired property” within the meaning of the BA, and are not otherwise exempt property within the meaning of that Act, it seems to me well arguable that the proceeds would be available and that the creditors who have proved in the bankruptcy can “compete” with the wife for those funds in the manner referred to in Lemnos, above.
No arguments have been advanced which suggest that this scenario is not reasonably open. In terms of the potential for the s 106B discretion to be exercised favourably to the wife, there is, in my view, an argument fit to be tried that the wife has a potential s 79 entitlement.
In the absence of argument persuasive of the wife’s s 79 proceedings being futile, I am not prepared to strike out the wife’s claim on the basis that the s 106B discretion may not be exercised in her favour.
It seems to me, then, that the wife has an arguable case that the elements of s 106B are satisfied and that the s 106B discretion might be exercised in her favour in respect of the E property transactions.
There may be issues about whether the component of the damages form part of the bankruptcy estate (because they may be exempt). In that event, a claim by the wife may be in respect of a part of the deceased estate as against the executors or beneficiaries depending upon whether the estate has been administered – a matter about which I have no evidence. No such matters were the subject of any evidence or argument before me. In that event, I am not prepared to summarily dismiss that part of the claim.
Summary of Conclusions
By reason of the matters previously outlined, I find as follows.
The wife has no arguable case in respect of the setting aside of the A Street and W properties.
The wife’s claim for ‘retention of benefits’ has no foundation in law and should be struck out.
The wife’s claim in respect of the vesting of property “in the possession of the husband” and the husband being responsible for debts “in [his] name” should each be struck out.
The only s 106B case that can be reasonably agitated by the wife relates to the creation of the E Trust and its distribution of the E property proceeds to Ms Wayne and the payment of a component of the husband’s damages to Ms Wayne.
The procedural requirements of the Rules emanating from the death of the husband can and should, if necessary, be dispensed with in the manner in which I have earlier indicated.
As the claims made by the wife are fairly arguable in the manner earlier referred to, it seems to me that the wife has, in turn, a fairly arguable case that an order for settlement of property would have been made had the husband not died and, in turn, a fairly arguable case that it is still appropriate to make such an order
No evidence read before me reveals whether the debt now claimed by Ms Wayne was proved in the husband’s bankruptcy. I consider the wife has a fairly arguable case either that there is no such debt or, if there is, that it should be “ignored” in the sense referred to in Biltoft.
By reason of the amendments to the Act, earlier referred to, the wife and the unsecured creditors might each potentially “compete” for such property as is found to be that of the husband’s estate for the purposes of s 79 proceedings. Neither has “priority” nor a better or worse claim than the other (see Lemnos, above).
In the result, in respect of those parts of the wife’s Further Amended Application which have not otherwise been struck out by me, I consider that the application by Ms Wayne to strike out the claim should fail.
Costs
It seems to me that each of the parties have enjoyed some success. I have little information about Ms Wayne’s current financial circumstances but the wife’s financial circumstances would appear to be poor. The conduct of the litigation has been referred to elsewhere in these reasons.
My inclination would be to make no order as to costs but I have, in the absence of submissions, reached no concluded view. I offer that very preliminary view for the purpose only of attempting to save the parties further costs. Obviously, as neither party has been heard on this issue, I will afford them the opportunity.
But, in an attempt to save the parties further expense, I will order that there be no order as to costs save where written submissions – sent via e-mail to my associate and back-copied contemporaneously to the other parties – are received within 21 days of the date of these orders. In that event, unless it is submitted to the contrary, submissions will be considered, and orders made, in chambers without the necessity for further appearance.
I order accordingly.
I certify that the preceding one hundred and seventy-two (172) paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Murphy delivered on 7 June 2011.
Associate:
Date: 7 June 2011
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