Gazi & Strobel
[2021] FedCFamC1F 223
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 1)
Gazi & Strobel [2021] FedCFamC1F 223
File number(s): SYC 4715 of 2020 Judgment of: MCGUIRE J Date of judgment: 26 November 2021 Catchwords: FAMILY LAW – PROPERTY – INJUNCTION – de facto relationship – application for an injunction to preserve property pending final hearing – application refused – orders made allowing the trustee in bankruptcy to pay the secured creditor a sum of $40,798.09 Legislation: Family Law Act 1975 (Cth) ss 79 and 90SM
Bankruptcy and Family Law Legislation Amendment Act 2005 (Cth)
Civil Procedure Act 2005 (NSW) s 101
Cases cited: Allan & Allan and Ors [2009] FamCA 553
Austin & Hong [2015] FamCA 1119
Ascot Investments Pty Ltd v Harper and Harper (1981) FLC 91–000
Biltoft & Biltoft (1995) FLC 92–614
Combis, Trustee of the property of Peter Jensen (Bankrupt) v Jensen [2009] FCA 778
Lemnos & Lemnos [2007] FamCA 1058
Lemnos and Anor (2009) FLC 93–394
S & M and Ors [2003] FamCA 1387
Sieling & Sieling (1973) FLC 90-627
Stanford & Stanford (2012) 247 CLR 108
Trustee of the Property of G Lemnos a Bankrupt and
Division: Division 1 First Instance Number of paragraphs: 40 Date of hearing: 11 November 2021 Place: Launceston Counsel for the Applicant: In person Counsel for the Respondents: Mr Ridley Solicitor for the Respondents: Matthews Folbigg Pty Ltd Counsel for the Respondents: Mr Ramsey Solicitor for the Respondents: A R Conolly And Company Lawyers ORDERS
SYC 4715 of 2020 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 1)
BETWEEN: MR GAZI
Applicant
AND: MR SHELLBACK AS TRUSTEE FOR THE BANKRUPT ESTATE OF STROBEL
First Respondent
C PTY LTD
Second Respondent
ORDER MADE BY:
MCGUIRE J
DATE OF ORDER:
26 NOVEMBER 2021
THE COURT ORDERS THAT:
1.The application for injunctive orders by the applicant Mr Gazi is dismissed.
2.The first respondent trustee pay to the second respondent the sum of $40,798.09 from funds held in trust for the bankrupt estate of Ms Strobel.
3.That the matter be listed for trial in the Federal Circuit and Family Court of Australia at Sydney with an estimated hearing time of 2 days before Justice McGuire commencing on 30 May 2022 at 10.00am.
4.That the parties make, file and serve their trial affidavits and updated sworn financial statements not later than 28 days prior to the trial date.
5.That the parties make, file and serve case summary documents not later than 7 days prior to the trial date.
6.That the applicant, Mr Gazi, pay the hearing fee in accordance with the Regulations of this Court.
These proceedings be listed for mention and compliance before His Honour Justice McGuire on 16 May 2022 at 9.30am by telephone by dialling … then enter passcode …44#.
Note: The form of the order is subject to the entry in the Court’s records.
Note: This copy of the Court’s Reasons for judgment may be subject to review to remedy minor typographical or grammatical errors (r 10.14(b) Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 10.13 Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth).
Section 121 of the Family Law Act 1975 (Cth) makes it an offence, except in very limited circumstances, to publish proceedings that identify persons, associated persons, or witnesses involved in family law proceedings.
IT IS NOTED that publication of this judgment by this Court under a pseudonym of Gazi & Strobel has been approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
REASONS FOR JUDGMENT
McGUIRE J
APPLICATION
There are substantive property proceedings between these parties where the de facto husband, Mr Gazi, is the applicant and the de facto wife, Ms Strobel, being an undischarged bankrupt, is represented as to her interests under s 90SM of the Family Law Act 1975 (Cth) (“the Act”) by her trustee. I am told that the de facto wife has taken no active role as respondent and may not be cooperative or communicative with her trustee. To the contrary, the indication from the applicant is of good relations between he and Ms Strobel where they share the care of their three children. The discrete interlocutory application now before me is one made by the applicant on his initiating application filed 15 July 2020 where he seeks an interim injunction preventing the Trustee from making a payment from funds held in trust to a secured creditor being the second respondent company, C Pty Ltd.
The debt secured by Supreme Court Judgment against the bankrupt Ms Strobel is in a sum of $40,798.09 and there is a separate argument as to the status of interest accrued on that debt of $15,079.86 and dependent upon the interpretation of s 101 of the Civil Procedure Act 2005 (NSW).
It is proper to comment on the status of the substantive proceedings. The matter came before me in August 2021 in the winter call-over of matters in the Sydney Registry awaiting allocation of a trial date. The matter was not ready for trial. I listed the matter for mention before me on 11 November 2021. The applicant has at all times been self-represented before me but has sought and obtained the indulgence of adjournments to allow him to obtain legal assistance. The respondents prefer that the adjournments have been by way of delay in the prosecution of the application where they argue, in any event, that the application may be spurious.
On 11 November 2021 the applicant sought a further adjournment before me in respect of his own interim application for injunctive orders. He mounted the same argument in respect of his quest for legal assistance. The adjournment was refused and the applicant appeared in person before me. He did so in an informed and articulate manner in respect of his application.
It should also be noted that the Trustee has not to this stage been inhibited by court orders preventing him acting in the distribution of the bankrupt's estate including satisfaction of the second named respondent creditor’s claim. Quite properly, however, the Trustee has not so acted being aware of the anticipated application for injunctive orders from July 2020. This scenario was prominent in my reasons refusing the applicant a further adjournment.
My enquiries of all parties during the course of their submissions in respect of this application elicited unanimous responses that they would be ready for a trial of the substantive issue by February 2022.
The applicant’s case for an injunctive order
The applicant argues that the only property for alteration or distribution in the substantive application is the sum of $105,000E held in trust by the first respondent being the proceeds of sale of real estate registered solely in the name of Ms Strobel the undischarged bankrupt. He makes claim to 100 per cent of that asserted property pool. It follows as a matter of logic on his argument that should the first respondent trustee be permitted to satisfy the claim of the secured creditor being the second respondent in amounts of either the judgement debt of $40,798.09 or the total sum inclusive of interest then there would be insufficient funds to satisfy the applicant’s claim for $105,000E and hence the fruits of his litigation. It is inherent in the applicant's submissions that there is no further property of the parties or either of them noting of course, that any property of the bankrupt, Ms Strobel, excepting superannuation, would have already vested in the Trustee.
The submissions of the applicant before me are that at the final hearing he will argue no knowledge or contribution towards the judgment debt incurred by the bankrupt where the judgment is in respect of only the bankrupt. He will therefore be arguing a 'negative contribution' and thereby grounding his argument for 100 per cent of the extremely small property pool.
The arguments of the first and second respondent's
The first and second respondent join in argument against the injunction and hence that the first respondent be able to satisfy the debt of the second named respondent.
Firstly, they argue that the applicant’s substantive claim is spurious and fanciful where he seeks 100 per cent of the property pool after a nine-year de facto relationship and where the care of the three children of that relationship is shared between the applicant and Ms Strobel.
I am told that Ms Strobel is not cooperative with her trustee in these proceedings and it is likely that she will be the recipient of a subpoena to give evidence at the trial. Interestingly, the applicant suggests an amicable and cooperative relationship with Ms Strobel with the implication from the respondents that they and the Court may be dealing with a 'discontented duo'.
The Respondents vigorously reject the applicant's claim that the property pool is limited to the $105,000 held in trust. Although the evidence in this hearing is not tested by cross-examination, the first respondent does provide affidavit evidence particularised to suggest that the applicant has or has had the benefit of substantial assets following separation. Indeed they give notice to the Court and to the applicant that they are confident that the Court will find the pool to be of a far greater substance than that claimed by the applicant. To the contrary the applicant offers virtually no evidence in support of his argument. There is no discrete affidavit evidence in support of his application for injunctive orders where he purports to rely only on the affidavit, now somewhat aged, filed with his initiating application.
The respondents also argue that the validity or standing of the applicant’s substantive application in that it is brought out of time where they say that the parties separated in 2016 and that the applicant himself has previously made this concession but where the applicant now claims that the separation of the de facto relationship took place in 2018. Again, the applicant neither gives nor adduces specific evidence but this issue is not currently agitated before me and it seems that the parties agree that the issue of separation date will be subsumed in the substantive hearing.
The respondents argue prejudice in the granting of any injunction in that the judgment debt is continuing to accrue interest and that the delays already endured in this matter, including by reason of indulgences given to the applicant, compound the prejudice to the second respondent who runs a small business and who, of course, has the benefit of a Supreme Court order for recovery of the debt.
Generally, the respondents argue that the applicant’s substantive claim is a factitious one and highlighted by tactical delays and perhaps in concert with his bankrupt former de facto partner. They argue that the applicant’s substantive claim for 100 per cent of the property pool is unrealistic and hence not a bona fide application and one with no prospects of success. They argue, therefore, that the prejudice suffered by the second respondent thus far and further by any injunctive order outweighs the applicant’s right to argue his claim.
THE RELEVANT LAW
Part VIIIAA of the Family Law Act 1975 (Cth) introduced in 2004 provides protection for secured creditors of parties to a marriage or either of them not previously available to third-parties.[1] Those provisions now apply to parties to a de facto relationship following amendments to the Act in 2009. The enactment of the Bankruptcy and Family Law Legislation Amendment Act2005 (Cth) (“BFLLA”) further attended to the rights of both primary parties to a marriage (or now de facto relationship) and any third party creditors. The most obvious result of these legislative initiatives is the ability of a bankrupt's trustee to participate in proceedings as a respondent standing in the shoes of the bankrupt. The property adjustment claims of the non-bankrupt spouse are now further enabled and particularly in respect of unsecured creditors of a bankrupt spouse. As such, prior uncertainties and hardship for both the non-bankrupt spouses and third party creditors can be dealt with more efficiently in these Courts.[2]
[1] Ascot Investments Pty Ltd v Harper and Harper (1981) FLC 91–000.
[2] Combis, Trustee of the property of Peter Jensen (Bankrupt) v Jensen [2009] FCA 778 per Collier J.
Section 90SM of the Act (consistent with s 79 for married persons) provides for alteration of property interests following the demise of the de facto relationship. Section 90SM(1) provides:
(1)In property settlement proceedings after the breakdown of a de facto relationship, the court may make such order as it considers appropriate:
(a)in the case of proceedings with respect to the property of the parties to the de facto relationship or either of them—altering the interests of the parties to the de facto relationship in the property; or
(b)in the case of proceedings with respect to the vested bankruptcy property in relation to a bankrupt party to the de facto relationship—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 de facto relationship; or
(ii)the relevant bankruptcy trustee (if any);
to make, for the benefit of either or both of the parties to the de facto relationship or a child of the de facto relationship, such settlement or transfer of property as the court determines.
Section 90SM (3) echoes s 79(2) with due consideration of recent authority most notably Stanford & Stanford,[3] that the Court must not make an order under this section unless it is satisfied that it is just and equitable to do so.
[3] (2012) 247 CLR 108.
Relevant to the application here, s 90SM(4) provides that in considering what order (if any) the Court should make under this section, the Court must take into account the contributions of the parties including direct and indirect financial contributions, and non-financial contributions including as homemaker and parent.
Section 90SM(4) then obligates the Court to consider any further adjustments between parties by reason of the matters at ss (d)-(g) inclusive of the relevant factors at s 90SF(3) which itself includes at (i), (n),(o) and (p) the following:
(i)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; and
…
(n)the terms of any order made or proposed to be made under section 90SM in relation to:
(i)the property of the parties; or
(ii)vested bankruptcy property in relation to a bankrupt party; and
(o)the terms of any order or declaration made, or proposed to be made, under this Part in relation to:
…
(iv)vested bankruptcy property in relation to a person covered by subparagraph (i) or (ii); and
(p)the terms of any order or declaration made, or proposed to be made, under Part VIII in relation to:
…
(iv)vested bankruptcy property in relation to a person covered by subparagraph (i) or (ii); and
The Court has power to make the injunctive orders sought by the applicant by reason of s 114 of the Act which provides at subsection (2A) and (4) as follows:
(2A)In a de facto financial cause (other than proceedings referred to in, or relating to, paragraph (e) or (f) of the definition of de facto financial cause in subsection 4(1)) the court may:
…
(c)make such order or grant such injunction as it considers proper with respect to the property of the parties to the de facto relationship or either of them.
…
(4)If a party to a marriage is a bankrupt, a court may, on the application of the other party to the marriage, by interlocutory order, grant an injunction under subsection (3) restraining the bankruptcy trustee from declaring and distributing dividends amongst the bankrupt’s creditors.
The significance of s 114, is firstly, that it confirms the discretionary nature of the power to make the injunctive order as observed by the Full Court in Sieling & Sieling[4] as follows:
The power to grant injunctions is, of course a discretionary power, not to be exercised lightly. The Court must balance the hardship to each party of granting or refusing an order, and frame its order in such a way as to impose no further restriction than is necessary to achieve the protection of the applicant’s interest. It will not lightly interfere with the rights of an owner of property on the basis of a vague or uncertain claim.
[4] (1979) FLC 90-627, at page 78, 264.
The second significant aspect of s 114(4) is that it does not distinguish between the bankrupt’s secured and unsecured creditors.
CONSIDERATION
Long established process for the Court in altering parties’ property interests pursuant to s 79 or s 90SM obliges the Court to firstly determine the parties’ interests in their property or the property of either of them. The creditors of the parties or either of them are relevant in establishing the net property pool and its value.[5] The applicant here claims that the pool is confined to an amount of $105,000E held in trust by the second respondent being the balance proceeds of sale of real property previously registered solely in the name of the primary respondent, Ms Strobel. The respondents argue, firstly, that the pool is of far greater substance and that the applicant is in possession or control of assets, or has been, such that should and will be taken into account at the final hearing. The implication of that argument is that the claim of the second respondent creditor could be satisfied therefore leaving a property pool to satisfy the applicant’s legitimate claim and his entitlement.
[5] Biltoft & Biltoft (1995) FLC 92–614.
The applicant in his application seeks an order for 100 per cent of what he says is the property pool. The respondents say that this is an ambit claim or not a bona fide claim and where experience suggests, on the bare facts provided, that an award of 100 per cent of the property pool to one or other of the parties is unlikely. The applicant de facto husband particularises his argument only on oral submission to me of negative contributions by the first respondent de facto wife and in circumstances where the remaining property pool is of minimal value.
It seems, therefore, that the competing issues here are:
(i)The retention of a property pool to secure the applicant’s entitlement but where that entitlement should not be vague, uncertain, or unrealistic. Relevantly here the applicant de facto husband has provided no evidence to support his bald submission as to his claimed entitlement. To the contrary, the respondent trustee gives some evidence albeit untested to support a more substantial property pool for consideration under s 90SM of the Act.
(ii)The status of the second respondent creditor’s claim being, as it is, secured as opposed to any unsecured claims against the bankrupt’s estate.
The prejudice to the second respondent is, in my view, a real one where that respondent is a small business person with an outstanding liability of $40,798.09 plus interest. However, that prejudice whilst real and actual, may be mitigated by the allocation of an early trial date where each of the parties express their commitment to an early hearing.
In Lemnos & Lemnos[6] Le Poer Trench J noted the effect of the BFLLA to:
… require me to consider this case in the usual manner adopted for consideration of Part VIII property applications with (sic) exception that I am to treat all of the former property of the husband, now vested in the Trustee, as available for distribution to the wife if that be an appropriate result.
[6] [2007] FamCA 1058 at [62].
In a factual platform similar to that now before me, His Honour indicated that the trustee in bankruptcy might hold property on trust being matrimonial property due to:
… the special nature of beneficial ownership of property as between spouses irrespective of the fact that the legal title to the property may stand in one party’s sole name.[7]
[7] Ibid [66].
His Honour, however, was dealing with unsecured creditors when determining that no party stands in priority of claim or interest to another and specifically that a creditor’s interest or claim will not be given priority over the usual considerations under s 79 or s 90SM of the Act.
His Honour’s decision at first instance in Lemnos went on appeal where the appeal was ultimately allowed but in respect of the exercise of discretion and their Honours in the Full Court[8] did not disturb, and in fact confirmed, His Honour’s findings in respect of there being no priority between the non-bankrupt spouse and unsecured creditors.
[8] Trustee of the Property of G Lemnos a Bankrupt and Lemnos and Anor (2009) FLC 93–394.
The distinction, therefore, between secured and unsecured creditors within the context of the s 79 or s 90SM substantive proceedings is critical as recognised by Watts J, in Allan & Allan and Ors,[9] sitting in an interim hearing where one party sought interlocutory orders in the form of the injunctions. Under the heading “just terms” his Honour states:
[9] [2009] FamCA 553.
[117]Section 90AK of the Act provides any acquisition of property rights must be on just terms.
[118]Secured commercial lenders (and more generally, related but bona fide secured lenders) stand head and shoulders above unsecured creditors. Secured creditors have interest in property. There is generally no question that these property rights have to be quarantined before determining what assets of the parties can be divided. This is to be contrasted with the rights of unsecured creditors (see Coleman J at paragraph 96-101 of Trustee of the property of G Lemnos, a bankrupt and Lemnos and Lemnos (2009) FLC 93-394; Biltoff and Biltoff (1995) FLC 93-614). Sometimes adjustments of property are made without removing all unsecured debts from the asset pool prior to dividing the asset pool between the parties. The pari passu principle as enshrined in s 108 of the Bankruptcy Act, does not apply to the division between unsecured creditors and the parties in these circumstances (see Thrackay (sic) and Ryan JJ in Lemnos at paragraph 262 - 264, 271) and the Family Law Act requires a just and equitable division of property as between spouses and unsecured creditors. No such approach is relevant to a circumstance as exists in this case where orders are sought which affect property rights of bona fide secured commercial lenders.
[119]It needs to be recognised that a commercial lender who has a first mortgage has a power to sell a property without court order. That is a very important right and if it is being acquired, it has to be acquired on just terms. The mortgagee needs to be put into an equivalent position after the first mortgage on a particular property is taken away or if rights are taken away for a limited period, it would have to be done in circumstances where the mortgagee was at no risk of being disadvantaged in any way. Otherwise property rights are being taken away from the third party on other than just terms.
[120]I find it is not appropriate for the mortgagee to lose their registered security and queue up behind others who are owed yet to be determined totals and aggregates after the sale of other properties at unknown times and in an unknown order, over which the mortgagee has no control in respect of the sale. I have no evidence as to whether there are any unknown unregistered mortgagees which would complicate the exercise even further.
[121]The wife’s application to restrain the mortgagees from entering into possession of or selling or otherwise dealing with properties over which they have registered securities (even though it is expressed until further order) has the effect of depriving a third party of the advantages that that security gives them.
[122]Section 90AK of the Act means that you cannot take property from a third party, except on just terms, and you cannot take the property interests which is the hypothecation represented by a registered mortgage without giving something back which fully compensates for what has been taken away.
[123]As mentioned in the context of the discussion about s 90AF(3)(b) of the Act, once the injunctive order is made the market may move and interest may accumulate and there is no guarantee that the mortgagee’s position once lost will ever be able to be regained again.
[124]Although there is a promise of repayment by the liquidation of assets, the mortgagee loses control over the sale of the security that they once had and a repayment to them is out of their control. If a repayment does happen, it will be at a time which is indeterminate. The granting of an injunction would take away, potentially forever, property rights that a third party has and it is not open as a matter of power in the circumstances of this case for the wife to seek an order which would have that effect.
Counsel for the first respondent helpfully referred me to another first instance decision of Kent J in Austin & Hong,[10] where his Honour in a property matter with a convoluted background was required to deal with the status of a loan agreement between the husband and his parent. At [110] to his Honour observes:
The first point to be noted about the wife’s contentions in this respect is that as recognised in Biltoft, there is a fundamental difference between the assessment involved where the debt is secured over property and an unsecured debt/creditor. As was emphasised by the High Court in Stanford v Stanford:[11]
… it is necessary to begin consideration of whether it is just and equitable to make a property settlement order by identifying, according to ordinary common law and equitable principles, the existing legal and equitable interests of the parties in the property. (original emphasis)
[10] [2015] FamCA 1119.
[11] Footnotes omitted.
Counsel for the first respondent to also referred me to the decision of S & M and Ors[12] which although predating the 2004 amendments, remains relevant where the substantive issue was in respect of s 79A involving the claims of a company in liquidation. Their Honours after noting the general practice of establishing the property pool set out in Biltoft, state at [72]:
Ordinarily there is no issue in relation to the interests of secured creditors as the secured creditor has an interest in that part of the property of the debtor over which the security is taken. The Court cannot make an order altering the interests in property to the extent that a secured creditor’s rights in property are affected because the property, to the extent of the security, is not the property of the parties. This is consistent with Ascot Investments (supra) namely that the Court cannot make an order that operates to the detriment of the rights and interests of a third party.
[12] [2003] FamCA 1387.
FINDINGS
The applicant here argues simply that the payment by the first respondent of the secured creditor’s claim will result in the property pool being diluted such that he will not to be able to achieve his own claim under s 79SM. I am not, however, persuaded by this argument. Firstly, the applicant has not put material before the Court such to justify even on a prima facie basis his claim. I do know that the relationship was of nine years duration. I know that there are three children of the relationship whose care is shared between the applicant and his former de facto partner. The affidavit material of the first respondent suggests other property either currently or formerly in the hands of the applicant. In any event, there is little or nothing before me to prima facie justify a successful argument for the unusual result of one party (in these circumstances) achieving 100 per cent of the available property pool. I stress that it is the applicant who carries the onus in respect of persuading me to exercise my discretion to place the injunctive order.
Secondly, the applicant offers no undertaking as to damages being the common condition attached to a person receiving the benefit of an injunctive order. Indeed on the applicant's own argument is that, he is a “man of straw” save and except for the $105,000E held in the first respondent's trust account and he is not, therefore, able to provide the Court with such an undertaking.
Thirdly, there is prejudice in the circumstances of this matter to the second respondent secured creditor. He is a small business person and hence the amount of $40,798.09 is not insignificant and noting he does not have use of that money. The second respondent's claim is secured by reason of a judgment of the Supreme Court of New South Wales. The evidence before me suggests that this judgment was achieved on the basis of a Deed to which the bankrupt spouse was a party but equally to which the applicant here was a witness. I note and accept in this respect the lack of cooperation between the bankrupt spouse and her trustee in bankruptcy but where there is apparently a cooperative and amicable relationship between the bankrupt spouse and the applicant. I also note the delay in the applicant in prosecuting this application for an injunctive order but where the first respondent trustee has not executed his right to pay out the secured creditor.
Fourthly, the claim of the second respondent is secured and does not sit in the s 90SM considerations in the same way as unsecured creditors. It is an existing right secured by court order.
In all of these circumstances, I exercise my discretion in favour of the first respondent trustee in bankruptcy in refusing the application for injunctive orders and thereby permitting the trustee to satisfy the entitlement of the second respondent as to the judgment debt of $40,798.09. I do not have sufficient material available to allow me to determine whether the claimed interest component have the same status of “secured debt”.
I will make procedural orders for the trial of this matter on the submissions of each of the parties that they are effectively ready to take this matter to a hearing.
I certify that the preceding forty (40) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice McGuire. Associate:
Dated: 26 November 2021
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