Glover & Webster
[2021] FedCFamC1A 69
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 1) APPELLATE JURISDICTION
Glover & Webster [2021] FedCFamC1A 69
Appeal from: Webster & Glover [2021] FamCA 127 Appeal number(s): NOA 23 of 2021 File number(s): BRC 11228 of 2016 Judgment of: STRICKLAND, AINSLIE-WALLACE & ALDRIGE JJ Date of judgment: 19 November 2021 Catchwords: FAMILY LAW – APPEAL – BANKRUPTCY – Appeal from a declaration – Whether the appellant has standing to appeal – Where the authorities state that a bankrupt lacks sufficient interest to prosecute the appeal – Appeal dismissed. Legislation: Family Law Act 1975 (Cth) ss 85, 90SM
Bankruptcy Act 1966 (Cth) ss 58(1)(b), 60
Cases cited: Cummings v Claremont PetroleumPty Ltd (1996) 185 CLR 124; [1996] HCA 19
Guirguis v Guirguis (1997) FLC 92-726; [1997] FamCA 6
O’Neill v O’Neill and Ors (1998) FLC 92-811; [1998] FamCA 67
Number of paragraphs: 39 Date of last submissions: 9 November 2021 Date of hearing: 26 August 2021 Place: Brisbane (via video link), delivered in Sydney The Appellants: Self-represented litigant Counsel for the Respondents: Mr Bunning Solicitor for the Respondents: Damien Greer Lawyers ORDERS
NOA 23 of 2021
BRC 11228 of 2016FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
DIVISION 1 APPELLATE JURISDICTIONBETWEEN: MS GLOVER
First Appellant
R PTY LTD
Second Appellant
AND: MR WEBSTER
First Respondent
S PTY LTD
Second Respondent
ORDER MADE BY:
STRICKLAND, AINSLIE-WALLACE & ALDRIDGE JJ
DATE OF ORDER:
19 NOVEMBER 2021
THE COURT ORDERS THAT:
1.The appeal be dismissed.
Note: The form of the order is subject to the entry in the Court’s records.
Note: This copy of the Court’s Reasons for judgment may be subject to review to remedy minor typographical or grammatical errors (r 10.14(b) Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 10.13 Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth).
IT IS NOTED that publication of this judgment by this Court under the pseudonym Glover & Webster has been approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
REASONS FOR JUDGMENT
STRICKLAND, AINSLIE-WALLACE & ALDRIDGE JJ:
INTRODUCTION
On 8 April 2021 a judge of the Family Court of Australia (now known as the Federal Circuit and Family Court of Australia (Division 1)) made a declaration that a Binding Financial Agreement (“the BFA”) entered into between Ms Glover (“the first appellant”) and Mr Webster (“the first respondent”) on 1 July 2010, covered all the assets, liabilities, superannuation, financial interests and financial resources of them or each of them and, as a consequence there were no interests not covered by the terms of that financial agreement. The effect of the decision was that there was no available property about which to make a property settlement order pursuant to s 90SM of the Family Law Act 1975 (Cth) (“the Act”) as sought by the first appellant. Although joined as second appellant and second respondent respectively, R Pty Ltd and S Pty Ltd have no relevance to the issue to be determined.
In order to give some context to the issues raised on appeal, it is helpful to set out some background to the parties’ dispute.
The parties lived together from about 2010 and separated in 2015.
On 1 July 2010 the parties entered into the BFA pursuant to Pt VIIIAB of the Act. The agreement was to “deal with the division of their property and financial resources and the maintenance in the event of the breakdown of their relationship”. In separate annexures to the agreement the assets and financial resources of each party is set out. Relevantly, the document then provides:
6. [The first appellant] shall make no claim at law or in equity in relation to any further property that [the first respondent] acquires in his sole name with money accumulated from his sole earnings or other income received by him during the relationship.
7. [The first respondent] shall make no claim at law or in equity in relation to any further property that [the first appellant] acquires in her sole name with money accumulated from her sole earnings or other income received by her during the relationship.
After the parties separated, the first respondent commenced proceedings and on 9 December 2016 by a Further Amended Initiating Application, he sought a declaration that the BFA was binding on him and the first appellant. He sought that Q Pty Ltd (“the Q management business”) be sold and the net proceeds be divided between him and the first appellant.
The first appellant filed an Amended Response on 1 March 2017 in which she sought a declaration that the BFA was not binding on the parties and should be set aside. In the alternative, she sought a declaration that there was property which was not captured by the terms of the BFA and she sought orders altering the parties’ property interests.
On 6 March 2017 a judge of the Federal Circuit Court of Australia (now known as the Federal Circuit and Family Court of Australia (Division 2)) (“the Federal Circuit Court”) ordered that the issue of whether the financial agreement was binding be determined as a separate issue. The parties were directed to file pleadings. The first respondent filed a Statement of Claim on 17 March 2017, the first appellant filed a defence and cross claim on 5 April 2017 and the first respondent filed a defence and answer to the cross claim on 13 April 2017.
The issue of whether the financial agreement was binding was heard by a judge of the Federal Circuit Court in August 2018 and on 17 December 2018 the judge declared the financial agreement to be binding on the parties. Consequential orders were made that the parties file points of claim identifying which property is or is not said to be covered by the BFA.
Steps were taken by both parties to prepare the matter for hearing including the appointment of an expert to conduct a forensic analysis of the business conducted by the first respondent.
It is the first appellant’s contention that shares in businesses operated by the first respondent’s Queensland businesses are owned by entities not listed in the first respondent’s schedule of assets and resources to the BFA, and further, that the shares were acquired as a joint venture by them and to which the first appellant made contributions. The first appellant further contended that the first respondent had failed to provide full and frank disclosure.
On 26 September 2019, the proceedings were transferred to the Family Court of Australia to be heard.
On 9 July 2020, the primary judge ordered that there be a preliminary hearing on whether there is property in existence not covered by the BFA.
That hearing was conducted on 22 September 2020, with reasons delivered on 16 March 2021 and on 8 April 2021 the primary judge declared:
1. That the Binding Financial Agreement dated 1 July 2010, covers all the assets, liabilities superannuation, financial interests and financial resources (collectively referred to as “the interests”) of [the first respondent] and [the first appellant] and there are no interests not covered by the terms of the Financial Agreement dated 1 July 2010.
THE APPEAL
By a Notice of Appeal filed on 6 May 2021, the first appellant appeals that declaration. She raises three grounds of challenge to the primary judge’s orders, which in broad contend that the primary judge erred in finding:
· that the evidence of the forensic accountant was relevant only to a consideration of the parties’ property interests, not to whether there exists property not covered by the BFA;
· that there was no property not covered by the BFA; and
· that corporate shareholdings and trusts are the same as personal holdings.
By mid-July 2021 the first appellant had become bankrupt upon the making of a sequestration order.
The hearing of the appeal was set down for 26 August 2021.
On 13 August 2021, the appeal registrar wrote to the first appellant’s trustee in bankruptcy (“the Trustee”) enquiring as to his stance in relation to the appeal. That action was necessary having regard to s 60 of the Bankruptcy Act 1966 (Cth) (“the Bankruptcy Act”) which relevantly provides:
Stay of legal proceedings
…
(2)An action commenced by a person who subsequently becomes a bankrupt is, upon his or her becoming a bankrupt, stayed until the trustee makes election, in writing, to prosecute or discontinue the action.
(3)If the trustee does not make such an election within 28 days after notice of the action is served upon him or her by a defendant or other party to the action, he or she shall be deemed to have abandoned the action.
(4)Notwithstanding anything contained in this section, a bankrupt may continue, in his or her own name, an action commenced by him or her before he or she became a bankrupt in respect of:
(a)any personal injury or wrong done to the bankrupt, his or her spouse or de facto partner or a member of his or her family; or
(b)the death of his or her spouse or de facto partner or of a member of his or her family.
On 16 August 2021, the Trustee replied:
You have requested that I provide an election under section 60(2) of the Bankruptcy Act 1966 (“the Act”) in relation to the above proceedings to which the Bankrupt is a party.
…
I accordingly advise that as Trustee of the Bankrupt Estate I do not propose to prosecute the action.
The letter continued and referred to the provisions of s 60(4) of the Bankruptcy Act, and the Trustee added that if the present action was considered to be of a nature to which s 60(4) of the Bankruptcy Act applied, the Trustee neither consented to nor opposed the first appellant continuing the action.
The appeal is not an action to which s 60(4) of the Bankruptcy Act applies.
At the commencement of the appeal hearing, the first respondent made an oral application that the appeal be dismissed on the basis that the first appellant lacked standing to prosecute the appeal because of her bankruptcy.
Thus before the appeal could be determined this Court adjourned to consider the oral application.
Counsel for the first respondent submitted that the right to appeal is the Trustee’s as the subject matter of the appeal is property and has vested in the Trustee on the first appellant’s bankruptcy. It was further contended that by the Trustee’s election not to continue the appeal, he has “abandoned” the proceedings. Therefore it was argued that the appeal should be dismissed.
While this Court was reserved on the question of the first appellant’s standing to prosecute the appeal, each party was requested to make further submissions on the following point:
Given the nature of the order which is the subject of the appeal is in the form of a Declaration, if that order is set aside and assuming that there is property that is not covered by the Binding Financial Agreement dated 1 July 2010, could the appellant bring an application under s 90SM of the Family Law Act 1975 (Cth) and does she have sufficient interest in that outcome to maintain the appeal?
Counsel for the first respondent reiterated his submissions made at the appeal hearing that the right to appeal vests with the Trustee, the Trustee has elected not to pursue the appeal and thus, the first appellant had no standing to prosecute the appeal.
It was further submitted by counsel for the first respondent that “if there is property which was not covered by the [BFA], [the first appellant] does not have sufficient interest in the outcome to maintain the Appeal” (First respondent’s written submissions filed 2 November 2021, paragraph 9).
The first appellant referred to the Trustee’s letter and submitted that “[the Trustee] has simply opted not to litigate on behalf of the trust himself, rather he left it open to the court to decide” (First appellant’s written submissions filed 9 November 2021, paragraph 18). The first appellant further submits that the Court can determine how much of the property will vest with the trustee and how much will vest with a bankrupt party. With respect, that is not a correct interpretation of the provisions of the Bankruptcy Act. The first appellant’s submissions do not address the issue on which each party was invited to make further submissions.
WHAT IS THE FIRST APPELLANT’S INTEREST IN THE ORDER THAT IS THE SUBJECT OF THE APPEAL?
The answer to the question posed above depends on the characterisation of the order from which this appeal is brought and the interest in that order (O’Neill v O’Neill and Ors (1998) FLC 92-811 (“O’Neill”) at [64]).
Where a person is made bankrupt, the effect of the order is that on one hand, all of the divisible property of the bankrupt vests in the Trustee and, on the other, the bankrupt’s creditors’ rights and remedies against him or her are converted into rights to prove in the bankruptcy.
Fundamental to the bankrupt being relieved of both his property for the benefit of his creditors is that the bankrupt has no financial interest in an appeal such that he may continue it in his own name after being made bankrupt.
In Cummings v Claremont PetroleumPty Ltd (1996) 185 CLR 124 (“Cummings”) the majority (Brennan CJ, Gaudron and McHugh JJ) explained it at 138:
Of course, a money judgment entered against a bankrupt has the effect of increasing the amount of the debts provable in his estate. But it is immaterial that, if an appeal against the judgment were successful, there would or might be a surplus in the estate after the remaining creditors are paid. A bankrupt’s contingent interest in a surplus does not given him an interest which would allow him to sue to enforce proprietary rights and, that being so, it cannot give him an interest to appeal to minimise liabilities.
(Footnotes omitted)
While agreeing with the point, namely, that a bankrupt has no standing to prosecute an appeal, Dawson and Toohey JJ also expressed the view that a right to appeal is property that vests in the Trustee.
This concept has been applied in the family law context. Whilst a bankrupt party can commence property settlement proceedings, in Guirguis v Guirguis (1997) FLC 92-726 (“Guirguis”), the Full Court accepted that a bankrupt party cannot appeal property orders where the subject of the orders vests or will vest in the trustee in bankruptcy, because the bankrupt lacks sufficient interest.
The appeal there was against property settlement orders, with the appellant husband becoming bankrupt between the making of those orders and the filing of the Notice of Appeal, and was dismissed as the effect of the bankruptcy was to leave the appellant husband without the necessary interest to support the institution of an appeal in his own name.
The orders comprised two categories. First, those relating to the property of the bankrupt appellant husband, which vested in the trustee upon the making of the sequestration order, and secondly, those which related to a claim by the bankrupt appellant husband for property which would vest in the trustee if successful. The Full Court held that in these circumstances there was not the necessary interest to support the filing of the appeal.
In O’Neill the appeal was against orders dismissing on an undefended basis the appellant wife’s amended answer filed in property settlement proceedings and her application under the then s 85 of the Act against three companies, and also against the undefended property settlement orders made by the trial judge. Prior to the determination of the proceedings the appellant wife was declared bankrupt. The Full Court dismissed the appeal as incompetent, following Cummings and Guirguis. As was required by those decisions, the Full Court examined the orders which the appellant wife sought to appeal in order to determine whether she had sufficient interest in those orders to support the institution of an appeal in her name.
In relation to the orders the Full Court said this:
70.To the extent that the wife might claim that she seeks to obtain a share of the property in the “possession, ownership or control” of the husband which he is to retain pursuant to Order 4, it has to be remembered that were the wife to be successful in such a claim, any property received by her during the currency of her bankruptcy would vest in her trustee (by virtue of s. 58(1)(b) of the Bankruptcy Act), thus depriving the wife of the interest necessary to institute an appeal in her own name. It is clear from the wife’s amended response filed on 26 April 1996 (which is to be discussed in the following paragraph) that the wife did not seek to receive any property of a type which would not vest in the trustee.
….
72.Even if Bell J.’s orders dismissing the application by the wife for a property settlement of $132,790 and for the setting aside of the disposition of the units in the unit trust can be properly categorised as “procedural” (as was submitted on the wife’s behalf), it seems to us the wife nevertheless has to confront the fact that were these applications to be re-instated, then heard, and then successfully determined in her favour, any property received by her would vest in her trustee (by virtue of s. 58(1)(b) of the Bankruptcy Act). In light of Cummings and Guirguis, she could not then show a sufficient interest in the eventual outcome of an appeal against those orders being Orders (1) and (2) to give her standing to institute such an appeal against them.
If the appeal from the declaration in this matter was successful, and the declaration set aside, then there would either be the re-exercise of the discretion, or a rehearing of the question of whether there was property not covered by the BFA, and if there was, then the first appellant could pursue an application pursuant to s 90SM of the Act seeking an entitlement to some or all of that property. However, as an undischarged bankrupt, any property that she thereby became entitled to would then vest in her trustee in bankruptcy as after-acquired property pursuant to s 58(1)(b) of the Bankruptcy Act.
It follows, in line with the authorities discussed earlier, that the appellant does not have sufficient interest in the order the subject of the appeal to give her standing to prosecute the appeal. As the trustee does not wish to pursue it, the appeal must be dismissed.
I certify that the preceding thirty-nine (39) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justices Strickland, Ainslie-Wallace & Aldridge. Associate:
Dated: 19 November 2021
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