Houlis and Notaros and Ors
[2015] FamCA 1170
•20 November 2015
FAMILY COURT OF AUSTRALIA
| HOULIS & NOTAROS & ORS | [2015] FamCA 1170 |
| FAMILY LAW – SUMMARY DISMISSAL – Application for summary dismissal of proceedings brought by the first and second respondents pursuant to s 79A of the Family Law Act 1975 (Cth) – Where it was found that the first and second respondents have an arguable case – Where it was found that there were a number of bases upon which their case could be successful – Application for summary dismissal dismissed. | |
| Limitation Act 1969 (NSW) s 42, 54 | |
| Allesch v Maunz (2000) FLC 93-033 | |
| APPLICANT: | Ms Houlis |
| FIRST RESPONDENT: | Mr B Notaros |
SECOND RESPONDENT | Ms C Notaros |
THIRD RESPONDENT | Mr D Notaros |
| FILE NUMBER: | SYC | 4867 | of | 2008 |
| DATE DELIVERED: | 20 November 2015 |
| PLACE DELIVERED: | Sydney |
| PLACE HEARD: | Sydney |
| JUDGMENT OF: | Le Poer Trench J |
| HEARING DATE: | 10 August 2015 |
REPRESENTATION
| COUNSEL FOR THE APPLICANT | Ms Lowson |
| SOLICITOR FOR THE APPLICANT: | Konstan Lawyers |
| COUNSEL FOR THE FIRST AND SECOND RESPONDENTS: | Mr Campton |
| SOLICITOR FOR THE FIRST AND SECOND RESPONDENTS | Mills Oakley Lawyers |
| COUNSEL FOR THE THIRD RESPONDENT | Mr Gardner |
| SOLICITOR FOR THE THIRD RESPONDENT | Ross Clarke & Associates |
Orders
IT IS ORDERED
That the Application in a Case filed by Ms Houlis on 4 August 2015 be dismissed.
The docket registrar is to arrange for the application seeking orders pursuant to s 79A of the Family Law Act 1975 (Cth), filed by first and second respondents, Mr B Notaros and Ms C Notaros, to be listed for further direction so as to progress that matter.
In the absence of any application to the contrary being filed by any of the parties hereto within 14 days from the date hereof, each party’s costs of this application is reserved to be determined upon application at the time of the final hearing of the s 79A proceeding.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Houlis & Notaros & Ors has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
| FAMILY COURT OF AUSTRALIA AT SYDNEY |
FILE NUMBER: SYC 4867/2008
| Ms Houlis |
Applicant
And
| Mr B Notaros |
First Respondent
And
| Ms C Notaros |
Second Respondent
And
| Mr D Notaros |
Third Respondent
REASONS FOR JUDGMENT
introduction
Before the Court is an application by Ms Houlis seeking the dismissal of the proceedings brought against her by Mr B and Ms C Notaros (“Mr B and Ms C”), being the first and second respondents in these proceedings and the husband’s brother and sister in law, on the grounds that they are vexatious and/or an abuse of process and/or have no reasonable prospects of success.
Ms Houlis also sought further orders in addition, and by way of alternative, to her application for summary dismissal. I here set out the orders sought by Ms Houlis in full:
1.An order dismissing the proceedings against the Applicant (Second Respondent in the substantive proceedings) as:
(a) vexatious; and/or
(b) an abuse of process; and/or
(c) having no reasonable prospects of success.
1A. An order vacating Order 6 made on 25 February 2015.
1B.In the alternative to Order 1A above, an order that Order 6 made on 25 February 2015 be set aside and replaced with the following two (2) Orders:
6. That Order 1(i) of the Orders dated 11 December 2014, only insofar as it relates to the proceeds of sale of the properties situated at [E Street, Suburb F] NSW ("proceeds" being less real estate agent's commission and expenses on the sale, and less proper legal costs and disbursements of each of the parties of and incidental to the sale) be suspended in relation to the disbursement of funds due to [Mr D Notaros] pursuant to the Judgment until such time that the sum of $297,000.00 is set aside, and thereafter the operation of Order 1(i) continues in respect to the disbursement of funds to [Mr D Notaros].
7. That the sum of $297,000.00 be placed into a Controlled Monies Account in the names of the legal representatives for [Mr B], [Ms C] and [Mr D Notaros] pending further Order of the Court.
8. That Order 6 does not affect the operation of Order 1(i) of the Orders dated 11 December 2014 in relation to the disbursement of funds to [Ms Houlis].
2. Strictly in the event that the Court declines to make either Order 1, orders that:
(a) Order 6 made on 25 February 2015 be set aside; and
(b) the matter be granted expedition.
3.If neither Orders 1 or 2 are made, that Order 6 made on 25 February 2015 be set aside and replaced with the following two (2) Orders:
6. That Order 1(i) of the Orders dated 11 December 2014, only insofar as it relates to the proceeds of sale of the properties situated at [E Street, Suburb F] NSW ("proceeds" being less real estate agent's commission and expenses on the sale, and less proper legal costs and disbursements of each of the parties of and incidental to the sale) be suspended until such time that the sum of $297,000.00 is set aside, and thereafter the operation of Order 1(i) continue.
7. That the sum of $297,000.00 be placed into a Controlled Monies Account in the names of the three (3) legal representatives to the parties in these proceedings pending further Order of the Court.
4.The First and Second Respondents (Applicants in the substantive proceedings) pay the Applicant's (Second Respondent in the substantive proceedings) legal costs.
The proceedings which Ms Houlis seeks to be dismissed are proceedings initiated by Mr B and Ms C against her and the third respondent, Mr D Notaros (“Mr D”), by way of an Initiating Application filed in this Court on 5 February 2015. I will refer to the proceedings initiated by Mr B and Ms C as the “s 79A proceedings”.
Mr B and Ms C seek that Ms Houlis’ application for the summary dismissal of their s 79A proceedings be dismissed. They also seek their costs of this application be paid on an indemnity basis.
Mr D seeks that the entirety of Ms Houlis’ application be dismissed and that Ms Houlis pay his costs on an indemnity basis.
In the s 79A proceedings sought to be dismissed by Ms Houlis, Mr B and Ms C seek to set aside Order 1(i) of final Orders made on 11 December 2014 (“the Orders”) pursuant to s 79A of the Family Law Act 1975 (Cth) (“the Act”). The Orders were made following a defended hearing in the Family Court in property proceedings between Mr D and Ms Houlis, which commenced in 2008 and concluded in December 2014 (“the property settlement proceedings”).
The Orders made in the property settlement proceedings provided that Mr D was to sell properties located at Suburb F, including properties located at E Street in Suburb F (“the E Street properties”) which were subject to a caveat lodged by Mr B and Ms C to secure their unregistered mortgage. Order 1(c) of the Orders also provided that Mr D do all things and sign all documents necessary to remove the caveat (lodged by Mr B and Ms C) on the title for the E Street properties.
Order 1(i) provided that the proceeds of sale of the properties (and a business) be distributed, following payment of sale costs and discharge of the mortgage, as to $40,000 to Ms Houlis’ parents (relating to a liability found to be outstanding to them) and the balance to Mr D and Ms Houlis (in unequal shares).
In the s 79A proceedings, Mr B and Ms C seek that Order 1(i) be set aside insofar as it relates to the division of the net proceeds of sale of the E Street properties. They seek that the net proceeds of the E Street properties be distributed (after payment of the associated costs of sale) to effect a payment to them of $297,000 and the balance to Mr D and Ms Houlis. The amount of $297,000 is the amount that is contended by Mr B and Ms C to be owed pursuant to a loan advanced by them to Mr D.
It was submitted by Ms Houlis, in the course of the property settlement proceedings, that this loan was unenforceable by reason of being statute barred pursuant to s 42 of the Limitation Act 1969 (NSW) (“Limitation Act”). The submissions made on behalf of Ms Houlis were accepted by the trial Judge in the property settlement proceedings. In those proceedings, the loan was found to be unenforceable and was not taken into account as a liability in the matrimonial asset pool.
Mr B and Ms C claim that they were not given adequate notice by either Mr D or Ms Houlis that the relief sought by them in the property settlement proceedings may prejudice or eliminate Mr B and Ms C’s prospects of recovering the asserted debt owing to them by Mr D.
Order 6 made on 25 February 2015, referred to in Ms Houlis’ proposed minute of order set out above, was made when the s 79A proceedings instituted by Mr B and Ms C came before me in the duty list. Order 6 provided:
That Order 1(i) of the Orders dated 11 December 2014, only insofar as it relates to the proceeds of sale of the properties situated at and known as [E Street, Suburb F], be suspended such that after payment of
6.1 real estate agent’s commission and expenses on the sale; and
6.2 proper legal costs and disbursements of each of the parties of and incidental to the sale
an amount of $297,000 be deposited into a controlled monies account on behalf of the parties pending further Order.
Ms Houlis seeks that this injunctive order be vacated and that it be replaced with an order which ensures the disbursement of the sale proceeds to her is not suspended. Further, Ms Houlis seeks that the disbursement of the sale proceeds to Mr D only be suspended until such time as the amount of $297,000 is deposited into a controlled monies account (see order 1B of Ms Houlis’ minute of Order).
I note that on 7 October 2015, after the hearing of this application but before the delivery of judgment, the parties entered into Consent Orders providing for the variation of Order 6 made on 25 February 2015 so that the operation of Order 1(i) of the Orders of 11 December 2014 was to continue following the deposit of $297,000 into the controlled monies account.
BACKGROUND
Mr D and Ms Houlis married in 2002.
Prior to the marriage, Mr B and Ms C, the husband’s brother and sister in law, had loaned Mr D money over a number of years.
At the date of the marriage, Mr D owned the E Street properties subject to a mortgage to a financial institution and an unregistered mortgage, secured by way of caveat, to Mr B and Ms C. The mortgage was dated 8 February 1993 and was in the principal sum of $335,000. The mortgage provided the due date for payment of the loan was 31 December 1995. Further details of this loan are outlined in the extract from the judgement delivered in the property settlement proceedings, set out below.
Mr D and Ms Houlis separated in February 2008.
Property settlement proceedings were commenced by Mr D against Ms Houlis in November 2008.
Mr D asserted, in the property settlement proceedings, that there was an outstanding liability owed by him to Mr B and Ms C. Mr B gave affidavit and oral evidence as a witness for Mr D in the property settlement proceedings.
Ms Houlis submitted, in the property settlement proceedings, that the loan was unenforceable by virtue of being statute barred pursuant to the Limitation Act. These submissions were accepted by the trial Judge.
The evidence does not illustrate that Mr B and Ms C were put on notice by Ms Houlis that she would be challenging the enforceability of their loan to Mr D.
I here set out the background and reasons of the trial Judge in the property settlement proceedings regarding the issue of the loan alleged to be owing by Mr D to Mr B and Ms C:
LOANS FROM THE HUSBAND’S BROTHER AND HIS WIFE
35. The husband’s brother [Mr B Notaros] and his wife loaned the husband approximately $365,000 over a number of years which the husband used for the purpose of establishing and operating his first [business] at [Suburb G]. [Mr B Notaros] had an unregistered mortgage prepared in February 1993 between him and his wife [Ms C Notaros] on the one hand and the husband on the other. This acknowledged that $335,000 was owed by the husband to his brother and sister-in-law (by that time the husband had repaid $30,000). In March 1993 [Mr B] and [Ms C Notaros] lodged a caveat against the titles to the husband’s properties at 1 and 2 [E Street, Suburb G] to secure this debt.
36. There have been some repayments made by the husband and the current amount outstanding is said to be approximately $300,000.
37. It was submitted on behalf of the wife that s 42 of the Limitation Act 1969 (NSW) (“Limitation Act”) renders this debt unenforceable. This section provides as follows:
42 An action on a cause of action:
(a) to recover principal money secured by mortgage,
(b) …
(c) …
is not maintainable by a mortgagee under the mortgage if brought after the expiration of a limitation period of twelve years running from the date on which the cause of action first accrues to the plaintiff or to a person through whom the plaintiff claims.
38. The covenants in the mortgage include the following:
The mortgagor will pay to the mortgagee the principal sum, or so much thereof as shall remain unpaid, on the 31st day of December 1995.
39. So the question to be determined, in my view, is whether the cause of action first accrued to [Mr B] and [Ms C Notaros] immediately after 31 December 1995.
40. It was conceded on behalf of the husband that the money loaned by [Mr B] and [Ms C Notaros] to the husband is “principal money secured by mortgage” within the meaning of s 42 of the Limitation Act.
41. It was also conceded that the cause of action did not arise upon demand because there was no reference to a demand in the mortgage. The crux of the submission on behalf of the husband was that because the mortgage did not include a schedule of payments or a demand clause and because the loan was secured over the [E Street] properties the limitation period would commence when the [E Street] properties were sold. It was submitted that because the [E Street] properties have not been sold the cause of action has not even commenced, let alone expired.
42. I must say I do not accept this submission. It ignores the fact that the mortgage included the provision that the principal was to be paid on 31 December 1995. The submission is inconsistent with the clear words of this provision. In my view, it is not supported by the evidence.
43. In my view, the submissions by learned counsel for the wife about this matter are correct. As Ms Lowson submitted, the unregistered mortgage contained a provision that the husband would pay the principal sum to [Mr B] and [Ms C Notaros] on 31 December 1995. And as was further submitted, from this time [Mr B] and [Ms C Notaros] had a cause of action against the husband for repayment of the principal sum.
44. Accordingly, in my view, the cause of action arose from the end of 31 December 1995 and any action to enforce the loan would now be well out of time. The consequence is that the loan by [Mr B] and [Ms C Notaros] to the husband is unenforceable.
45. The effect of this in these proceedings, in my view, is that the husband has brought into the marriage two properties which, rather than being encumbered by the debt, are not so encumbered. The consequence of this will be reflected in the husband having made greater contributions by reason of him having greater equity in those properties than had the debt been enforceable.
It is clear from the judgment that Mr B and Ms C were not given an opportunity to address the Court on this issue nor is it clear whether either was present and heard the submissions made in the hearing.
As outlined above, the Orders delivered on 11 December 2014 required Mr D to affect the sale of the E Street (and other) properties. Order 1(i) of the Orders, which is the subject of the s 79A proceedings brought by Mr B and Ms C, provided for the distribution of the net sale proceeds of the E Street properties (after payment of sale costs and the mortgage) to Mr D and Ms Houlis, and to Ms Houlis’ parents.
Mr B and Ms C were subsequently served with a lapsing notice for their caveat on the E Street properties as required by Order 1(c) of the Orders. They did not take steps to prevent the removal of the caveat. I note that Mr B and Ms C in their s 79A proceedings, do not agitate that Order 1(c) regarding the removal of the caveat be set aside. The only order sought to be set aside is Order 1(i), in so far as it relates to the division of the sale proceeds of the E Street properties.
THE EVIDENCE
Ms Houlis
Ms Houlis relies upon an affidavit filed by her solicitor, Mr H, sworn on 10 August 2015.
Mr H in his affidavit set out that the property located at I Street, Suburb F was sold at auction on 24 June 2015 for the sum of $1,900,000 plus GST. The settlement of the sale occurred on 5 August 2015. He anticipated that the sum of $1,152,783.58 will be available for distribution to Mr D and Ms Houlis from the nett proceeds of sale.
Mr H deposed that the property at 1 E Street was also sold at auction on 24 June 2015, for the sum of $1,010,000 plus GST. Mr H deposed that the settlement date for this sale was on 5 August 2015 and he anticipated that the amount of $981,898.37 would be available for distribution to the parties pursuant to Order 1(i).
Also annexed to Mr H’s affidavit is the front page of the exchanged contract for sale of 2 E Street, which was sold at auction on 24 June 2015 for $1,000,000. Mr H deposed that the sale has not yet settled and he has been informed by the lawyers handling the sale that the earliest date of settlement would be 19 August 2015. It appears that this sale has not yet completed. Mr H anticipated that proceeds of $971,250 would be available for distribution after settlement.
Mr B and Ms C
The following are matters deposed to in Mr B’s affidavit sworn on 5 February 2015 and do not represent findings of fact by me.
Mr B deposed that by 1993, due to a series of loans provided by him to Mr D from about the mid 1980’s, he was owed the amount of $365,000 by Mr D.
The funds had been advanced by him to Mr D for the purpose of assisting with the establishment costs of Mr D’s business. The $365,000 owed by Mr D to Mr B and Ms C also included an amount due to be repaid to Mr B for his payment of the deposit for the purchase of the E Street properties.
The E Street properties were purchased in the name of Mr B and Ms C and another brother of Mr D and Mr B, Mr J, in about 1988. Mr B said he provided a deposit of $70,000 for the purchase price and the balance was funded by a loan from the National Australia Bank secured by way of a mortgage against the properties in the name of Mr D, Mr J, Mr B and Ms C.
In 1993, Mr B and Ms C, together with Mr J, transferred to Mr D their interests in the E Street properties. Mr B did not receive any money from Mr D for this transaction. Instead, on 8 February 1993, an unregistered mortgage was signed which named Mr B and Ms C as the mortgagees and Mr D as the mortgagor. Importantly, the mortgage provided that the due date for payment of the loan was 31 December 1995.
At the time the mortgage was prepared, Mr B and Ms C lodged a caveat against the E Street properties to secure their interest created by the unregistered mortgage, securing a total amount of $335,000. The caveat was lodged with the Land Titles Office on 17 March 1993.
At September 1995, following some repayments by Mr D, the amount owed by him was $300,000. At about this time, since the due date for payment was approaching, Mr D asked Mr B if he could delay the payments to him so he could establish another business. Mr B agreed. He retained a contemporaneous record in a book of the date and the amounts of the payments that Mr D made in reducing the debt. Mr B stated that while from 1996 he and Mr D often argued about when Mr D would start paying back the loan, at no time did Mr D deny the debt owing.
The last repayment received by Mr B from Mr D was on 3 March 1997 for $3,000, bringing the sum owing to $297,000.
Mr B deposed that he had conversations with Mr D between 1996 and until about 2012 or 2013 about repayment, wherein he asked Mr D when he would be repaid. In response Mr B said that Mr D would then refer to his most recent business venture and promise to repay him soon once the business is up and running, or words to that effect.
Mr B did not obtain legal advice in relation to the property settlement proceedings between Mr D and Ms Houlis prior to late January 2015, when Mr D provided to him a lapsing notice in relation to the caveat on the E Street properties. He deposed that he was at no time informed that Mr D or his lawyer would be able to cause the caveat to lapse.
Mr B said that he was at no time, during his involvement in the property settlement proceedings between Mr D and Ms Houlis, advised to obtain independent legal advice in relation to the debt, nor was he provided with any notice of relief sought as against his interest in the debt, or of any orders sought which would prejudice his prospects of recovering the debt.
In his second affidavit sworn on 7 August 2015, Mr B annexed handwritten notes purportedly recording the receipt by him of payments from Mr D up to 3 March 1997.
Also annexed to Mr B’s affidavit is correspondence from the lawyer for Mr B and Ms C to Mr D’s and Ms Houlis’ individual lawyers dated 9 March 2015 where it is stated:
I note you conceded at Court on 25 February 2015 that your client failed or neglected to put my client on notice as to any Orders sought in relation to the properties at [1 & 2 E Street, Suburb F] so as to affect my client’s interest by way of a mortgage and their ability to recover the principal due by way of that security.
In the event you contend that such notice was provided, please provide a copy of the document providing such notice or other evidence establishing the provision of that notice.
In the annexed response from Mr D’s lawyer, dated 2 June 2015, it is stated that “I confirm that no notice was given to your client as detailed in your letter.”
A letter from Ms Houlis’ lawyer dated 31 March 2015 did not address the issue of whether a notice was provided. It notified that Ms Houlis intended to file an Application in a Case seeking:
1.Removal of the current injunction in your clients’ favour
2.Summary Dismissal of your clients’ Initiating Application.
Also annexed to Mr B’s affidavit is a letter from Ms Houlis’ lawyer advising that the lawyer acting on the sale of the E Street properties had raised a query in respect of Order 6 of the Orders made on 25 February 2015; namely, as to whether that order prevents him from distributing the balance remaining from the sale proceeds of the E Street properties to Mr D and Ms Houlis after the amount of $297,000 is preserved in a controlled monies account.
THE LAW
Summary dismissal
Rule 10.12 of the Family Law Rules 2004 (Cth) (“the Rules”) outlines the process for an application for summary dismissal:
Application for summary orders
A party may apply for summary orders after a response has been filed if the party claims, in relation to the application or response, that:
(a) the court has no jurisdiction;
(b) the other party has no legal capacity to apply for the orders sought;
(c) it is frivolous, vexatious or an abuse of process; or
(d) there is no reasonable likelihood of success.
Rule 10.14 provides that upon application, the Court may:
(a) dismiss any part of the case;
(b) decide an issue;
(c) make a final order on any issue;
(d) order a hearing about an issue or fact; or
(e) with the consent of the parties, order arbitration about the case or part of the case.
Note: This list does not limit the powers of the court. The court may make orders on an application, or on its own initiative (see rule 1.10).
The principles governing an application for summary dismissal were succinctly outlined by Kay J in Gitane and Velacruz (2007) FLC 93-309, where the Full Court allowed an appeal by the husband against the summary dismissal of his s 79A application. Kay J outlined at 81,314:
25. I paraphrase the salient points as follows:
(1) that relief for summary dismissal is rarely and sparingly provided;
(2) that it is only available if it is clear on the face of the documents of the person asserting a cause of action that there is no reasonable cause of action or that it is a frivolous or vexatious one;
(3) that it is not enough to attain summary dismissal to show that it is a weak case;
(4) that there is a defect in the pleading and it appears that the party still has a reasonable cause of action, the Court will allow the party to reframe its pleading; and
(5) that one only summarily dismisses if it is clear that the case is doomed to fail
The Full Court in Bigg v Suzi (1998) FLC 92-799 (“Bigg v Suzi”) also dealt with an appeal against a summary dismissal of the husband’s s 79A application. The trial judge had summarily dismissed the application on the basis that there was no miscarriage of justice to arising out of the judicial process. The Full Court dismissed the husband’s appeal, finding that the trial Judge was plainly right in summarily dismissing the 79A application because a miscarriage of justice, for the purposes of s 79A(1)(a), must arise out of the judicial process. In this case, the husband had made a unilateral mistake at the time of the making of a consent order. It was found that the application could not possibly succeed and therefore it was correctly summarily dismissed.
Their Honours Barblett DCJ, Lindenmayer and Finn JJ considered at length in their reasons the source of the Court’s power to strike out or dismiss proceedings summarily. The Full Court observed, at paragraphs 5.5 – 5.6, that this Court has the necessary inherent, and discretionary, power to dismiss or permanently stay an application which cannot succeed.
As to the principles which govern the exercise of that discretion, the Court in Bigg v Suzi cited, at para 5.10, the comments of Kirby J in Lindon v The Commonwealth (No. 2) (1996) 70 ALJR 541 A(“Lindon”) at 544-5:
The approach to be taken by the Court to the Commonwealth's application for summary relief is not in doubt:
1. It is a serious matter to deprive a person of access to the courts of law for it is there that the rule of law is upheld, including against government and other powerful interests. This is why relief, whether under O 26, r 18 or in the inherent jurisdiction of the Court, is rarely and sparingly provided; [General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 at 128f; Dyson v Attorney-General [1911] 1 KB 410 at 418.
2. To secure such relief, the party seeking it must show that it is clear, on the face of the opponent's documents, that the opponent lacks a reasonable cause of action [Munnings v Australian Government Solicitor (1994) 68 ALJR 196 at 171f, per Dawson J] or in advancing a claim that is clearly frivolous or vexatious; [Dey v Victorian Railways Commissioners (1949) 78 CLR 62 at 91.]
3. An opinion of the Court that a case appears weak and such that it is unlikely to succeed is not, alone, sufficient to warrant termination. [Coe v The Commonwealth (1979) 53 ALJR 403; Wickstead v Browne (1992) 30 NSWLR at 5-7.] Even a weak case is entitled to the time of a court. Experience teaches that the concentration of attention, elaborated evidence and argument and extended time for reflection will sometimes turn an apparently unpromising cause into a successful judgment;
4. Summary relief of the kind provided for by O 26, r 18, for absence of a reasonable cause of action, is not a substitute for proceeding by way of a demurrer. [Coe v The Commonwealth (1979) 53 ALJR 403 at 409.] If there is a serious legal question to be determined, it should ordinarily be determined at a trial for the proof of facts may sometimes assist the judicial mind to understand and apply the law that is invoked and to do so in circumstances more conducive to deciding a real case involving actual litigants rather than one determined on imagined or assumed facts;
5. If, notwithstanding the defects of pleadings, it appears that a party may have a reasonable cause of action which it has failed to put in proper form, a court will ordinarily allow that party to reframe its pleading. [Church of Scientology v Woodward (1980) 154 CLR 25 at 79.] A question has arisen as to whether O 26, r 18 applies to part of a pleading. [Northern Land Council v The Commonwealth (1986) 161 CLR 1 at 8.] However, it is unnecessary in this case to consider that question because the Commonwealth's attack was upon the entirety of Mr Lindon's statement of claim; and
6. The guiding principle is, as stated in O 26, r 18(2), doing what is just. 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.
Applications pursuant to s 79A
Section 79A(1) of the Act relevantly provides:
(1) Where, on application by a person affected by an order made by a court under section 79 in property settlement proceedings, the court is satisfied that:
(a) there has been a miscarriage of justice by reason of fraud, duress, suppression of evidence (including failure to disclose relevant information), the giving of false evidence or any other circumstance; or
…
the court may, in its discretion, vary the order or set the order aside and, if it considers appropriate, make another order under section 79 in substitution for the order so set aside.
Evidently, it is not necessary for an applicant in s 79A proceedings to have been a party to the original property settlement proceedings. The relevant test is that the applicant is “affected by an order” made in the property settlement proceedings.
Applications by creditors
Section 79A(4) of the Act states that “For the purposes of this section, a creditor of a party to the proceedings in which the order under section 79 was made is taken to be a person whose interests are affected by the order if the creditor may not be able to recover his or her debt because the order has been made” (emphasis added).
The importance of ensuring a person whose interests may be adversely affected by a decision made has the right to present material information and submissions before the decision is made was made clear by the High Court in Allesch v Maunz (2000) FLC 93-033 at paragraphs 35-36 (footnotes omitted):
It is a principle of justice that a decision-maker, at least one exercising public power, must ordinarily afford a person whose interests may be adversely affected by a decision an opportunity to present material information and submissions relevant to such a decision before it is made. The principle lies deep in the common law. It has long been expressed as one of the maxims which the common law observes as ‘an indispensable requirement of justice’. It is a rule of natural justice or ‘procedural fairness’. It will usually be imputed into statutes creating courts in adjudicative tribunals. Indeed, it long preceded the common and statute law. Even the Almighty reportedly afforded Adam such an opportunity before his banishment from Eden.
The rule is also implicit in international principles of human rights. It is inherent in the proper conduct of judicial proceedings in a court of law. It may even be an implied attribute of the Judicature established under, and envisioned by, the Constitution. So deeply ingrained is the principle that more recent times has seen its extension, with certain exceptions, to administrative tribunals and other decision makers. The principle governed the Family Court of Australia in determining the rights of the present parties”.
In Daniel v Daniel (Trustee in Bankruptcy) (2004) FLC 93-187, Emmett J observed (in obiter dicta) at 79,163 that unsecured third party creditors may have a remedy available under s 79A where there has been a miscarriage of justice established:
33. If it be the fact that, in a situation such as this, an order is made by the Family Court that results in a miscarriage of justice so far as concerns unsecured creditors of a party, it may well be open for those unsecured creditors, or the trustee in bankruptcy representing them, to make an application.
When dealing with an s 79A application brought by a third party, regard must first be had to the requirement in s 79A(1) that the application must be brought by a person affected by an order made under s 79. In The Deputy Commissioner of Taxation for Western Australia & Spanjich & Spanjich (1988) FLC 91-974 (“Spanjich’s case”), the question before the Court was whether the Deputy Federal Commissioner of Taxation was a “person affected”. The trial judge had held that if a person’s rights at law are not affected by an order of a court then they are not “affected” by orders as required by s 79A. In allowing the appeal against this decision, the Full Court held that the real question was whether, if the effect of the orders was to prevent the Commissioner from recovering tax due and owing, he was a person affected. The Full Court found that the decision as to whether the Commissioner was a person affected could only be determined after a hearing of the relevant issues in the case. The Court stated at 77,049:
The ``affect'' may have relation to something more than strict legal rights and include the practical effect of the order on the recovery of moneys due and owing in the circumstances of the case. If the order had the effect of so reducing the property of the husband that the Deputy Federal Commissioner was thereby unable to recover tax owing, then he was a person affected by that order.
Miscarriage of justice
In order to establish that there was a “miscarriage of justice” for the purposes of s 79A, it must be established that there has been a miscarriage of justice arising out of the judicial process. In Gebert & Gebert (1990) FLC 92-137 the Full Court outlined that the term should not be interpreted restrictively:
The important matter that must be established for an application under this part of the section to succeed is that there has been a miscarriage of justice. It is, we think, clear as counsel for the appellant argued that the words `miscarriage of justice' should not be given a restrictive meaning, particularly when coupled with the words `any other circumstance' and that justice means justice according to law.
In Clifton & Stuart (1991) FLC 92-194 the Full Court observed that a miscarriage of justice “by any other circumstance” must relate to the integrity of the judicial process. In Suiker & Suiker (1993) FLC 92-436 the Full Court outlined, at 80,472, that the “judicial process” is not limited to the hearing in the Family Court:
As regards the view expressed in Clifton and Stuart that the expression `miscarriage of justice' `relates to the integrity of the judicial process' we are of the opinion that this passage was not intended to refer only to the hearing in the Family Court, but that the expression `judicial process' can refer to a variety of matters and circumstances which had an influence on the outcome of the litigation. It is neither necessary nor desirable to attempt to define the matters which may amount to a miscarriage of justice by reason of any other circumstance in the relevant sense.
Obligation of notification to third parties in Family Law proceedings
There are no provisions of the Act or the Rules that require the giving of notices to third parties in s 79 proceedings. However, the obligation of full disclosure of third party interests to the Court and of notification to third parties who may be affected by an order and/or have the right to intervene in proceedings has been established by a number of decisions of this Court (see Chemaisse and Chemaisse; Federal Commissioner of Taxation (1988) FLC 91-915, Re Chemaisse; Federal Commissioner of Taxation (Intervener) (1990) FLC 92-133, Spanjich’s case, Rowell and Rowell; Deputy Federal Commissioner of Taxation (Intervener) (1989) FLC 92-026, Re Bailey and Bailey (1990) FLC 92-117, Semmens v Commonwealth of Australia and Collector of Customs (SA) (1990) FLC 92-116, Biltoft and Biltoft (1995) FLC 92-614 (“Biltoft”), and Official Trustee in Bankruptcy v Donovan and Donovan and Stevens (1996) FLC 92-703 (“Official Trustee in Bankruptcy v Donovan”).
In Biltoft the Full Court outlined, in relation to the position of unsecured creditors in family law proceedings, that there is no absolute or prescribed procedure in relation to unsecured liabilities and that they may be discounted or disregarded by the Court if, for example, they are vague or uncertain, unlikely to be enforced, or unreasonably incurred. The Full Court also found that there is no requirement that the Court must consider and deal with the rights of an unsecured creditor prior to the Court making a s 79 order, nor is there any rule of priority between a creditor and a party to the marriage.
More relevantly, however, the Full Court observed that despite the absence of any rule requiring the provision of notices on third party creditors, failure to do so in circumstances where a creditor’s legitimate interests may be affected could constitute a miscarriage of justice within the meaning of s 79A. It was the view of the Full Court that justice and common sense dictate that third parties who may be adversely affected by a s 79 order be given notice. The Full Court stated at 82,126 – 82,127:
In Semmens v. Commonwealth of Australia and Collector of Customs(S.A.) (1990) FLC 92-116, the Full Court, after citing Rowell's case with approval, went on to say at p 77,767:—
`Neither the Family Law Act nor the Rules of Court require notices to be given to third parties in proceedings under sec. 79, 86 or 87. Nevertheless there are cases where the orders sought by one or both of the parties may impinge upon the legitimate rights of third parties. Whilst it would not be appropriate to require parties to such proceedings to give notice in every case to all third parties who are or may be creditors of one or both of the parties, nevertheless in particular cases the failure by the parties to do so (or the Court to direct such a course) may prejudice the rights of third parties.
As Gibbs C.J. said in the quotation from Ascot Investments referred to above:
`... it does not follow that Parliament intended that the legitimate interests of third parties should be subordinated to the interests of a party to a marriage, or that the Family Court should be able to make orders that would operate to the detriment of third parties.'
Whilst we think it inappropriate, in the absence of Rules of Court to this effect, to require notices to be given to third parties in all such circumstances, it must be recognised that the failure to do so in particular cases can severely impinge upon the `legitimate interests of third parties' and may almost inevitably in many cases constitute a `miscarriage of justice' within sec. 79A. Consequently, in our view, where in a proceeding under sec. 79, 86 or 87 it appears to either of the parties that there are interests of third parties which might be adversely affected by the orders which are being sought or the terms of the agreement, justice and common sense dictate that those third parties be given notice.
Similarly, where the Court becomes apprised of that circumstance in the course of hearing such a proceeding, that procedure would also commend itself.
Failure to do so in a particular case may adversely affect the interests of a third party and, in the long run, may open up the orders which have been made or the agreement which has been approved or registered to challenge sec. 79A and 87(8) or otherwise.
The Full Court said further at 82,128 – 82,129:
There is an obligation on both parties to disclose any significant creditors or any significant claim against either of them by a third party. If, as a result of the order of the Court in the property proceedings, the ability of a creditor or claimant to recover his or her debt or claim is likely to be affected, notice of the Family Court proceedings must be given to that creditor or claimant. He/she may then intervene in the Family Court proceedings and either seek a stay of those proceedings or some appropriate order which recognises his/her rights.
The Full Court in Biltoft noted that in that case, the unsecured creditor was aware of the family law proceedings and gave evidence before the trial Judge but did not seek to intervene in the proceedings or recover the amount due to him. The Court stated, at 82,127- 82,128, that:
In the present case, the liability of the husband to Mr Horrocks is unsecured. Mr Horrocks gave evidence before the trial Judge but did not seek to intervene in the proceedings and had, up to the date of trial, not taken any steps to recover the amount due to him from the husband. In 1991, he was aware of the marital problems of the husband. He has taken legal advice to protect his interests but has not instituted proceedings in the Courts to recover the debt because he said he does not believe in litigation to resolve commercial matters where the parties are talking and, because in 1993, the husband raised these proceedings with him as a reason why he was unable to settle with him. He did not seek to intervene in the present proceedings. Moreover, between 31 July 1991 and the commencement of the hearing, he had not sought to negotiate with the husband to recover his debt. The evidence disclosed that he has at all times been slow and/or reluctant to pursue his rights against the husband.
In relation to unsecured liabilities, we would with respect agree with the observation of Nygh J. in Af Mr Bsens and Af Mr Bsens (supra) at p 76,669:—
``Nor, as has been pointed out earlier, is there anything in the decision of the High Court in Ascot Investments Pty. Ltd. v. Harper and Harper to suggest that this Court cannot make an order dividing the assets of the parties because such a division might hamper a third party in his or her chances of recovery of a debt.''
Further, we are of the view that the diminution of the assets of a party to a marriage as a result of an order of the Family Court does not affect the right of an unsecured creditor to apply to a Court for an order which will then justify execution against the unencumbered assets of that party. As Elliott J. said in Hannah and Hannah; Tozer and Tozer (1989) FLC ¶92-052 at p 77,597:
``The Family Law Act has been in operation now for nigh on 15 years — long enough for those in business or finance to realise that the property of persons with whom they deal may be the subject of competing claims under the [Family Law] Act by a spouse, or perhaps a child of the marriage. If they thus advance money or supply goods without security, then the choice — and the risk — is theirs.''
The Court held at 82,129 that as a result, it was not demonstrated that the trial Judge erred in not giving priority to the debt owing to the unsecured creditor over the wife’s claim:
As we have already said, Mr Horrocks was well aware of the proceedings in this Court and the likely effect of an order in relation to his recovery of his debt, yet he did not seek to intervene. Accordingly, in our view, it has not been demonstrated that the trial Judge erred in not giving the Horrocks' debt priority over the claim of the wife.
In Official Trustee in Bankruptcy v Donovan the Full Court confirmed the importance of creditors being notified of Family Court proceedings when their ability to recover a debt was likely to be affected by the making of final orders. In this case, the trial Judge had found that there was no miscarriage of justice occasioned by the failure to notify the Law Society of the proceedings, who were investigating claims made by former clients of the second respondent. The Court held that in the circumstances before it, there was an obligation to notify the Law Society of the proceedings, the return date of the proceedings, and that final orders would be sought on that date to enable the Law Society to seek, if it desired, to intervene or stay proceedings or some other relevant order. The failure to notify the Law Society was found to be a miscarriage of justice within the meaning of s 79A(1)(a) of the Act. The Full Court outlined that the decision in Biltoft did not have the effect that the mere disclosure by the parties to the Court of significant creditors would be sufficient to discharge their obligation to give notice to the creditor of the Family Court proceedings. The Court outlined at 83,241:
The only finding open to the trial Judge on the evidence was that neither the Law Society, the Receiver of the husband's practice, nor the persons whose funds were misappropriated by the husband were notified of the return date of the relevant proceedings or that the parties intended, if possible, to seek that the duty Judge make final orders in relation to the wife's claim under s 79 on that return date, namely, 7 February 1986. Clearly, on the evidence, the ability of a claimant to recover a debt arising out of the husband's misappropriation was likely to be affected by the making of the final orders which were in fact made.
In our judgment, in the circumstances of this case, there was an obligation to notify, and given the relevant statutory scheme, to notify the Law Society of the proceedings, the return date of those proceedings and that, if possible, final orders would be sought on that return day to enable the Law Society, if it so desired, to seek to intervene in the proceedings, or a stay of the proceedings or some other appropriate order. That obligation was not discharged by placing the relevant material before the Court.
In the circumstances of this case, the failure to so notify amounts to a miscarriage of justice within the meaning of s 79A(1)(a).
O’Ryan J in Australian Securities and Investments Commission v Rich (2003) FLC 93-171 also said, at 78,742-78,743:
45. In summary, the law is that if there are secured or unsecured liabilities to third parties then these must be deducted from the pool of assets before an order is made pursuant to s 79 for property settlement. If as a result of the order the ability of a creditor to recover a debt is likely to be affected then the creditor must be given notice and an opportunity to be heard. So also if as a result of an order the ability of a claimant to recover a claim is likely to be affected then the claimant must be given notice and an opportunity to be heard. If there is an outstanding claim, which is unresolved, the Court may postpone the proceedings until the extent of the liabilities is determined. If however an order is made by consent or after a contested hearing and the third party creditor or claimant whose interests may be adversely affected by the order was not given notice then the third party may seek to have the order set aside.
Limitations Period
Section 42 of the Limitation Act provides that the limitation period for an action on a cause of action to recover principal money secured by mortgage is only maintainable for 12 years from the date on which the cause of action first accrues.
However, s 54 of the Limitation Act provides that if a cause of action is confirmed “before the expiration of the limitation period” the limitation period will restart from the date of the confirmation. I here set out the relevant requirements of this section:
54 Confirmation
(1) Where, after a limitation period fixed by or under this Act for a cause of action commences to run but before the expiration of the limitation period, a person against whom (either solely or with other persons) the cause of action lies confirms the cause of action, the time during which the limitation period runs before the date of the confirmation does not count in the reckoning of the limitation period for an action on the cause of action by a person having the benefit of the confirmation against a person bound by the confirmation.
(2) For the purposes of this section:
(a) a person confirms a cause of action if, but only if, the person:
(i) acknowledges, to a person having (either solely or with other persons) the cause of action, the right or title of the person to whom the acknowledgment is made, or
(ii) makes, to a person having (either solely or with other persons) the cause of action, a payment in respect of the right or title of the person to whom the payment is made,
(b) a confirmation of a cause of action to recover interest on principal money operates also as a confirmation of a cause of action to recover the principal money, and
(c) a confirmation of a cause of action to recover income falling due at any time operates also as a confirmation of a cause of action to recover income falling due at a later time on the same account.
(3) Where a person has (either solely or with other persons) a cause of action to foreclose the equity of redemption of mortgaged property or to recover possession of mortgaged property, a payment to the person of principal or interest secured by the mortgage or a payment to the person otherwise in respect of the person’s right or title to the mortgage is a confirmation by the payer of the cause of action.
(4) An acknowledgment for the purposes of this section must be in writing and signed by the maker.
(5) For the purposes of this section a person has the benefit of a confirmation if, but only if, the confirmation is made to the person or to a person through whom the person claims.
(6) For the purposes of this section a person is bound by a confirmation if, but only if:
(a) the person is a maker of the confirmation,
…
(e) the person is bound under subsection (7).
(7)
(a) Paragraph (b) applies to a confirmation of a cause of action:
…(vi) to recover principal money or interest secured by mortgage of property, by way of the appointment of a receiver of mortgaged property or of the income or profits of mortgaged property or by way of sale, lease or other disposition of mortgaged property or by way of other remedy affecting mortgaged property…
(b) Where a maker of a confirmation to which this paragraph applies is, on the date of the confirmation, in possession of the property, the confirmation binds a person in possession during the ensuing period of limitation, not being, or claiming through, a person other than the maker who is, on the date of the confirmation, in possession of the property.
As outlined by his Honour Brennan J in Stage Club Ltd v Millers Hotels Pty Ltd (1981) 150 CLR 535 at 569- 570, in order to extend the limitation period pursuant to s 54, the confirmation of the cause of action must be made prior to the expiry of the period:
Section 63(1) distinguishes the Act from the Limitation Act of 1623. The Act extinguishes substantive rights which, under the old law, might been revived after the expiry of the limitation period…Under the Act, there can be no new assumpsit, no implied promise to discharge a liability, after the expiry of the limitation period. The liability is gone, the right of the creditor extinguished. Although an acknowledgment prior to the expiry of the limitation period, if made in conformity with s 54, extends the limitation period, no revival of the cause of action is possible after the period expires.
Further, as made clear from the text of s 54(2)(a)(i), the acknowledgement must be made by “a person against whom…the cause of action lies” (Mr D) and “to a person having (either solely or with other persons) the cause of action” (Mr B and Ms C).
In Hipworth v Mahar (1957) CLR 335 (“Hipworth v Mahar”), referred to by counsel for Ms Houlis in support of her submissions, the High Court dealt with an appeal from a judgement of the Supreme Court of Victoria in which the trial Judge had found that the limitations defence raised by the debtor failed because of an acknowledgement in writing made by the debtor. On appeal, counsel for the appellant asserted that while the appellant had made an acknowledgement in writing, it was not an acknowledgement “given to the person entitled thereto or his agent” as required by relevant Victorian legislation. The High Court dismissed the appeal. At paragraph 15, their Honours Dixon C.J. Webb and Fullagar JJ, cited the English authority of Blair v. Nugent (1846) 3 Jo & Lat 658 at 677, where the Lord Chancellor Sir Edward Sudgeon said:
The next question is whether it is an acknowledgment 'to the person entitled thereto or his agent'. The cases show that the Court has not, in that respect, restricted itself within narrow limits. If it be made in a schedule, affidavit or answer, it is sufficient, although it may be said that in these cases it is made to the Court and not to the party. The decisions are, I think, right. They proceed upon a liberal, but yet a just and fair, construction of the statute.
Their Honours observed, at paragraph 16, that the essential question to be considered in determining whether an acknowledgement is effective to re-start a limitations period is whether it was made for the purpose, or with the intention, of being communicated to creditors (bold emphasis added):
16. There is thus seen, we think, to be a substantial body of authority in favour of the view that an admission by a bankrupt in his statement of his affairs that a debt is owing to a particular creditor must, if there is no sequestration or the bankruptcy is annulled, be regarded as a sufficient acknowledgment "given to" the creditor concerned, and available as such in subsequent proceedings in which the debtor claims that his debt is barred by a statute which makes time run anew from the date of an acknowledgment given by him to the creditor. The admission has, of course, no effect in a bankruptcy itself, for statute-barred debts are not provable, and statutes of limitation cease to run on sequestration: see Lightwood, Time Limit on Actions, p. 154. But in other proceedings not barred by a bankruptcy the better view is that the admission is an effective acknowledgment "given to" the creditor. The reasons stated in the authorities are not very clear, but the reasons are not far to seek. The admission is not made directly to the creditor, but it is made with the intention that it shall be communicated to the creditor and for the purpose of enabling a compromise of rights as between all creditors. Having that intention and that purpose, it is fairly and properly regarded as a statement made to each and every creditor: "I admit to you that I owe you so much, and I inform you that I owe so much to so many other creditors". This view represents, as Sir Edward Sugden said, "a just and fair construction of the statute". No distinction can be drawn between an admission made in abortive insolvency or bankruptcy proceedings and an admission made in abortive proceedings under the Farmers Debts Adjustment Act. The official who receives the "Proposal for Adjustment" is directed by s. 19 of the Act to communicate it to all the creditors. Admissions contained in the proposal must be regarded as made with the intention that they shall be communicated to the creditors concerned. It seems correct, and in accord with authority, to regard them as acknowledgments given to the creditors. The case is different from that of a will or of an executor's affidavit for probate. Neither a will nor an executor's affidavit is made for the purpose, or with the intention, of its being communicated to creditors.
SUBMISSIONS
Ms Houlis
Counsel for Ms Houlis firstly conceded in oral submissions that, for the purposes of the present application for summary dismissal, the debt owed to Mr B and Ms C was “capable of being enforced” against Mr D.
It was not conceded by counsel for Ms Houlis, however, that Mr B and Ms C had the status of secured creditors of Mr D.
It was the submission of counsel for Ms Houlis that despite the above concession, Order 1(i) of the Orders of 11 December 2014 did not relevantly “affect” Mr B and Ms C within the meaning of s 79A. Accordingly, it was submitted, there was no standing for them to bring the s 79A proceedings before the Court and the Court has no jurisdiction to hear the application.
Counsel outlined that as a result of the injunctive order made in February 2015, Ms Houlis is unable to realise her entitlements under the Orders made in the property settlement proceedings. Counsel accordingly sought the substitution of the order as set out earlier in these reasons.
In written submissions, it was submitted for Ms Houlis that none of the Orders in the property settlement proceedings affected the capacity of Mr B and Ms C to sue Mr D for the amount alleged to be owed to them. Rather, it was contended, the effect of the Orders overall was to deliver to Mr D a significant lump sum which is more than sufficient to discharge the debt, in the event that Mr B and Ms C can successfully sue for the debt in another forum.
I note that in relation to the last submission it is possible that Mr B and Ms C could be prevented from having their claim against Mr D determined in another court by application of the principle set out in Port of Melbourne Authority v. Anshun Pty. Ltd. (1981) 147 CLR 589 and if that applied, res judicata. Further, should Mr B and Ms C be successful in another court against Mr D in recovering the full amount of their debt there would likely be an order for costs. That result can reasonably predict Mr D would himself seek to set aside the subject orders under s 79A.
Mr H, referring to his affidavit affirmed sworn on 10 August 2015, stated in written submissions that the effect of Order 1(i), without accounting for the sale of the E Street properties, will be that Mr D will be paid $687,462.49 from the sale of the property at I Street East, Suburb F (being Mr D’s 59.635 percentage share of the sale proceeds pursuant to the Orders of 10 December 2014). It was contended that Order 1(i) provided Mr D with liquid assets which could fully discharge the debt owed to Mr B and Ms C. Accordingly, it was submitted for Ms Houlis, Order 1(i) did not affect the interests of Mr B and Ms C as creditors; if anything, it improved their position to recover the monies owed to them.
It was also stated in the written submissions for Ms Houlis that Mr B and Ms C have not attempted to sue Mr D for the debt and accordingly there is no judgement in their favour in respect of, or precisely quantifying, the debt. It was submitted that the status of Mr B and Ms C is, at most and without concession, that of unsecured creditors. It was contended that the placing of a caveat does not equate with security; it merely advises the world at large of a claim.
Counsel for Ms Houlis sought to distinguish the facts of this matter from those before the Court in Spanjich’s case. Unlike that case, it was argued here, there is no evidence before the Court to support a conclusion that Order(1)(i), which adjusted the property interests of Mr D and Ms Houlis, does, would or could have the effect of Mr B and Ms C not being able to recover their debt. In Spanjich’s case, counsel outlined, the effect of the orders made was to deprive one of the litigating parties of assets, thus potentially depriving a creditor of their opportunity to regain those assets. Counsel asserted that this was not the case in the present proceedings because Mr D, after the sale of the E Street properties, would receive ample assets to pay the debt alleged by Mr B and Ms C, should they chose to take action to enforce it. Accordingly, it was reiterated for Ms Houlis, Mr B and Ms C are not affected by the Order, they do not have standing to make the application and the Court does not have jurisdiction to hear it.
In relation to the caveat on the properties, it was submitted that the order made in the property settlement proceedings was directed at Mr D, requiring him to take all steps necessary to remove the caveat. It was submitted that Mr B and Ms C were given notice of Order 1(c) of the Orders in that they were served with the lapsing notice. Upon being served, Mr B and Ms C did not seek to prevent the removal of the caveat nor did they seek to set aside Order 1(c).
It was also submitted for Ms Houlis that there was no miscarriage of justice because Mr B, who gave evidence in Mr D’s case in the family law proceedings, was always aware of the proceedings and the fact that the disposition of matrimonial property was the subject of proceedings.
Mr B and Ms C
It was submitted on behalf of Mr B and Ms C that it was difficult to enjoin the concession made on behalf of Ms Houlis, in oral submissions, that the debt owed to them was “capable of being enforced” with Ms Houlis’ present application for the summary dismissal of the s 79A application.
It was contended that Mr B and Ms C were secured creditors of Mr D, rather than merely unsecured creditors. Counsel submitted that the debt owed by Mr D pursuant to the mortgage was secured by way of the caveat registered on property, which lapsed as a result of the Orders made in the property settlement proceedings and thereby occasioned an injustice to Mr B and Ms C.
Counsel asserted that Mr B was no more than a witness in the property settlement proceedings and that at no time was he on notice that the fact of the loan, the enforceability of the loan agreement, and the fact of or the enforceability of the caveat and unregistered mortgage were at issue in those proceedings.
It was also submitted that at no time during the course of the property settlement proceedings did Mr D and Ms Houlis, or their solicitors, provide notification to Mr B and Ms C that the orders sought in the proceedings would impact their capacity to recover the monies owing by way of their unregistered mortgage secured by caveat on the E Street properties. This was reinforced, counsel asserted, by the fact of Mr D swearing an affidavit on 11 March 2013 which included evidence as to his repayments of the principal owing on the loan, and through the nature of the cross examination of Mr D in the course of the hearing of the property settlement proceedings.
Counsel for Mr B and Ms C submitted that amendments by Ms Houlis seeking orders relating to the sale of the E Street properties without provision for the payment of monies due to Mr B and Ms C occurred late in the conduct of the property settlement proceedings. Counsel asserted that Mr B and Ms C were not even provided with notice that Ms Houlis sought the sale of the properties at any time during the proceedings. The first notice received by Mr B and Ms C as to any affectation on their security on the E Street properties was, it was submitted, on or about 9 January 2015 by way of a lapsing notice for their caveat.
Counsel stated that at no time during the property settlement proceedings, including when Mr B had attended upon Mr D’s solicitors for the purpose of providing affidavit evidence, or during the course of the hearing, was Mr B directed or advised to obtain independent legal advice.
It was asserted that the submissions, made on behalf of Ms Houlis, that the Orders in the property settlement proceedings did not relevantly affect the primary relief sought by Mr B and Ms C were misconceived. It was contended that the import of the findings in the judgement and Orders in the property settlement proceedings was to deprive Mr B and Ms C of the security they held over the E Street properties.
As to the submission of Ms Houlis during the course of the property settlement proceedings that the limitation period under s 42 of the Limitation Act expired 12 years after the mortgage document (i.e. on 31 December 2007), it was asserted by counsel for Mr B and Ms C that Ms Houlis’ legal representatives had failed to alert the trial Judge to the provisions of s 54 of the Limitation Act as to confirmations. It was submitted that in circumstances where confirmation may occur by way of payment, the limitation period, on that basis alone, would have extended to 3 March 2009 as repayments were made up until 3 March 1997. It was also submitted that Mr D’s financial statement sworn 11 April 2008 acknowledged the fact of the debt and the security by way of mortgage in writing as required by s 54. Accordingly, it was contended, the statutory limitation on the enforcement of the mortgage security was extended to the year 2020. Further, counsel asserted, Ms Houlis also acknowledged the debt and the mortgage security in her financial statement sworn on 6 February 2009.
It was submitted for Mr B and Ms C that acknowledgements of the debt were also made by Mr D in his financial questionnaire filed 26 July 2010 and Ms Houlis in her financial questionnaire filed 5 August 2011, both of which were tendered in these proceedings. Mr D’s financial questionnaire records that, at the commencement of cohabitation, he owed a “debt to brother” of $300,000. In her financial questionnaire, Ms Houlis also acknowledged that Mr D, at the commencement of cohabitation, had a “debt to brother” of $300,000.
Attached to the written submissions for Mr B and Ms C were letters from Ms Houlis’ previous solicitors to Mr D’s previous solicitors. These documents were tendered in these proceedings and marked “R3”. In the first letter from Ms Houlis’ solicitors, dated 29 March 2008, Mr D was requested to provide, amongst other documents, a schedule of the assets and liabilities that he asserted ought to be included in any asset pool available for distribution. In the second letter from Ms Houlis’ solicitors, dated 8 May 2008, Mr D was requested to provide “a copy of the Caveat registered over 1 & 2 E Street and any other documents that evidence such debt”. Counsel for Mr B and Ms C told the Court that Ms Houlis’ solicitors have not disclosed the response to that request. It was submitted that acknowledgements in writing may potentially be contained in documents yet to be disclosed by Ms Houlis and her solicitors.
It was asserted for Mr B and Ms C that the evidence as to not only one but a number of confirmations of the cause of action upon the mortgage security ought to comfortably satisfy the Court as to the merits of the s 79A proceedings brought by Mr B and Ms C.
Counsel also contended that the failure or the neglect by Ms Houlis and/or her legal representatives to disclose and identify, to the trial Judge in the property settlement proceedings, all of the relevant facts and law going to the enforceability of the mortgage, including those that may detract from her case, should be the subject of examination in the substantive s 79A hearing commenced by Mr B and Ms C and may be a significant matter going to the exercise of discretion implicit in s 79A relief.
It was further submitted that the failure of both Mr D and Ms Houlis to alert the trial Judge in the property settlement proceeding as to the absence of procedural and substantive fairness to Mr B and Ms C should be explored in the s 79A proceedings.
In relation to Ms Houlis’ submission as to the capacity of Mr B and Ms C, as unsecured creditors, to recover their debt as against Mr D in an alternate forum, counsel submitted that this proposal fails to take into consideration other matters such as:
· The cost and delay of process to obtain judgement and thereafter secure that judgement against property of Mr D that may or may not exist or be accessible at such time in the future;
· The possibility that Mr D may not concede the security and quantum in another forum;
· The possibility of the liquidation of the properties and the disposition of the proceeds prior to the determination of such claim, including events such as the bankruptcy or death of Mr D;
· Considerations of fundamental matters of comity as between superior Federal and State courts; and
· The possibility of the doctrine of estoppel being raised against the applicants by Mr D in another forum if the current summary dismissal claim is granted. This could include issue estoppel and Anshun estoppel.
Counsel asserted that Ms Houlis’ submission as to the capacity of Mr B and Ms C to pursue Mr D in another forum, as unsecured creditors and after the completion of the sale of the E Street properties and the distribution of the sale proceeds, misapprehended the nature and terms of their mortgage claim. The claim of Mr B and Ms C, it was submitted, was not a claim for debt by way of contract.
Ms Houlis’ submissions in reply
By way of written submissions in reply, counsel for Ms Houlis reiterated that Mr B and Ms C are not relevantly “affected” by Order 1(i) and that accordingly, their application does not fall within the requirements of s 79A. In was further submitted that in any event, no miscarriage of justice occurred for the following reasons.
Counsel asserted that the rights of Mr B and Ms C pursuant to their equitable mortgage included the right to sue in equity for specific performance (including for the sale of the properties) in order to secure repayment. They had a right of priority ahead of other unsecured creditors, but not secured creditors. Counsel submitted that the caveat restricted Mr D from selling the land without notice to Mr B and Ms C, but did not give Mr B and Ms C a legal interest in the land that would have permitted them to sell the land. Rather, it accorded them equitable rights to seek the appointment of a receiver to discharge the debt. Accordingly, it was submitted, the removal of the caveat and the sale of the E Street properties meant that the rights of Mr B and Ms C, if any survived the operation of the Limitation Act, are now contractual rights to sue for the debt in a common law court; namely, the District Court. It was asserted that as Mr B and Ms C have not lost their right to sue Mr D, no miscarriage arises.
It was also submitted for Ms Houlis that there was no miscarriage of justice because Mr B and Ms C were served with a lapsing notice in January 2015 which advised them of the intended removal of the caveat. Mr B and Ms C chose not to exercise their rights to challenge the removal of the caveat. They were, it was submitted, aware of the intended sale of the E Street properties and did nothing to prevent the sale, instead seeking to injunct the distribution of the sale proceeds. In doing so, it was asserted by counsel for Marie, the rights of Mr B and Ms C were converted from equitable to common law rights to enforce the debt against Mr D. It was contended that in making no attempt to prevent the removal of the caveat or prevent the sale of the E Street properties, Mr B and Ms C acquiesced in the process by which their equitable rights were converted to contractual rights pursuant to which they can enforce repayment of the debt in a common law court. Accordingly, it was contended, any submissions on behalf of Mr B and Ms C that they have a mortgage claim rather than a contractual/debt claim are therefore wrong at law.
Counsel for Ms Houlis submitted that Mr B and Ms C continue to have rights against Mr D to restrain the disposition by him of funds equal to the alleged debt pending determination of their claim in a court of competent jurisdiction. It was submitted for Ms Houlis that the judgement of the trial Judge in the property settlement proceedings determined that the debt was not enforceable for the purposes of the assessment of the assets and liabilities of the parties to the marriage only. The question of the enforceability or quantum of the debt as between Mr B and Ms C and Mr D was not determined, and, according to counsel for Ms Houlis, are questions that remain to be determined by a court of appropriate jurisdiction. Counsel for Ms Houlis contended that it was inappropriate for Mr B and Ms C to be seeking to utilise the jurisdiction of the Family Court to determine issues including:
· The existence, date and quantum of repayments of the debt by Mr D after the execution of the unregistered mortgage;
· The amount of the debt (it was submitted for Ms Houlis that if the “booklet” records are correct, the quantum would be $303,000 not $297,000);
· The authenticity of the “booklet” records;
· If the last repayment was made on 3 March 1997, whether any acknowledgement of the debt was made in the 12 years after that date;
· If the debt is repayable, whether an order should be made for repayment; and
· If an order for repayment is made, what other orders are necessary to avoid a miscarriage of justice to Ms Houlis.
It was further submitted, in relation to the issue of whether there was an acknowledgement of the debt sufficient to restart the limitation period, that Mr B and Ms C would need to satisfy the Court that the financial statement sworn by Mr D on 11 April 2008 was a confirmation of the debt within the terms of s 54(2)(a)(i) of the Limitation Act; namely, an acknowledgement “to a person having (either solely or with other persons) the cause of action, the right or title of the person to whom the acknowledgment is made”. Reference was made to Hipwroth v Mahar in support of this submission. (I note that in any action brought by Mr B and Ms C outside of the Family Court of Australia the principles in Hearne v Street (2008) 235 CLR 125 would apply and they may not be able to use information or documents from the Family Court proceeding to establish acknowledgement of their debt in another court).
Counsel for Ms Houlis said that Ms Houlis does not owe any money to Mr B and Ms C and the debt, to the extent it is enforceable, is enforceable against Mr D. Accordingly, it was asserted, there is no basis for Mr B and Ms C to obtain an order for payment of the debt, or any part of it, from Ms Houlis’ share of the sale proceeds of the E Street properties. Counsel outlined that s 54 of the Limitation Act requires that the confirmation must be by a person “against whom the cause of action lies” and therefore any alleged confirmation by Ms Houlis is irrelevant because she is not the debtor. It was submitted that there was no obligation on Ms Houlis to draw the trial Judge’s attention to any acknowledgements by her, which, it was submitted, was before the Court in any event. (I note there are clear obligations upon legal representatives for parties to litigation in relation to alerting the Court to matters of law, should it be clear that there is a relevant piece of law which has not been brought to the attention of the trial Judge the absence of which would clearly lead to an error of law occurring and an injustice)
In regard to the submissions by Mr B and Ms C as to Anshun estoppel in relation to the prosecution of their claim against Mr D, it was submitted for Ms Houlis that even if an estoppel case arises such that a miscarriage of justice occurred (the proper place for this issue to be agitated being a Court with jurisdiction to determine the existence and extent of the alleged debt) s 79A does not provide an avenue for redress for such an issue. It was submitted that this is because s 79A is limited to circumstances where a party is affected by an order under s 79 and that no estoppel arises from the Orders, nor even from the judgement, in the property settlement proceedings. Counsel for Ms Houlis outlined that Anshun estoppel arises when a party fails to agitate an issue in prior proceedings. In this case, Mr B and Ms C were not parties to the property settlement proceedings. Counsel submitted that therefore no Anshun or other estoppel arises from the bare conclusion of the trial Judge that the debt is unenforceable, particularly in circumstances where the asserted creditors were not parties to the proceedings and where the conclusion was reached for the limited purpose of determining the assets, liabilities and contributions of the parties to the marriage.
Counsel for Ms Houlis also contended that no issue estoppel arises if the matter is summarily dismissed, as the issue of whether or not the debt is enforceable does not arise for determination in the application for summary dismissal. It was also submitted that Mr B and Ms C, by asserting that they may be subject to an issue estoppel argument arising from the summary dismissal of the s 79A proceedings to which they are parties, concede that no issue estoppel arises in relation to the property settlement proceedings to which they were not parties.
It was contended for Ms Houlis that overall, it appears unlikely that Mr B and Ms C can establish that the debt is enforceable. However, they have not been deprived of the right to argue the case in the appropriate court and, should they succeed, Mr D has an abundance of funds with which to pay the debt. Therefore, no miscarriage of justice arises.
Counsel for Ms Houlis said that Mr D called Mr B as a witness in his case and positively advocated for the Court to find that the debt was enforceable. Reference was made to evidence of repayments before the trial Judge. The Court was referred to paragraph 15 of Mr B’s affidavit sworn on 11 March 2013 in support of Mr D’s case in the property settlement proceedings, where he deposed that “To the best of my recollection and belief, a sum of approximately $35,000 was paid by instalments to my brother [Mr D] and therefore I say that at present time there remains a sum of $300,000 as a principal sum owing to my wife and I by my brother [Mr D]”. Counsel also referred the Court to paragraph 15 of Mr D’s affidavit sworn and filed in the property settlement proceedings on 12 March 2013, where he deposed that he did not dispute that he had a debt to his brother and his sister in law of $300,000 and that he had made payments which reduced the amount owing from $335,000.
Counsel for Ms Houlis submitted that Mr D stood in the shoes of Mr B and Ms C in defending the debt. The fact that Mr D, having put his case forward, lost the argument before the trial Judge did not mean that Mr B and Ms C have suffered a miscarriage of justice.
Counsel for Ms Houlis also submitted that in circumstances where the only assets and liabilities available to meet Ms Houlis’ claim were the E Street properties, it beggared belief that Mr B was unaware that the sale was a real prospect.
It was asserted for Ms Houlis that at no time did Mr B and Ms C seek to be joined to the property settlement proceedings as third party creditors, nor was there any obligation upon Ms Houlis to apply for such a joinder. Counsel submitted that this was because at no time did Ms Houlis invite the trial Judge to make any order that would adversely affect the rights of Mr B and Ms C, and at no time did the trial Judge make such an order. On Ms Houlis’ case, as the rights of Mr B and Ms C were not disturbed by the judgement, there can have been, and was, no obligation upon Ms Houlis to make an application to join them as parties.
It was submitted for Ms Houlis that the only matter under consideration by the trial Judge in the property settlement proceedings was whether or not to include the liability to Mr B and Ms C in the assessment of property. Had the loan been found to be enforceable, the surplus of $842,486 in the property pool would have been reduced by approximately $300,000. This decision, counsel submitted, would not have affected the ultimate outcome of the property settlement because of the decision by Mr D, late in the property settlement proceedings, to acquiesce to the sale of the business which operated from a property adjacent to the E Street properties. It was submitted for Ms Houlis that the only impact of the inclusion of the debt on the outcome of the proceedings would have been to increase the percentage of the property distribution in her favour. Counsel referred to the finding of the trial Judge in the property settlement proceedings that the unenforceability of the debt meant that Mr D’s contributions toward the E Street properties were significantly higher than they would have been if the debt had been enforceable.
It was contended for Ms Houlis that even if the trial Judge found the debt to be enforceable and included it in the statement of assets and liabilities, his Honour would not have ordered the debt to be discharged, as Mr B and Ms C chose not to be joined as third party creditors. Counsel further contended that Mr B and Ms C would have been in no different a position to their position now; namely, they would still have had to enforce their rights by either objecting to the removal of the caveat in a court of equity or commencing debt recovery proceedings in a common law court.
As to the submissions made on behalf of Mr B and Ms C in relation to the issues associated with pursuing a debt recovery claim in an alternate forum, outlined above, counsel for Ms Houlis asserted that those issues would arise even if the trial Judge had included the debt as a liability of Mr D. The issues identified by Mr B and Ms C, it was submitted, did not arise from Order 1(i) or from the judgement in the property settlement proceedings. They arise from the choices made by Mr B and Ms C, including:
·Choosing not to enforce payment of the debt earlier or at all;
·Choosing not to be joined as third parties to the proceedings;
·Choosing not to challenge the removal of the caveat; and
·Choosing, in the future, not to seek any restraint on Mr D in respect of the disposition of the funds said to be payable.
It was also asserted for Ms Houlis that the determination of the question as to whether or not to include the debt as a liability of Mr D was unrelated to the order to sell the E Street properties. The findings of the trial Judge in the property settlement proceedings were limited to those relevant to the exercise of the Court’s jurisdiction under s 79; namely, whether or not to interfere so as to adjust the legal interests of parties to a marriage. According to Ms Houlis, no question of comity or estoppel arises adversely to the rights of Mr B and Ms C. If they have fresh evidence that was not adduced before the Family Court and which establishes the enforceability of the debt, there would be a proper basis, in prosecuting a cause of action against Mr D, for a different finding to be made regarding the enforceability of the debt. Counsel also outlined that had Mr B and Ms C adduced that evidence in the property settlement proceedings to prevent the removal of the caveat, they would have retained their rights to seek equitable relief through the sale of the E Street properties with an associated order to repay the debt. Their choice to not proceed in this manner also postdates the Orders made by the trial Judge and accordingly does not involve any miscarriage of justice.
Ms Houlis submitted that any submission by Mr B and Ms C that Mr D is not estopped from denying the debt because they were not parties to the property settlement proceedings is legally wrong.
Counsel for Ms Houlis asserted that there was no denial of procedural fairness to Mr B and Ms C because nothing in the property settlement proceedings affected their rights. Counsel outlined that Order 1(c) did not provide for the caveat to be removed, but rather required that Mr D to “do all things and sign all documents necessary to remove the caveat”. Thereby, the rights of Mr B and Ms C to challenge the removal of the caveat were protected by the Orders.
In response to the allegation that the legal representatives for Ms Houlis had not disclosed relevant material which may contain written acknowledgements of the debt, counsel for Ms Houlis outlined that the documents tendered as exhibit R3 in these proceedings demonstrate that Ms Houlis had different solicitors in the early part of the property settlement proceedings. Ms Houlis’ current solicitors have not subpoenaed documents from those solicitors. The submissions as to Ms Houlis not being a debtor of Mr B and Ms C, and therefore not being able to confirm the debt as required by s 54, were also repeated.
Counsel for Ms Houlis asserted that Mr B and Ms C have not made a case which demonstrates that they “may not be able to recover” their alleged debt from Mr D, nor have they made out a prima facie case that they “may not be able to recover” their alleged debt because of Order 1(i), as required by s 79A (4) of the Act.
In relation to the truthfulness of the evidence of Mr B, counsel for Ms Houlis asserted that no explanation is given as to why the evidence in his affidavit of 5 February 2015 (relating to the last repayment of the debt and the book recording repayments on the loan) was not adduced by him in the property settlement proceedings.
By way of conclusion, counsel for Ms Houlis referred to the comments of his Honour Kirby J in Lindon, outlined above, in support of her position that the s 79A proceedings instituted by Mr B and Ms C should be summarily dismissed:
6. The guiding principle is, as stated in O 26, r 18(2), doing what is just. 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.
Mr D
In brief written submissions, counsel for Mr D outlined that it was Mr D’s position that Ms Houlis’ application for summary dismissal of the s 79A proceedings, framed by her as a summary dismissal of those proceedings as against her alone, should be dismissed.
Counsel for Mr D conceded that should the Court be satisfied that Mr B and Ms C were not affected by Order 1(i) and thus do not have standing to bring their s 79A application, the s 79A application should be dismissed in its entirety. It was asserted for Mr D that:
Otherwise the decision would allow a perverse (and unjust) situation to arise: that is to say, a situation whereby the husband is left defending the brother’s claim against the asset pool of the marriage, absent the wife.
DETERMINATION
The law is clear in relation to making an order for summary dismissal of an action commenced within the jurisdiction possessed by the Court. The relief is rarely and sparingly provided. It is available when it is clear that there is no reasonable cause of action. That means it ought not to be applied to a case which is capable of being described as “arguable” or even “weak”.
In this case I determine that Mr B and Ms C have an arguable case. I determine it does not just rest on one issue arising from the Orders complained of. There are a number of bases upon which their case could be successful.
Having so concluded, I propose to dismiss the application for summary dismissal filed by Ms Houlis.
CONCLUSION
The application filed by Ms Houlis on 4 August 2015 is dismissed.
The matter will be referred to the docket registrar for further direction.
I certify that the preceding one hundred and thirty (130) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Le Poer Trench delivered on 20 November 2015.
Associate:
Date: 20 November 2015
Key Legal Topics
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Family Law
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Civil Procedure
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Jurisdiction
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Remedies
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Procedural Fairness
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