K & K and Ors
[2005] FamCA 997
•21 September 2005
[2005] FamCA 997
FAMILY LAW ACT 1975
FAMILY COURT OF AUSTRALIA
AT MELBOURNE
NO. MLF 1913 of 2001
IN THE MATTER OF
K
(RESPONDENT HUSBAND)
and
K
(APPLICANT WIFE)
and
B PTY LTD AND ORS
(2ND TO 24TH RESPONDENTS)
JUDGMENT DELIVERED BY
THE HONOURABLE JUSTICE MORGAN
CORAM : THE HONOURABLE JUSTICE MORGAN
DATE OF HEARING: 12 AUGUST 2005
DATE OF JUDGMENT: 21 SEPTEMBER 2005
APPEARANCES:
Mr Spicer, counsel instructed by Lander and Rogers, Solicitors, DX 370, Melbourne appeared on behalf of the husband.
Mr North, Senior counsel with Mr Sweeney instructed by Kenna Teasdale Lawyers, DX 227, Melbourne appeared on behalf of the wife.
Mr Judd, Queens counsel with Dr Ingleby instructed by Michael J. Williams, Lawyer, PO Box 4305, Geelong appeared on behalf of the 2nd to 24th respondents.
CATCHWORDS
Application for leave to amend application for final orders – application to join 22 additional respondents – principles to be applied – discretionary trusts – Part VIIIA Family law Act – power to order a trustee to make a distribution – statutory interpretation – reference to explanatory memorandum.
LEGISLATION
Family Law Act 1975
Part VIIIAA of the Family Law Act
section 90AE(2)(a)
section 90AC(1)
Section 90AE(2)(b)
90AE(3)(a)
section 90AK
section 79
section 114
Commonwealth Acts Interpretation Act 1901
Section 15AA
Section 15AB(2)(e)
CASES
Horton v Jones (No 2) (1939 39 NSW 305)
Lindon v The Commonwealth (No2) ((1996) 70 ALJR 541)
Pelerman ((2000) FLC 93-037)
Abela v Giew ((1964) 81 WN (PT1) NSW 344
Railways v Bielewicz (1963 80 WN (NSW) 790)
Anthony Dickey QC (2005 79ALJ 483)
In Re Australian Federation of Construction of Contractors; Ex parte Billing ((1986) 68ALR 416
Before the Court is an application by the wife for leave to amend her Form 1 Application for final property orders. She also wishes to join additional respondents. The proposed respondents are the controllers of several named discretionary trusts of which the husband is a beneficiary. She seeks orders under Part VIIIAA of the Family Law Act ("the Act") which came into operation on the 17th of December 2004. She asks that the proposed respondents be compelled to use their powers to cause the trustees of the individual trusts to make such capital distributions from the funds of the trust to the husband as the Court deems appropriate.
The parties commenced cohabitation in 1982 and were married on the 2nd of October 1983. They have two sons aged 21 and 17. The assets to which the parties are directly entitled are relatively modest. The wife's present application is designed to enlarge the pool of matrimonial assets.
The wife requires leave to amend her application because more than 28 days have passed since the final resolution date. (Rule 11.10(a)(ii)). The proposed respondents and the husband oppose her application. If the wife is given leave to pursue her claim then procedural fairness requires the joinder of the proposed respondents.
THE PRINCIPLES TO BE APPLIED IN DETERMINING AN APPLICATION FOR LEAVE TO AMEND
All parties, pursuant to orders of Justice Guest made on the 10th of June 2005, provided comprehensive written submissions. The wife's submissions included detailed consideration of the principles to be applied when deciding whether leave to amend an application should be given. Senior Counsel for the proposed respondents conceded that those principles were set out in an "uncontroversial manner". I accept that the wife's submissions correctly enunciate the matters to be considered by the Court in the exercise of its discretion.
Senior Counsel for the wife conceded that an amendment which is futile because it is obviously bad in law could not succeed. However, there is a clear difference between a claim which is so obviously futile that it would be struck out if it had appeared in an original pleading and one which does not have much chance of success. Directly in point is Horton v Jones (No 2) (1939 39 NSW 305 at pp. 309-310) in which Jordan CJ said:
“It is now a commonplace that if a party to a legal proceedings established to the satisfaction of the Court that he is genuinely desirous of amending his pleadings for the purpose of modifying or otherwise altering some existing claim or defence, or of introducing a new ground of claim or a new matter, he should be permitted to do so, subject to the imposition of such terms as may be proper, unless the proposed amendment is so obviously futile that it would struck out if it appeared in an original pleading, or unless it is one that it would be impossible to allow upon any terms without causing substantial injustices to another party to the proceedings”.
His Honour went on to say that the question of whether a substantial injustice would be caused depended on the circumstances of a particular case. He drew a distinction between an application made a considerable time before the trial (as is the case here) and one made during the course of a trial.
It was submitted for the wife, correctly, that the matters for the Court to consider in deciding whether to permit an amendment are similar to those pertaining to applications to summarily dismiss proceedings. In Lindon v The Commonwealth (No2) ((1996) 70 ALJR 541 at p. 55) Dawson J. said that an opinion of the Court that a case was weak and unlikely to succeed was not, alone, sufficient to warrant termination. He went on to refer to a "guiding principle" of doing what is just. If the pleading under scrutiny was "doomed to fail" the Court should dismiss the action.
The Full Court of the Family Court considered this issue in Pelerman ((2000) FLC 93-037) and set out the principles to be applied as follows:
“(a)The power for summary dismissal is a discretionary one.
(b)Relief “is rarely and sparingly provided”.
(c) The parties seeking summary dismissal must show that the application is “doomed to fail” or as has been otherwise described that the opponent lacks a reasonable cause of action or is advancing a claim that is clearly frivolous or vexatious”.
(d) A weak case or one that is unlikely to succeed is not sufficient to warrant termination.
(e) “If there is a serious legal question to be determined, it should ordinarily be determined at a trial.''
(f) “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 pleadings.''
The question I must determine is whether the wife's application is "doomed to fail" or “obviously futile” as was contended by the respondents. These are the terms with which the authorities resonate. If the wife can satisfy me that she has an arguable case then she should be allowed to amend. I am not required to determine the merits of her claim. The question of whether her claim should succeed is a matter for the trial judge. Abela v Giew ((1964) 81 WN (PT1) NSW 344 at p. 345) per Taylor J citing Commissioner for Railways v Bielewicz (1963 80 WN (NSW) 790). As Jordan CJ said in Horton V Jones (No.2) (op cit)
“A judge determining an application such as this is not concerned with the merits of the claim sought to be litigated.”
There was no dispute that under well-established principles of equity the husband, as the object of discretionary trust, has no proprietary interest in the assets of the trust. In so far as the assets are concerned there is a mere expectancy that the trustee will, in the exercise of its discretion, make a distribution in his favour. He has an equitable chose-in-action which is the right to insist upon due administration of the trust.
In oral submissions Senior Counsel for the respondents submitted that:
"There is no doubt that our friend can draw a connection between the marriage and the interest of a discretionary beneficiary, but not to the assets of the trust. The degree of connection between the husband's interest in the trust and the marriage is being employed by the applicant and perhaps even as a device... which conceals an important leap of logic."
Absent the provisions of Part VIIIAA of the Act that submission is clearly correct and an application for an order to compel a trustee to exercise its discretion in particular way would be "doomed to failure". In written submissions it was put for the wife that:
"What this order proposes is the trustee at the direction of the Court vesting capital in one object. The trustee has the power to do so. All the Court is doing is constraining its discretion and compelling to exercise that power in a particular way at particular time."
To say that is “all the Court is doing” is quite an understatement. As the wife's submissions went on to acknowledge it is quite contrary to general equitable principles to fetter the exercise of a trustee's discretion in this way.
PART VIIIAA of the ACT
I now consider more closely the provisions upon which the wife relies. Relief is sought under section 90AE(2) (a) and (b) of the Act which provide that:
“In proceedings under section 79, the court may make any other order that:
(a)directs a third party to do a thing in relation to the property of a party to the marriage; or
(b)alters the rights, liabilities or property interests of a third party in relation to the marriage.”
The most controversial of the new provisions is section 90AC(1). It provides that:
“This Part has effect despite anything to the contrary in any of the following (whether made before or after the commencement of this Part):
(a)any other law (whether written or unwritten) of the Commonwealth, a State or Territory;
(b)anything in a trust deed or other instrument.”
It was contended for the wife that an order such as that sought by the proposed amendments having the effect of directing a trustee of a discretionary trust to vest capital of the trust in a particular beneficiary who is a party to a marriage could be characterised as both an order to third-party to do a thing in relation to the property of a party to the marriage and also as an order altering the rights, liabilities or property interests of that third-party in relation to the marriage.
It was conceded that the wife's proposed order overrides existing principles of the law of trusts. However, it was put that section 90AC(I) invested the Court with power to make the order sought.
Senior Counsel for the respondents contended that the scope of the power contained in section 90AE(2) was not intended to make inroads into established principles of equity or general law. In oral submissions it was put that it was a very important machinery provision designed to be applied only when, in proceedings under section 79 of the Act, the Court has determined the matrimonial assets and how they are to be divided. The thrust of the submissions for the respondents was that Part VIIIAA operates to enable the Court to use new powers to overcome pre-existing problems. For example, it was put that the Court need no longer be concerned that a direction to a husband who is a trustee will cause the husband to breach his obligations as such. It was submitted that it is in that context only that the order overrides the rules of the trust and the general law about the administration of trusts.
SUMMARY OF OPPOSING SUBMISSIONS
The opposing submissions may now be summarized. The respondents' position is that the relevant provisions are machinery only and are not intended to and should not be construed so as to override well-established equitable principles. The wife's position is that the clear meaning of those provisions is that they do precisely that.
DOES THE WIFE HAD AN ARGUABLE CASE OR IS HER PROPOSED APPLICATION FUTILE OR DOOMED TO FAILURE?
This is the decision I must make. In determining this issue I do not have the responsibility of the trial judge who may ultimately decide whether the provisions upon which the wife relies have the effect contended for her.
In reaching this decision I have considered whether any assistance in the interpretation of the provisions is provided by the Commonwealth Acts Interpretation Act 1901 ("The Interpretation Act"). Section 15AA of that Act permits the Court to have regard to the expressed object of the legislation. The objects of Part VIIAA are expressed in section 90AA as follows
“The object of this Part is to allow the court, in relation to the property of a party to a marriage, to:
(a) make an order under section 79 or 114; or
(b)grant an injunction under section 114;
that is directed to, or alters the rights, liabilities or property interests of a third party”.
A useful example of the conundrum posed by the above provisions is provided by Anthony Dickey QC (2005 79ALJ 483). He asked whether a wife might properly seek an order for the transfer of the whole interest in a former matrimonial home of which the husband and his brother are joint owners. Section 90AE(2)(b) provides that in proceedings under section 79 the Court may make an order which alters the rights, liabilities or property interests of third parties. However, the provision concludes with the words "in relation to a marriage". If this means that the alteration of third parties’ rights must pertain to the marriage then the Court could make such an order. Dickey suggests that this is because this would be an alteration of third-party property interests in relation to the marriage. Section 90AE(2)(b) suggests such a wide power.
On the other hand, section 90AE(3)(a) provides that the Court may only make an order under section 90AE(2)(b) if it is "reasonably necessary, or reasonably appropriate and adapted, to effect a division of property between the parties to the marriage". That provision supports the proposition for the respondents that the object of Part VIIIA is to provide machinery to give effect to a decision already made. On that construction Court could sever the joint tenancy between husband and his brother but not divest the brother of his interest.
In my view reference to section 90AA and the objects of Part VIIIA does not assist. On the one hand the object is stated to be to allow the Court to make an order under section 79 that alters the rights, liabilities or property interests of third parties. On the other hand the power granted must be in relation to property of party to a marriage.
I now consider whether any assistance is provided by section 15AB(2)(e) of the Interpretation Act. That allows me in interpreting the provisions of an Act to consider any explanatory memorandum relating to the Bill containing the provision. The original explanatory memorandum stated that the Act was to be amended to give the Court power to bind third parties in order to give effect to property settlements. Reference was made to the difficulties faced by the Court in directing a third party to act in order to give effect to property settlements. The revised explanatory memorandum stated in relation to section 90AE that the provision was intended to apply only to the procedural rights of the third party. It was stated that it was not intended to extinguish or modify the underlying substantive property rights of third parties. However, the plain words of Section 90AE(2)(b) apparently contradict those statements.
Another contradiction is found in section 90AF which provides that in proceedings under section 114 Court may make an order restraining a person from repossessing the property of a party to marriage. That is apparently inconsistent with the statement that Part VIIIA is intended to apply only to the procedural rights of third parties.
Further support for the proposition that, despite the statements in the Explanatory Memoranda, the relevant provisions allow the Court to divest a third-party of property is to be found in section 90AK which provides that the Court must not make an order or grant an injunction in accordance with Part VIIIA which would result in the acquisition of property other than on just terms and which would be invalid because of paragraph 51 (xxxi) of the Constitution.
In my view, reference to the Explanatory Memoranda does not determine the apparent conflict between the statements there made and the provisions of Part VIIIAA which I have referred. It could also be argued that any reliance upon section 15AB would be misplaced. In Re Australian Federation of Construction of Contractors; Ex parte Billing ((1986) 68ALR 416 at p.420) the High Court, in a joint judgment, said that reference to extrinsic materials was not permitted for the purpose of departing from the ordinary meaning of the text in an enactment unless
"either the meaning of the provision to be construed is ambiguous or obscure or in its ordinary meaning leads to a result that is manifestly absurd or is unreasonable”.
It is arguable, that although apparently contrary to the objects and intention expressed in the Explanatory Memoranda, the provisions to which I have referred to do not satisfy the test therein enunciated.
CONCLUSION
I am not required to determine the complex issues raised by this proposed amendment. As I have said, if the wife’s application is allowed, that will be a matter for the trial judge. However, the very complexity of issues and the “conundrum” to which I have referred, demonstrate that the wife has an arguable case. Conversely that complexity and the preceding analysis demonstrate that her application is not "obviously futile" or "doomed to failure".
I propose to allow the amendment sought by the wife.
I certify that the previous 31 paragraphs are a true copy of the reasons for judgment herein of
The Honourable Justice Morgan
Associate:
Date: 21st September 2005