Kingsley & Kendle & Ors
[2010] FamCA 598
•16 July 2010
FAMILY COURT OF AUSTRALIA
| KINGSLEY & KENDLE AND ORS | [2010] FamCA 598 |
| FAMILY LAW – PRACTICE AND PROCEDURE – wife seeks that solicitors acting for the Trustee in Bankruptcy be restrained from continuing to act – conflict of interest – husband’s parents seek to intervene – third party creditors – accrued jurisdiction – wife seeks to restrain second respondent in relation to proceedings against the wife in respect of a debt owed by her |
| Bankruptcy Act 1966 (Cth) Uniform Civil Procedure Rules 2005 (NSW). |
| Bishop and Bishop (2003) FLC 93-144 Bransdon and Davis and Gilbert (2007) FLC 93-328 Dempsy and Dempsy and Others [2008] FamCA 1065 Doisy v Wilmont-Doisy and Another (2009) 40 Fam LR 655 Giannarelli v Wraith (1988) 165 CLR 543 In the Marriage of Hender and Hender; Moore (1992) FLC 92-321 Kallinicos & Another v Hunt and Others (2005) 64 NSWLR 561 In the Marriage of Lanceley and Lanceley (1994) FLC 92-491 In the Marriage of Moran (1995) FLC 92-559 Puddy & Grossvard & Anor [2010] FamCAFC 54 Sora & Sora and Ors [2010] FamCA 465 Trustee for the Bankrupt Estate of N Lasic & Lasic (2009) FLC 93-402 Trustee of the Property of G Lemnos, A Bankrupt, &Lemnos and Anor (2009) FLC 93-394 Warby and Warby (2001) FLC 93-091 |
| APPLICANT: | Mr Kingsley |
| RESPONDENT: | Ms Kendle |
| 2nd RESPONDENT: | M Limited |
| OTHERS: | Mr and Mrs Kingsley Snr |
| FILE NUMBER: | SYF | 4206 | of | 2006 |
| DATE DELIVERED: | 16 July 2010 |
| PLACE DELIVERED: | Sydney |
| PLACE HEARD: | Sydney |
| JUDGMENT OF: | Justice Le Poer Trench |
| HEARING DATE: | 30 June 2010 |
REPRESENTATION
| SOLICITOR FOR THE APPLICANT: | Ms Hodgkinson |
| COUNSEL FOR THE RESPONDENT: | Mr Seresier |
| COUNSEL FOR THE 2ND RESPONDENT: | Mr Fernon |
| SOLICITOR FOR OTHERS: | Mr Cohen |
Orders
Eddy Neumann Lawyers are restrained from further acting for the Trustee of the husband’s bankrupt estate.
Leave is granted to the husband’s parents to intervene in the proceedings.
Pending further order and pursuant to section 90AF of the Family Law Act 1975 (Cth) the 2nd respondent, M Limited, is retrained from taking any further proceedings against the wife to recover its debt, before 17 September 2010.
Leave is granted to the 2nd respondent to apply to set Order 3 herein aside, upon giving 7 days notice, in the event of any change in circumstances of the wife or her assets or resources which might prejudice the ability of the 2nd respondent to recover its’ debt, or in the event of the trial dates set down for 13 September 2010 and following, being vacated.
The wife’s Undertaking given to the Court in writing and dated 26 February 2010 is to continue for so long as the injunction made against the 2nd respondent herein continues.
The wife is to file and serve a Financial Statement within seven (7) days.
Pending further order the wife is restrained from further encumbering her interest in the property at C in the State of New South Wales (the former matrimonial home).
IT IS NOTED that publication of this judgment under the pseudonym Kingsley and Kendle and Ors is approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth)
| FAMILY COURT OF AUSTRALIA AT SYDNEY |
FILE NUMBER: SYF 4206 of 2006
| MR KINGSLEY |
Applicant
And
| MS KENDLE |
Respondent
And
| M LIMITED |
2nd Respondent
And
| MR AND MRS KINGSLEY SNR |
Others
REASONS FOR JUDGMENT
Introduction
Before the Court are a number of applications. They are as follows:
(a)The wife’s oral application that Eddy Neumann Lawyers be restrained from continuing to act for the Trustee in Bankruptcy on the ground of conflict of interest.
(b)The application of the husband’s parents to be permitted to intervene in the proceedings for the purpose of seeking orders as set out in paragraph 3 of the affidavit sworn by the husband’s mother on 19 May 2010.
(c)The wife’s application filed 26 February 2010 seeking to restrain the second respondent, M Limited, from commencing any further proceeding against the wife or continuing any current proceeding against the wife.
The solicitors, Eddy Neumann, oppose the injunction sought against them by the wife. The wife opposes the application by the husband’s parents intervening in the proceedings. The 2nd respondent opposes the injunction sought against it by the wife.
The husband is represented in the proceedings by Eddy Neumann Lawyers. He is presently serving a custodial sentence.
The applications referred to above all arise out of competing applications for property orders as between the husband and the wife. As between the husband, the wife and the husband’s parents, consent parenting orders have been made in relation to a child of the husband and the wife.
Background facts
The proceedings were instituted by the husband by application filed on 3 November 2006. The Initiating Application sought parenting orders only. In the wife’s Response to an Application for Final Orders filed 4 December 2006, the wife sought parenting and property orders.
The husband was born in 1965 and the wife in 1966.
The parties commenced cohabitation in 1991 and were married in 2004. Separation occurred on 19 February 2006.
In 2008 the husband was sentenced to 5 years and 8 months imprisonment for sexual offences relating to the wife’s sister who, although an adult, had the mental capacity of an 8 or 9 year old at the time.
On 15 July 2009 the Federal Court of Australia made a Sequestration Order against the estate of the husband. Mr S, chartered accountant, was appointed Trustee of the husband’s bankrupt estate.
On 26 February this year the Trustee made an application to the Court to be joined as a second respondent. He was represented by Eddy Neumann Lawyers, the same lawyers who have represented the husband since the institution of the proceedings by him.
On 10 March 2010, Mr S was granted leave to intervene in the proceedings as Trustee of the husband’s bankrupt estate.
Determination of the applications
The wife’s oral application that Eddy Neumann Lawyers be restrained from continuing to act for the Trustee in Bankruptcy on the ground of conflict of interest.
The wife’s application is based upon conflict of interest. The conflict is said to be in two respects. Firstly, Eddy Neumann Lawyers are listed as an unsecured creditor of the husband for fees of $30,559 in paragraph 40 of the Statement of Affairs in the husband’s bankruptcy proceedings. Secondly, the solicitors have acted and continue to act for the husband. The husband, although a bankrupt, has a right to prosecute property proceedings in this court in relation to his superannuation and his personal property. Those items are not captured by the bankruptcy to become part of his estate. The husband may participate in other aspects of the property proceedings with the permission of the Trustee.
In relation to the debt of Eddy Neumann Lawyers, there is an affidavit of the Trustee which states the debt is a secured debt. The solicitor representing the firm, Ms Anne Hodgkinson, asserts the firm holds a charge and is therefore a secured creditor. The determination of whether the debt by the husband to his lawyers is a secured debt may become an issue for the husband’s parents as it may affect the amount of money they can recover form the husband’s bankrupt estate. Those circumstances could then create a conflict between the husband and his solicitors, however that is not a matter raised by any party at this time.
There is a conflict between the husband and the wife as to the status of money advanced by the husband’s parents to the husband (and/or the wife). The husband and the husband’s parents (applicants to intervene in the proceedings) assert that the funds of $249,000 were advanced to the husband and the wife as loans. The wife does not admit that is the case. The husband has an incentive to establish the existence of the advance as a loan. The wife has an incentive to oppose any such determination. If the money is not owed to the husband’s parents then it is highly likely the husband will be able to discharge his bankruptcy upon the sale of the parties’ former matrimonial home.
The Trustee has an obligation to represent all of the creditors. However, if the $249,000 is found not to be owing to the husband’s parents then the trustee will probably be able to wind up the estate and pay all the creditors 100% of their debts upon the sale of the former matrimonial home. The totality of the husband’s unsecured creditors, as recorded in his Statement of Affairs, is $361,330. In addition to that sum there is about $57,000 (plus interest) owing to M Limited. That debt is owed jointly and severally by each of the husband and the wife. The wife says there is about $192,000 owing on the first mortgage on the former matrimonial home which is owned jointly by the parties. The property has a value of about $860,000 as shown on a joint balance sheet annexed to the wife’s affidavit sworn 26 February 2010.
No action has been taken by the first mortgagee to sell the former matrimonial home.
The wife seeks to be able to acquire the husband’s interest in the former matrimonial home, if at all possible. She has sought finance to be able to do so. She has provided no details of such enquiry. She describes her occupation as health services assistant in her affidavit. She has provided no detail of her income and other financial circumstances.
In further oral submissions made by the wife, on the last day of the hearing, counsel for the wife made the following points:
·There is conflict on the face of the documents as to whether the debt owed by the husband to the lawyers is secured or not.
·The lawyers have prepared affidavits by each of the husband’s parents relating to the alleged debts owing by the husband and the wife to them.
·There is not only the conflict which may be present today but also the potential for conflict in the hearing, which needs to be considered.
·If the husband is able to participate in the proceedings in this court further, there could be conflict between the husband and the lawyers about the amount of the legal fees said to be owed by him to the lawyers.
The wife refers the court to Rule 8.03 of the Family Law Rules 2004 (Cth), as set out hereunder:
Lawyer -- conflicting interests
A lawyer acting for a party in a case must not act in the case for any other party who has a conflicting interest.
Note This rule does not purport to set out all the situations in which a lawyer may not act for a party.
The wife says there is a clear conflict as specified above.
The wife submits that, at some time in the future, the Trustee will be involved in settlement negotiations with the wife. The wife submits the husband has a vested interest in establishing and/or maintaining as a debt against his bankrupt estate, the liability of $249,000 to his parents. The wife submits that would not be the case for the Trustee.
The wife says the conflicts may be summarised as follows:
(i)Conflict between the Trustee and the husband as to whether there are debts owing to the husband’s parents.
(ii)Conflict between the solicitor and the Trustee. This potentially arises because the solicitor is a creditor of the bankrupt estate and particularly so if the solicitor is not a secured creditor.
(iii)Conflict between the solicitor and the husband as to the nature of the debt to his parents, if the solicitor is not a secured creditor.
The wife submitted that if the Court could predict, on the current facts, that there was a significant possibility, a conflict would arise in the future conduct of the proceedings, then the Court should restrain the solicitors from acting for the Trustee. Such pre-emptive action will avoid further expense for the parties when the circumstances arose which then forced the solicitor for the Trustee to withdraw from further acting.
The wife referred me to the following decisions:
·Kallinicos & Another v Hunt and Others (2005) 64 NSWLR 561.
·Bransdon and Davis and Gilbert (2007) FLC 93-328.
In Kallinicos & Another v Hunt and Others (supra) Justice Brereton in the Supreme Court of New South Wales reviewed the law relating to the restraint by the courts of legal practitioners from acting in proceedings before a court, and said (at paragraph 76):
The foregoing authorities establish the following:
·During the subsistence of a retainer, where the court's intervention to restrain a solicitor from acting for another is sought by an existing client of the solicitor, the foundation of the court's jurisdiction is the fiduciary obligation of a solicitor, and the inescapable conflict of duty which is inherent in the situation of acting for clients with competing interests (Prince Jefri Bolkiah).
·Once the retainer is at an end, however, the court's jurisdiction is
not based on any conflict of duty or interest, but on the protection of the confidences of the former client (unless there is no real risk of disclosure) (Prince Jefri Bolkiah).·After termination of the retainer, there is no continuing (equitable or contractual) duty of loyalty to provide a basis for the court's intervention, such duty having come to an end with the retainer (Prince Jefri Bolkiah; Belan v Casey; PhotoCure ASA; British American Tobacco Australia Services Ltd; Asia Pacific Telecommunications Ltd; contra Spincode Pty Ltd; McVeigh; Sent).
·However, the court always has inherent jurisdiction to restrain
solicitors from acting in a particular case, as an incident of its
inherent jurisdiction over its officers and to control its process in aid of the administration of justice (Everingham v Ontario; Black v Taylor; Grimwade v Meagher; Newman v Phillips Fox; Mitchell v Pattern Holdings; Spincode Pty Ltd; Holborow; Williamson v Nilant; Bowen v Stott; Law Society v Holt). Prince Jefri Bolkiah does not address this jurisdiction at all. Belan v Casey and British American Tobacco Australia Services Ltd are not to be read as supposing that Prince Jefri Bolkiah excludes it. Asia Pacific Telecommunications Ltd appears to acknowledge its continued existence.·The test to be applied in this inherent jurisdiction is whether a fair-
minded, reasonably informed member of the public would conclude that the proper administration of justice requires that a legal practitioner should be prevented from acting, in the interests of the protection of the integrity of the judicial process and the due administration of justice, including the appearance of justice (Everingham v Ontario; Black v Taylor; Grimwade v Meagher; Holborow; Bowen v Stott; Asia Pacific Telecommunications Ltd).·The jurisdiction is to be regarded as exceptional and is to be
exercised with caution (Black v Taylor; Grimwade v Meagher;
Bowen v Stott).·Due weight should be given to the public interest in a litigant not
being deprived of the lawyer of his or her choice without due cause (Black v Taylor; Grimwade v Meagher; Williamson v Nilant; Bowen v Stott).·The timing of the application may be relevant, in that the cost,
inconvenience or impracticality of requiring lawyers to cease to act may provide a reason for refusing to grant relief (Black v Taylor; Bowen v Stott).In Bransdon and Davis and Gilbert (supra), at paragraph 46 and following, the Full Court of the Family Court of Australia sets out extracts from decided cases and its discussion of same. Their Honours (Faulks DCJ, Coleman and Boland JJ) considered the issue of “prospective conflict”. The initial issue to be faced by the Court was whether the trial Judge should have stopped the representation of two parties by the same counsel. The Full Court said that in the circumstances of that case, the trial Judge was not in error in proceeding the way her Honour did.
The Full Court said (at 81,658): “We accept in a clear cut case, a trial Judge may be required to conduct a voire dire where there is a prospective conflict prior to commencing a hearing.”
The Full Court further said (at 81,659);
70. We agree with the discussion and findings of Heenan J in Holborow v Rudder [2002] WASC 265 and adopt, with respect, his Honour's view that the court would only restrain the appearance of a legal representative because of his or her duty to the court in a clear case. We are not satisfied this case, for the reasons set out above, was a “clear” case.
In considering the legal principles guiding the approach to the issue before the court, the Full Court set out a passage from Giannarelli v Wraith (1988) 165 CLR 543. The passage comes from page 556 and the judgement of Mason CJ and is as follows:
The performance by counsel of his paramount duty to the court will require him to act in a variety of ways to the possible disadvantage of his client. Counsel must not mislead the court, cast unjustifiable aspersions on any party or witness or withhold documents and authorities which detract from his client's case. And, if he notes an irregularity in the conduct of a criminal trial, he must take the point so that it can be remedied, instead of keeping the point up his sleeve and using it as a ground for appeal.
It is not that a barrister's duty to the court creates such a conflict with his duty to his client that the dividing line between the two is unclear. The duty to the court is paramount and must be performed, even if the client gives instructions to the contrary. Rather it is that a barrister's duty to the court epitomizes the fact that the course of litigation depends on the exercise by counsel of an independent discretion or judgment in the conduct and management of a case in which he has an eye, not only to his client's success, but also to the speedy and efficient administration of justice. In selecting and limiting the number of witnesses to be called, in deciding what questions will be asked in cross-examination, what topics will be covered in address and what points of law will be raised, counsel exercises an independent judgment so that the time of the court is not taken up unnecessarily, notwithstanding that the client may wish to chase every rabbit down its burrow. The administration of justice in our adversarial system depends in very large measure on the faithful exercise by barristers of this independent judgment in the conduct and management of the case. In such an adversarial system the mode of presentation of each party's case rests with counsel. The judge is in no position to rule in advance on what witnesses will be called, what evidence should be led, what questions should be asked in cross-examination. Decisions on matters such as these, which necessarily influence the course of a trial and its duration, are made by counsel, not by the judge. This is why our system of justice as administered by the courts has proceeded on the footing that, in general, the litigant will be represented by a lawyer who, not being a mere agent for the litigant, exercises an independent judgment in the interests of the court.
In Bransdon and Davis and Gilbert (supra), the Full Court (at paragraph 60) highlighted the following words of Mason CJ :
“…in my view it would usually take an unequivocal situation to justify restraining a practitioner from acting on these grounds.”
Eddy Neumann Lawyers make the following submissions.
Eddy Neumann Lawyers are a secured creditor of the husband’s bankrupt estate. The debt claimed against the estate is for fees earned to the date of the bankruptcy. The debt is $32,000.
The only other secured creditor is the registered 1st mortgagee.
It is reasonable to conclude that the legal costs charged to the Trustee will be increased if there has to be a change of solicitor.
Conclusion on this Application
I accept the warrant of caution, as urged by the authorities referred to above, in the Court preventing a lawyer from continuing to act for a party to proceedings. However, in this case, there are a multitude of different aspects of possible conflict for Eddy Neumann Lawyers in acting for the two parties. Those circumstances, in my view, push the case into a category where the court should act to restrain the solicitors from acting for the Trustee.
At this time it seems to me that Eddy Neumann Lawyers are now in conflict with their obligation to the Trustee as a client and their obligation to the husband as a client, in relation to the money said to be owed by the husband (and possibly the wife) to his parents. If I am wrong in my determination that there is now a conflict then I would find that the prospect for conflict during the future hearing of the case is too high to permit them to continue at this time to act for the two parties.
There is the potential for conflict in relation to whether the lawyers hold a secured debt or otherwise. There is a real and present conflict in relation to the solicitors giving advice to the Trustee about the status in law of the alleged security said to exist in favour of the lawyers. It may be that this matter can be resolved quickly by documentary evidence. If it cannot be so resolved then there is a conflict between Eddy Neumann Lawyers and the husband which would have to be addressed.
I note that the wife says there is no objection on her part to Eddy Neumann Lawyers continuing to act for the husband.
I conclude that the solicitors, Eddy Neumann Lawyers, should not continue to represent the Trustee of the husband’s bankrupt estate in these proceedings.
The application of the husband’s parents to be permitted to intervene in the proceedings for the purpose of seeking orders as set out in paragraph 3 of the affidavit sworn by the husband’s mother on 19 May 2010
The husband’s parents, Mr and Mrs Kingsley Snr (hereafter called “the interveners”), say they are owed money by the husband and the wife. They allege that a debt of $249,000 is owed jointly and severally by the husband and the wife to the interveners. As such they assert a right to recover the whole of the debt from the wife. They seek to exercise that right in property proceedings between the husband and wife in this Court.
In the affidavit of the husband’s mother she says she would seek the following order if granted leave to intervene in the proceedings.
“(i) A declaration that the respondent wife is indebted to the interveners for the sum of $249,000.”
Consequential orders are sought against the Trustee of the husband’s bankrupt estate.
The interveners assert the following facts, if established, entitle them to recover a debt from the wife.
In March 2001 the husband’s mother was doing part time work for the husband in his business. At that time the husband told his mother that he was proposing to buy commercial premises from which to conduct his business. The interveners offered to lend some money to the husband to enable him to acquire such premises.
The Court has been informed by the counsel for the wife that there is no issue that funds of $249,000 were advanced by the interveners to the husband. The wife denies any money so advanced was a loan to her. The wife would also challenge the nature of the transaction between the interveners and the husband. That is, she does not admit it was a loan and nor does she admit that there was any interest component should it be established that it was a loan. The wife acknowledges that if the Court determines the money in question was advanced by the interveners to the husband as a gift then that will impact upon the assessment of contribution under section 79(4) of the Family Law Act 1975 (Cth) (“the Act”).
The interveners say that on 30 August 2002 they transferred the sum of $100,000 from their bank account to a joint account of the husband and the wife.
It seems common ground that the funds advanced by the interveners were used in part to acquire property in Sydney. Documents attached to affidavits filed in the proceedings and read in this case, suggest the Sydney property, or some part thereof, was acquired in the joint names of the husband and wife. It seems that property has been sold and the funds all used to pay secured creditors. One of the securities registered against the property was held by M Limited. That institution now seeks to move against the wife to recover the unpaid portion of the debt owed by the parties.
In the husband’s Statement of Affairs, filed in his bankruptcy proceedings, he lists under the heading of “unsecured creditors” two debts to the interveners. The first is for $135,000 and is said to be a joint debt. Although not stated, the inference is that the debt is jointly owed by the husband and the wife. The husband lists a second debt to the interveners in the sum of $114,000. That debt is not asserted to be jointly owed. To add to the complexity of this case, page 20 of the husband’s Statement of Affairs, reveals that Mr Kingsley Snr, the husband’s father and one of the interveners, assisted the husband in the completion of the document as the husband was in gaol at the time.
The evidence filed by the interveners is for the purpose of supporting their application to intervene. They have not been required to set out the evidence they would rely upon to prove a debt against the wife. They are required to establish that there is a case to be pursued and that it is appropriate to pursue that case in this Court.
The interveners claim a declaration of a debt between themselves and the wife. They rely on section 78 of the Act and also the accrued jurisdiction of the Court to determine the debt as a necessary step in establishing the asset pool which is available for distribution between the parties. They also submit that they can bring a claim under section 90AA of the Act.
The wife says there is no jurisdiction to allow the interveners to pursue such debt by use of section 78 or any other section of the Act. The wife says that the Act and case law only provide for the court to grant relief where the parties to the marriage are seeking to pursue third parties for declarations and orders which will determine the nature and extent of the parties’ assets for distribution. The wife says that at first glance section 79(10) may be available to the interveners however, section 79(11) would affect that right to become a party.
Whilst acknowledging that section 58(3) of the Bankruptcy Act 1966 (Cth) would prevent the interveners pursuing the husband for a debt in the Family Court in the circumstances of this case, the interveners say they are able to pursue the wife in relation to a joint debt of the parties to the marriage.
In support of the stated jurisdiction pursuant to section 78 of the Act the interveners referred to In the Marriage of Lanceley and Lanceley (1994) FLC 92-491. This is a decision of the Full Court of the Family Court of Australia. I have referred to this decision later in these reasons however; I do not consider that authority to be of assistance in this case. The interveners also referred me to a decision relating to the use of section 78 of the Act by the court to make a declaration sought by a third party. The decision is Sora & Sora and Ors [2010] FamCA 465. It is a first instance judgment of Cronin J delivered on 10 June 2010. In that case the learned trial Judge noted that there was an issue as to whether an application could be made by a third party to the marriage for an order under section 78. The point was not argued before the trial Judge, nor was it decided by him.
The interveners further argue that the Court has power under the accrued jurisdiction of the Act to determine the application the interveners wish to pursue. I am referred to sections 31 and 33 of the Act. I am further referred to the decisions of the Full Court in Warby and Warby (2001) FLC 93-091 and Bishop and Bishop (2003) FLC 93-144. I was also referred to the Full Court decision in Trustee for the Bankrupt Estate of N Lasic & Lasic (2009) FLC 93-402. I refer to that case later in these reasons however; I do not see that decision as being of assistance to the interveners’ case.
In relation to the prospect of the Court invoking the accrued jurisdiction of the Court, the interveners say there is an intermingling of the financial affairs of the parties and the interveners which the Court needs to determine in order to make orders under section 79 of the Act.
The interveners submit that they have a right to intervene in the proceedings pursuant to section 79(10) of the Act. They submit they are a creditor of the wife and may not be able to recover their debt if the orders sought by the wife are made. They further submit they are also persons whose interests would be affected by the making of the orders sought by the wife.
The wife says that the husband has a right to be heard in the proceedings if she seeks orders which affect his superannuation and/or his personal property as those assets/resources are not taken into his bankrupt estate. The wife gives notice that she will seek to amend her Response to an Application for Final Orders so as to seek an order under Part VIIIB of the Act. The intention is to seek an order which, if granted, would affect the husband’s entitlements to his superannuation.
In relation to the exercise of discretion, in determining this application to intervene, the wife says sections 79(12) and 79(13) arise for consideration. That would certainly be so in relation to any debt said to be owed by the husband but not that said to be owed by the wife.
Decided cases and Discussion
Section 90AE Family Law Act 1975 (Cth)
Section 90AE of the Act provides that the Court may, in certain circumstances, make an order under s79 which binds a third party. In Trustee of the Property of G Lemnos, A Bankrupt, &Lemnos and Anor (2009) FLC 93-394, the Full Court of the Family Court of Australia (Coleman, Thackray and Ryan JJ) heard an Appeal by the Trustee of the husband’s bankrupt estate, against orders for property settlement. The Court held that orders may be made in favour of a non-bankrupt spouse, and that subject to s90AE(3)(b), there was said to be no barrier to making property settlement orders where the parties’ unsecured liabilities exceeded the value of the vested property. Coleman J, in a separate Judgment (although agreeing with the orders proposed by Thackray and Ryan JJ), expressed the view (at 53) that it could not be inferred that there was a legislative intention to prefer the interests of a spouse and children over creditors’ interests.
However, in the exercise of that discretion his Honour accepted (at 54) that unsecured creditors may be disadvantaged in contrast to the spouse and children of the bankrupt, and that the converse may occur.
The Full Court considered that the interests of unsecured creditors are one of the factors in s75(2)(ha) for the Court to have regard to in balancing the exercise of the discretion. However, in Puddy & Grossvard & Anor [2010] FamCAFC 54, the Full Court of the Family Court of Australia (Coleman, Warnick and Boland JJ) considered (at 60) that s79(10)(a) and s75(2)(ha) both appear to refer to a debt which is not controversial.
In Puddy & Grossvard & Anor (supra) the Full Court considered that:
55.Nothing to which the Court has been referred persuades me that there is necessarily any prohibition upon the Court ordering parties to a marriage to make payments to a third party creditor out of their property, whether that be in reliance upon the provisions of the Act and/or the court’s accrued jurisdiction at the time Biltoft was decided, or subsequent to the enactment of s90AE in 2003, or the amendments to s79 which were enacted in 2005. The issue remains whether the jurisdiction to make orders with respect to “debts” in reliance upon s90AE and/or s79 extends to determining the existence and quantum of debts asserted by a creditor which are disputed by the alleged debtor or debtors in circumstances where the issue has not been resolved by the judgment of a court of competent jurisdiction.
56.The terms of s90AE appear sufficiently broad to encompass determining the existence of disputed debts. Read in their entirety however, the terms of the section appear to contemplate that the relationship of debtor and creditor is not controversial, and that “re-arranging” established liabilities is the focus of the section. Some support for such a narrow interpretation can be gained from the judgment of the High Court in Ascot Investments v Harper (1981) 148 CLR 337. Although, for reasons which are later suggested, it is not necessary to express a concluded view about the matter, such a limited interpretation of s90AE would not be likely to defeat the interests of either the party/parties asserting a debt, or the party/parties denying such claims. The disputed indebtedness of the party/parties to a marriage to a third party will almost always be relevant to determining the property of the parties to the marriage and, if controversial, thus be able to be determined by the Court in the exercise of its accrued jurisdiction, without needing to rely upon s90AE. Absent specific legislative provision enabling the rights between creditors and debtors to be varied in the way in which s90AE provides, the accrued jurisdiction of the Court may be insufficient to enable outcomes of the kind articulated in the section to be achieved. Conversely, s90AE alone may be insufficient to enable the Court to determine disputed debts. However, these are matters best left for determination in an appropriate case.
Section 78 Family Law Act 1975 (Cth)
Section 78, relating to the declaration of interests in property, is in the following terms:
(1) In proceedings between the parties to a marriage with respect to existing title or rights in respect of property, the court may declare the title or rights, if any, that a party has in respect of the property.
(2) Where a court makes a declaration under subsection (1), it may make consequential orders to give effect to the declaration, including orders as to sale or partition and interim or permanent orders as to possession.
Case Law on section 78 and orders sought by or made against third parties
In In the Marriage of Moran (1995) FLC 92-559, Bulley J held that section 78 enables declarations to be made where a spouse seeks orders declaring that the other party to the marriage is the beneficial owner of property held in the name of a third party. However, in that case the wife did not seek an order that would bind the third party and they were not joined to the proceedings. Bulley J (at 540) further considered that the decision in In the Marriage of Lanceley (supra), was authority for the proposition that a declaration between the husband and wife would not bind the third party.
In In the Marriage of Hender and Hender; Moore (1992) FLC 92-321, the wife sought a declaration that the husband’s brother-in-law held money on trust for the husband and wife. On Appeal, the brother-in-law asserted the monies were a gift from the husband, and denied the existence of a trust. The Full Court of the Family Court of Australia (Fogarty, Lindenmayer and Joske JJ) (at 79,414) held that the Family Court had no jurisdiction to make a declaration against the brother-in-law. The Court said:
“Against the granting of leave to amend is the circumstance that the wife's counsel specifically stated that the proceedings were not brought under s 85 but were proceedings under s 78. It is a difficult question whether s 78 provides jurisdiction to make the order in question or some amended order to the like effect or whether there are other bases of jurisdiction. It is clear, however, that the transaction as her Honour ultimately found it to be, fits within s 85 and that, therefore, the amendment which is sought would merely “formalise the actuality” of the wife’s case at trial.”
In Lanceley and Lanceley (1994) 92-491 the wife sought a declaration under section 78 that the husband held one half of his interest in the parties’ home on trust for the wife, and that he held two other parcels of real property on trust for the husband and wife as tenants-in-common and in equal shares. The husband neither consented to nor objected to the declarations and orders sought by the wife – he did not file material and nor did he make submissions.
The husband further owed amounts to creditors which exceeded the value of the assets of the marriage, and two of the principal creditors had not been served with the proceedings or received notice of them. The husband and wife were not separated and the proceedings were instituted for the collateral purpose of giving the wife an advantage over the husband’s creditors. The trial Judge declined to make the orders sought, in the absence of a contradictor.
On Appeal, their Honours (Barblett DCJ, Frederico and Lindenmayer JJ) said (at 81,110) that:
“In our view there can be no doubt that (as his Honour said, in paragraph 10 of his judgment) a declaration made in these proceedings between husband and wife would not be legally binding upon third parties (such as the husband's creditors or his trustee in bankruptcy) who were not parties to the proceedings. Apart from the statement by Viscount Maugham in London Passenger Transport Board v. Moscrop (supra) which his Honour quoted, support for this proposition is to be found in the judgment of Madden, CJ. of the Supreme Court of Victoria in Whyte v. Williams and Anor (1903) 29 VLR 69 at 81.”
In Dempsy and Dempsy and Others [2008] FamCA 1065, Murphy J considered property proceedings between the husband and wife, to which the wife’s parents had been joined as the second and third respondents. It was the application of the second and third respondents that the claim made against them be summarily dismissed, and which application was dismissed. His Honour (at paragraph 30) went on to quote the decision of Justice Brereton in Valceski & Valceski (2007) FLC 93-312, as follows:
30. Moreover, beyond merely resolving the issue for the purpose of the s 79 proceedings, the Family Court may, under s 78, make a declaration as to the existing title or rights, if any, that a party has in respect of property (In the Marriage of Moran (1994) 18 Fam LR 534; (1995) FLC 92-559) ... s 78(1) authorises that court, in proceedings between the parties to a marriage with respect to existing title or rights in respect of property, to declare the title or rights, if any, that a party has in respect of property. On its face, this is not limited to the rights of each matrimonial party vis-à-vis the other, but embraces the rights of one (or both) spouses vis-à-vis a third party. Section 78(2) then authorises consequential orders to give effect to the declaration ...
…
32. Similarly, there is no constitutional reason why, pursuant to s 78 and in aid of or ancillary to proceedings under s 79, a declaration cannot be made that property held by a third party is the beneficial property of a party. In so far as s 78 authorises such a declaration, it is a law with respect to matrimonial causes, just as is s 106B; and a proceeding for such a declaration, like a proceeding under s 106B, is within para (f) of the definition of "matrimonial cause". If the third party intervenes to place its position before the Family Court, or is joined so as to be bound, that does not deprive the proceeding of the quality of a matrimonial cause. And just because the result can be made binding on the third party similarly does not mean that the proceedings lose their quality of being a matrimonial cause ...
33. Thus relief can be granted under s 106B and s 78 against third parties, as part of the ordinary federal jurisdiction of the Family Court, being within matrimonial cause (f), without involving any question of accrued jurisdiction. Accordingly, the Family Court has ordinary federal jurisdiction in some circumstances to make orders against and affecting third parties under the Family Law Act.
In Doisy v Wilmont-Doisy and Another (2009) 40 Fam LR 655, the Full Court of the Family Court of Australia (Finn, Thackray and Strickland JJ) considered an application for leave to appeal by the wife. In that matter the husband’s second wife had been granted leave to intervene in the proceedings, seeking a declaration under section 78 of the Act. In referring to the Reasons of the trial Judge, the Full Court said (at pages 665 - 666):
“51. His Honour noted that “these proceedings are of course on foot between the husband and the wife and the question is whether the intervenor can seek a declaration of her interest in property under s 78”. He recorded that he had been provided with Dr Dickey's article, “The Position of Third Parties in Property Proceedings” (1995) 9 Australian Journal of Family Law 190, from which he quoted the following passages:
Although there is no reported case on point, it is now beyond doubt that, with just one exception, a court has no power to order an alteration of property interests either against or in favour of a third party under s 79(1) of the Family Law Act. This is so notwithstanding that a third party may have intervened in proceedings under the Act and is thus by s 92(3) "deemed to be a party to the proceedings". It may perhaps initially be thought otherwise. It may be thought that as a consequence of s 92(3), an intervener in property proceedings is susceptible to an order under s 79(1), for s 79(1) gives a court the power to alter the interests of "the parties" in property. It is, however, now clear that the expression "the parties" in this context means the parties to the marriage, and not the parties to the proceedings. The one exception referred to is a child of the marriage. …
On the other hand, there seems little doubt that a court does have the power to make a declaration of the property interests of any third party under s 78(1) provided two conditions are satisfied. The first is that the third party must be a party to proceedings between the parties to a marriage for a declaration under s 78, and not for some other form of relief, and the second is that the declaration be in respect of the same property that forms the subject of the proceedings between the parties to the marriage.”
The Full Court noted that the submissions put to their Honours by the wife’s counsel focussed on the express intention of the intervener to rely on section 79 as the basis for seeking a declaration under section 78. In refusing the application for leave to appeal, their Honours went on to say (at page 674):
“91. It was also argued on behalf of the wife, ironically relying upon a passage from Dr Dickey's article quoted above, that third parties can only seek a declaration under s 78 if they are "a party to proceedings between the parties to a marriage for a declaration under s 78, and not for some other form of relief". We are not entirely convinced (in the absence of proper argument) that the provision should be construed as narrowly as Dr Dickey suggests. In any event, although the intervener here might be conveniently described as a "third party" in the proceedings between the husband and wife, she has an independent entitlement to seek relief under s 78 as the spouse of the husband.
92. For the sake of completeness we record that we do not consider there is any substance in the proposition put by counsel for the wife that the interests of the intervener could be adequately protected by her swearing an affidavit in support of the husband's case. Nor is there any substance in the allied submission that it is:
fundamentally unjust to the [wife] and essentially an abuse of the process of the court for two parties … with essentially the same interest in the proceedings (viz the minimisation of the [wife's] claim against the husband's property) to be separately represented in those proceedings, thus obliging the [wife] to face two opponents in the forensic contest instead of one.
93. These submissions overlook the fact that the interests of the husband and the interests of the intervener are not necessarily ad idem. They also overlook the considerable forensic and substantive advantages available to parties that are not enjoyed by witnesses. Finally, the existence of an alternative means of protecting one's interests is not a basis for denying a party the opportunity to seek a remedy that is prima facie available to them.”
On its face, section 78 suggests the Court has power to make declarations concerning the equitable interests of the parties to a marriage. As the cases cited above establish, that view has not been supported by the Full Court. The above referred to decisions of the Court would support the intervener’s case that there is jurisdiction for the court to make a declaration in favour of a third party which affects the property rights of parties to a marriage. It will be for the interveners to establish their case under section 78 should they be given leave to intervene in the property proceedings.
S79(10) Family Law Act 1975 (Cth)
Under section 79(10)(a) the a creditor of a party to the proceedings is entitled to become a party to the proceedings in which an application is made for an order under this section by a party to a marriage if the creditor may not be able to recover his or her debt if the order were made.
In Puddy & Grossvard & Anor (supra) the Full Court said (emphasis added):
57.The 2005 amendments to the Family Law Act 1975 (Cth) (“the Act”) introduced section 79(10) relevantly provided:
The following are entitled to become a party to proceedings in which an application is made for an order under this section:
(a)a creditor of a party to the proceedings if the creditor may not be able to recover his or her debt if the order were made;
(b)any other person whose interests would be affected by the making of the order.
58.It would be surprising, and illogical, if, notwithstanding the rights conferred upon creditors and other interested third parties by those provisions, the Court could not make orders in their favour with respect to such debts or interests. Some support for that proposition can be gained from the decision of the Court in Worsnop & Worsnop [2007] FamCA 244. Whether the Court would make such orders in a particular case is another question. Accepting the submission now made on behalf of the husband would at least limit the practical utility of intervention by a creditor or interested person. These matters however would not of themselves necessarily enliven the Court’s jurisdiction to entertain disputed third party claims asserting a debt in reliance upon s79 of the Act.
59.The potential availability of jurisdiction to entertain the liquidator’s claim appears to be further supported by the terms of s75(2)(ha) which was enacted in 2005, and requires courts exercising powers under s 79 to consider:
the effect of any proposed order on the ability of a creditor of a party to recover the creditor's debt, so far as that effect is relevant; and
60.It would be surprising if, notwithstanding that provision, the Court could not make an order as between the parties to the marriage which avoided a creditor’s entitlement to recover its debt being defeated, if so doing was considered just and equitable. Section 79(10)(a) and s75(2)(ha) both appear to refer to a debt which is not controversial. Section 79(10)(b) appears to refer to interests which are not controversial.
61.However, I am not convinced that the combination of these sections provides a jurisdictional basis for entertaining the liquidator’s claim. These provisions enable a creditor to intervene in proceedings in the circumstances referred to in s79(10)(a), and oblige the court in such circumstances to have regard to the matter identified in s75(2)(ha). There is a material distinction between being a “creditor” and asserting an indebtedness which is disputed. A jurisdictional basis other than s79 thus needs to be enlivened in order for the court to entertain disputed debt claims.
Trustee for the Bankrupt Estate of N Lasic & Lasic (2009) FLC 93-402
In Lasic and Lasic [2007] FamCA 1188, the husband’s trustee in bankruptcy sought to set aside consent orders made between the husband and wife, which had the effect of transferring the husband’s interest in parcels of real property to the wife. The trial Judge required the wife to pay monies to the creditor.
On appeal, in Trustee for the Bankrupt Estate of N Lasic & Lasic (2009) FLC 93-402, the Full Court of the Family Court of Australia (Boland, Thackray and Ryan JJ) concluded that in the circumstances the trial Judge did not have the direct power to make an order for direct payment by the wife to the creditor.
The creditor was joined as a party to the appeal and cross-appeal. In relation to this jurisdictional issue raised by the wife in her cross appeal which formed one of the grounds of appeal of the Trustee, was that his Honour had neither the power nor the jurisdiction to grant the relief under s79 or s79A of the Act or otherwise.
The Full Court examined the issue relating to the Trustee’s status to bring the s79A proceedings and outlined the facts which “…supported an action by the trustee on behalf of the creditor/s of the husband’s bankrupt estate as a “person affected” by the consent orders” (at 83,421).
The Full Court went on to say:
195.We propose therefore to examine the question of whether his Honour had the jurisdiction to make the order in favour of Mr M. Although not explicitly stated in his Honour's reasons that he proposed to rely on Part VIIIAA as the source of power to make the order, other than his brief reference in paragraph 129, it appears to us he did so. Given the importance of this reference we repeat what his Honour said in that paragraph:
It remains to consider the form which the order should take. The nature of the orders the Court is able to make are defined by s 79(1) of the Act. It does not seem to be suggested on behalf of the trustee that an order that the wife pay directly to [Mr M] offends s 79(1) of the Act. The Court is satisfied that such an order is comfortably accommodated within the framework of s 79(1) of the Act. This is particularly so when regard is had to the third party creditor provisions of Part VIII.
196.Section 90AA of the Act sets out the objects of Part VIIIAA. Section 90AD(1) provides that a debt owed by a party to a marriage is to be treated as property for the purposes of paragraph (ca) of the definition of matrimonial cause in s 4(1).
197.As we have earlier briefly discussed, the amendments to the Act contained in Part VIIIAA apply to all marriages after the commencement of the Family Law Amendment Act 2003 save that they have no impact in those marriages where a s 79 order was in force at the time of commencement of Part VIIIAA — the case in this matter — unless such order is set aside under s 79A(1)(a),(b),(c) or (d), in which case the amendments apply from the date the order is set aside. The legislation does not have effect if the order under s 79 is varied under s 79A. Thus, we are satisfied that if his Honour intended to rely on any of the provisions of Part VIIIAA as the basis for the order made, he could do so only if he set aside the consent orders, and made new orders under s 79.
198.As we have recorded, counsel for Mr M, correctly in our view, submitted that the ability of the Court to order a payment by one party directly to a creditor was not dependent on the provisions of Part VIIIAA of the Act. He pointed to the many instances where, in appropriate circumstances, as part of an order adjusting property interests of the parties, one party may be ordered to meet the whole or part of a debt of the parties.
…
200.Subject to the provisions of the Bankruptcy Act 1966 (Cth), and notwithstanding that Part VIIIAA had no application, we accept that when his Honour determined to vary the consent orders he could have ordered the wife to pay a creditor of one or both of the parties, provided any affected third party had appropriate notice and the new orders were “just and equitable”.
201.This determination leads us to consider whether Mr M was a creditor of the husband. Potentially this raises the further question of the date at which the variation of the consent orders had effect. However, for reasons which will become apparent, it is unnecessary for us to determine whether or not the trial Judge's order should be perceived as taking effect on the date on which it was made or the date on which the consent orders were made. (See Parker and Parker (1983) FLC ¶91-364, Official Trustee in Bankruptcy v Donovan and Donovan and Stevens (1996) FLC ¶92-703).
…
206.In other words, from the time of the husband's bankruptcy the rights of his creditors were regulated in accordance with the provisions of the Bankruptcy Act and the husband's unsecured creditors’ rights were converted into a right to prove in the administration of his bankrupt estate (s 82 Bankruptcy Act) and share rateably with other unsecured creditors in accordance with the priorities contained in s 109 of the Bankruptcy Act.
207.Thus we are satisfied that at the date of the hearing, [Mr M's] rights to recovery of the judgment debt were governed by the provisions of s 109 of the Bankruptcy Act. Having regard to the provisions of the Bankruptcy Act his position could not have been superior to, or different from, a secured creditor who forgoes his security and proves in a bankruptcy or any other creditor who proved in the bankruptcy. Having proved in the bankruptcy he did not retain an independent right to enforce the judgment (subject to any applicable limitation provision) (see s 58(3)(a) of the Bankruptcy Act) nor as we have explained receive payment of the judgment debt.
208.Given that the matter was not agitated before either his Honour or on the hearing of this appeal, it is unnecessary for us to make comment about the way in which his Honour offset Mr M's liability for the wife's taxed costs of the District Court proceedings against the amount the wife would otherwise have been ordered to pay Mr M. In this regard it will be noted that at the time Coleman J made his orders, the wife had proved her debt in relation to these taxed costs in Mr M's own bankruptcy and therefore prima facie was not personally entitled to enforce payment of the liability.
Other considerations
There are practical considerations which affect the justice which the Court may administer in this case. These include the following:
·The interveners are witnesses in the husband’s case.
·The husband’s capacity to actively participate in the major part of the property proceedings requires permission from his bankruptcy trustee. Section 60(2) Bankruptcy Act 1966 (Cth) provides that “[a]n action commenced by a person who subsequently becomes a bankrupt is, upon his or her becoming a bankrupt, stayed until the trustee makes election, in writing, to prosecute or discontinue the action.” Notwithstanding that provision, subsection (4) permits a bankrupt to continue proceedings issued by him before he became bankrupt in respect of any personal injury or wrong done to him or his spouse or de facto partner or a member of his family or the death of such persons.
·Although the interveners and the husband are in the one cause in relation to the parties’ liability to the interveners, there must, on any objective view, be the potential for that to change at some point prior to the completion of the case.
·If the husband is permitted to continue the litigation in this Court on his own behalf then it is clear that a central issue between the parties will be the nature of the advances by the interveners. The husband’s Amended Application filed 21 October 2008 seeks an order that the former matrimonial home be sold and the interveners be repaid all the money they have advanced to the parties. The circumstances, terms and conditions of the advances will be litigated. The parties to any alleged loan will need to be determined. In such a circumstance, given the usual procedural restrictions on cross-examination which are applied to two parties in the same cause, it is difficult to see how the interveners’ participation, as parties, would lengthen the trial.
·The Court will need to make an order under section 79(12) to enable the husband to make any submission in the case.
·If the interveners are not allowed to be participants in the proceedings in their own right then there may be no proper contradictor on the case the wife and the Trustee would run in relation to the indebtedness of the husband and the wife to the interveners.
·The husband has stated unsecured debts of $361,330. This does not include the debt to M Limited of about $57,000 plus interest. Of the unsecured debts $249,000 is said to be owed to the interveners. If it were determined in this case that there was no debt between the husband and the interveners then the husband would have a surplus estate upon the sale of the former matrimonial home and distribution to him of 50% of the net proceeds were that percentage determined by the Court under section 79 of the Act to be a just and equitable distribution. The assets of the husband are stated to be about $336,500. This property consists of the husband’s half interest in the equity in the matrimonial home at C.
·The interveners have provided to the husband and/or the wife funds of $249,000. It is the interveners’ case that those funds found their way into the purchase funds for commercial buildings which were owned by the parties or into other financial support for the husband, the wife and their family. The wife acknowledges that $249,000 was received. The issue between the wife and the interveners is the purpose and nature of those funds, specifically whether the funds were loaned or gifted. If loaned then who were the parties to the loan and what were the terms of the loan?
·Given the size of the claim by the interveners relative to the pool of assets, it would seem probable that if the disputes between the parties and the interveners cannot be determined as part of these proceedings then it is possible, if not probable, that the proceedings in this Court would need to be stayed pending the outcome of the litigation in another court.
·Although not yet commenced it is entirely foreseeable that an application may be made in the proceedings to which Part 26.2 (and following) of the Rules may apply. In such circumstances the Rules provide that an application may be made to the court to enable a person who is not a party in the case to be heard in a bankruptcy case (Rule 26.05).
The prejudice to the wife at this time of allowing the interveners to become parties to the proceedings is one as to costs. The continued participation of the interveners in the proceedings will be able to be reviewed upon the application of a party as the proceedings progress to finality and it may be, for example when the interveners are required to file their evidence in chief, opportunities for the wife to challenge their continued participation will arise. If ultimately the interveners are unsuccessful against the wife then no doubt the wife will seek an order for costs against them.
At this time it seems to me that the interveners ought to be allowed to intervene in the proceedings. That would be at there own risk as to costs. They have, in my view, established sufficient basis upon which they can intervene and seek orders in the proceeding. They are on notice however, that their status in the proceeding may change as the evidence of all parties is considered during the hearing of the case and/or during the further preparation period for the trial.
The wife’s application filed 26 February 2010 seeking to restrain the second respondent, M Limited, from commencing any further proceeding against the wife or continuing any current proceeding against the wife.
By her Application in a case filed 26 February 2010 the wife seeks the following orders against M Limited.
“An order pursuant to section 90AF(1)(b) that the second respondent ([M Limited]) be restrained, until further order, from commencing any further legal proceedings or continuing to prosecute any current legal proceedings against the first respondent [the wife].”
In support of that application the wife filed an affidavit on 26 February 2010. Annexed to that affidavit is a copy of a Bankruptcy Notice served on the wife on 8 February 2010. The Bankruptcy Notice was served by the creditor M Limited. The debt claimed is $57,418.39.
On 17 February 2010 the solicitors for the wife wrote to the solicitors for M Limited. Amongst other matters they stated “Our client accepts that these moneys are owing to [M Limited].”
On 24 February 2010 the solicitors for M Limited responded to the wife’s solicitors. That letter served notice that “Our client intends to proceed with filing a creditor’s petition on 2 March 2010 if payment of the debt claimed is not made prior.”
In response to the letter of 24 February 2010 the wife filed her application now under consideration. The now second respondent M Limited opposes the order sought.
On 28 May 2010 the wife filed in the court an undertaking in the following terms:
“I undertake to pay damages to the second respondent [M Limited] in the event that the second respondent suffers damages as a consequence of the orders being sought by me are made by the court.”
It is the wife’s case that her bankruptcy would defeat her claim.
The 2nd Respondent provided to the Court an outline of submissions.
Pursuant to section 44 of the Bankruptcy Act, M Limited has until 1 September 2010 to file a creditor’s petition.
The debt which is claimed against the wife by M Limited continues to accrue interest at a rate of 9% pursuant to the Uniform Civil Procedure Rules 2005 (NSW).
M Limited directed the Court to section 90AF(3) of the Act which sets out the conditions to making an order or injunction. Section 90AF is as follows:
Court may make an order or injunction under section 114 binding a third party
(1)In proceedings under section 114, the court may:
(a) make an order restraining a person from repossessing property of a party to a marriage; or
(b) grant an injunction restraining a person from commencing legal proceedings against a party to a marriage.
(2)In proceedings under section 114, the court may make any other order, or grant any other injunction 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.
(3)The court may only make an order or grant an injunction under subsection (1) or (2) if:
(a) the making of the order, or the granting of the injunction, is reasonably necessary, or reasonably appropriate and adapted, to effect a division of property between the parties to the marriage; and
(b) if the order or injunction concerns a debt of a party to the marriage--it is not foreseeable at the time that the order is made, or the injunction granted, that to make the order or grant the injunction would result in the debt not being paid in full; and
(c) the third party has been accorded procedural fairness in relation to the making of the order or injunction; and
(d) for an injunction or order under subsection 114(1)--the court is satisfied that, in all the circumstances, it is proper to make the order or grant the injunction; and
(e) for an injunction under subsection 114(3)--the court is satisfied that, in all the circumstances, it is just or convenient to grant the injunction; and
(f) the court is satisfied that the order or injunction takes into account the matters mentioned in subsection (4).
(4)The matters are as follows:
(a) the taxation effect (if any) of the order or injunction on the parties to the marriage;
(b) the taxation effect (if any) of the order or injunction on the third party;
(c) the social security effect (if any) of the order or injunction on the parties to the marriage;
(d) the third party's administrative costs in relation to the order or injunction;
(e) if the order or injunction concerns a debt of a party to the marriage--the capacity of a party to the marriage to repay the debt after the order is made or the injunction is granted;
Note: See paragraph (3)(b) for requirements for making the order or granting the injunction in these circumstances.
Example: The capacity of a party to the marriage to repay the debt would be affected by that party's ability to repay the debt without undue hardship.
(f) the economic, legal or other capacity of the third party to comply with the order or injunction;
Example: The legal capacity of the third party to comply with the order or injunction could be affected by the terms of a trust deed. However, after taking the third party's legal capacity into account, the court may make the order or grant the injunction despite the terms of the trust deed. If the court does so, the order or injunction will have effect despite those terms (see section 90AC).
(g) if, as a result of the third party being accorded procedural fairness in relation to the making of the order or the granting of the injunction, the third party raises any other matters--those matters;
Note: See paragraph (3)(c) for the requirement to accord procedural fairness to the third party.
(h) any other matter that the court considers relevant.
The 2nd respondent draws particular attention to subsections (3)(a) and 3(b).
The 2nd respondents refer the court to the decision of Watts J in Allan and Allan and Others (2009) 41 Fam LR 565. The argument is made that insufficient evidence is advanced by the wife to satisfy the requirements of section 90AF.
The 2nd Respondent argued that the wife has not provided acceptable evidence of how she proposes to repay M Limited the money she owes. No undertakings are given as to dealing with her interest in the former matrimonial home such that it will not be further encumbered or encumbered to such an extent that there will be insufficient funds to pay out the debt to M Limited should the property need to be sold.
It is further submitted that the wife gives no admissible evidence (even under section 75 of the Evidence Act 1995 (Cth)) of what she has sought from financial institutions to enable her to achieve the aim of being able to pay out the M Limited debt, pay out the husband’s bankruptcy Trustee, and retain the former matrimonial home as her own property.
The 2nd Respondent submits that the wife makes no provision in her orders sought or in her affidavit evidence for the payment of the debt to M Limited. It is submitted that the wife is clearly using the injunction to increase her property.
It is submitted by the 2nd respondent that the wife’s claim that she will be unable to raise a loan should she be made a bankrupt is irrelevant to the considerations set out in section 90AF.
It is submitted that there is no evidence of the husband being able to meet the debt from his property. It is submitted that the husband’s debts exceed $410,000. There is no evidence as to the value of the former matrimonial home. There is no evidence as to the Trustee’s fees in relation to the husband’s bankruptcy. Those fees are taken from the husband’s assets before unsecured creditors are paid. There is no evidence of any further charging of the wife’s interest in the former matrimonial home.
The fact that the wife seeks an order which is to extend until further order is, it is submitted, inappropriate as set out in Allan and Allan and Others (supra). In that case the Court refused the application made by the wife to prevent secured mortgagees from being able to exercise their rights under security documents which enabled the orderly entering into possession of a number of particular properties, held in a pool of properties, for the purpose of effecting a sale pursuant to the security documents. The trial Judge held that the conditions precedent (set out in sections 90AF(3) and 90AK) to the granting of the injunction sought by the wife had not been met. The trial Judge made a number of statements about the position of secured commercial lenders and the operation of section 90AF.
It was conceded by the 2nd respondent that if the injunction was refused it may take many months before the property of the wife is sold and the 2nd respondent paid.
The wife submits that if she is made bankrupt she will lose the ability to borrow funds with which to acquire the former matrimonial home or any home. She will experience difficulty finding a leased residence for herself and her young child.
The circumstances the wife now finds herself in arose because the husband was gaoled for a sexual offence against the wife’s mentally handicapped sister. She submits it was none of her making and that she should have the Court exercise its discretion, within reasonable boundaries, in her favour. This submission relates to the balance of prejudice as between the 2nd respondent and the wife from the granting or the refusing of the injunction.
The wife submits that there is no doubt the 2nd respondent will need to be paid either upon the sale of the former matrimonial home or upon its refinancing.
As a matter of practicality the 2nd respondent says that no proposal has been put to it which would secure an agreement to await the outcome of the hearing of the wife’s application. As such the 2nd respondent says there is no material upon which it may consider its position and possibly agree to terms. Such proposals might include consenting to an order that the wife not further encumber the former matrimonial property; the wife not draw further against any loan facility secured against the property and; that the wife provide an irrevocable authority for the payment of the M Limited debt upon the sale of the property or from her assets received by order of the Court following the determination of the outstanding section 79 proceedings.
There are orders which could be made to reduce the prejudice M Limited submits it would be exposed to if an injunction was granted. The orders would include the requirement for the wife to make full disclosure in relation to her current financial position. The wife could also be restrained from further encumbering her interest in the former matrimonial home pending further order of the court.
Determination
In the hearing of the wife’s application I was able to consider the broader issue of the determination of the outstanding property proceedings. I have allocated 4 days of hearing time commencing on 13 September 2010. All parties or potential parties agreed that would be sufficient time to hear the case. The 2nd respondent acknowledges that it is unlikely it would be able to secure repayment of the loan through bankruptcy proceedings against the wife before that date.
The provisions of section 90AF(3) need to be considered:
(a) the making of the order, or the granting of the injunction, is reasonably necessary, or reasonably appropriate and adapted, to effect a division of property between the parties to the marriage;
Given the facts which I have been able to accept relevant to the financial circumstances of the wife and the fact that I am reasonably comfortable with the proposition advanced by the wife that the 2nd respondent will be able to be paid from the outcome of the proceedings in this Court, be it through the sale of the former matrimonial home or the refinancing of the home and given that the matter will be heard in the week of 13 September 2010, I am satisfied that the granting of the injunction sought by the wife is reasonably appropriate and adapted, to effect a division of property between the parties to the marriage.
I agree with the 2nd respondent that there is a dearth of evidence from the wife as to her financial circumstances such as might effect the amount of equity which currently exists in the former matrimonial home and I propose to order that the wife file a Financial Statement which remedies that circumstance.
I propose to make an order which will enable the 2nd respondent to apply to discharge the injunction made against it should there be a change to the wife’s financial circumstances which further puts at risk the ability of the 2nd respondent to recover its debt if it is required to wait until the conclusion of the proceedings in this Court.
(b) if the order or injunction concerns a debt of a party to the marriage--it is not foreseeable at the time that the order is made, or the injunction granted, that to make the order or grant the injunction would result in the debt not being paid in full
I find that at this time it is reasonably foreseeable that the 2nd respondent’s debt will be paid following the conclusion of these proceedings.
(c) the third party has been accorded procedural fairness in relation to the making of the order or injunction
The 2nd respondent is the third party in this case. The 2nd respondent has been heard in the determination of the application
(d) for an injunction or order under subsection 114(1)--the court is satisfied that, in all the circumstances, it is proper to make the order or grant the injunction
I am satisfied that in all the circumstances it is proper to grant the injunction sought by the wife limited to a fixed date.
(e) for an injunction under subsection 114(3)--the court is satisfied that, in all the circumstances, it is just or convenient to grant the injunction
I am satisfied that in all the circumstances it is just and convenient to grant the injunction.
(f) the court is satisfied that the order or injunction takes into account the matters mentioned in subsection (4).
(4) The matters are as follows:
(a) the taxation effect (if any) of the order or injunction on the parties to the marriage;
(b) the taxation effect (if any) of the order or injunction on the third party;
(c) the social security effect (if any) of the order or injunction on the parties to the marriage;
(d) the third party's administrative costs in relation to the order or injunction;
There is no taxation effect of the injunction which has been made known to the Court. There are likely to be administrative costs incurred by the 2nd respondent, however particulars have not been provided.
(e) if the order or injunction concerns a debt of a party to the marriage--the capacity of a party to the marriage to repay the debt after the order is made or the injunction is granted;
Note: See paragraph (3)(b) for requirements for making the order or granting the injunction in these circumstances.
Example: The capacity of a party to the marriage to repay the debt would be affected by that party's ability to repay the debt without undue hardship.
The evidence suggests that the debt to the 2nd respondent will be met from the property of the parties at the conclusion of the property proceedings. The probability of this occurrence is sufficient to support the granting of the injunction when taken into account with the other facts and circumstances.
(f) the economic, legal or other capacity of the third party to comply with the order or injunction
Example: The legal capacity of the third party to comply with the order or injunction could be affected by the terms of a trust deed. However, after taking the third party's legal capacity into account, the court may make the order or grant the injunction despite the terms of the trust deed. If the court does so, the order or injunction will have effect despite those terms (see section 90AC).
I am satisfied the 2nd respondent is able to comply with the injunction.
(g) if, as a result of the third party being accorded procedural fairness in relation to the making of the order or the granting of the injunction, the third party raises any other matters--those matters
Note: See paragraph (3)(c) for the requirement to accord procedural fairness to the third party.
The matters raised by the 2nd respondent have been set out earlier in these reasons.
(h) any other matter that the court considers relevant.
There is no other matter which needs to be considered at this point.
Having regard to all the above I propose to grant the injunction sought by the wife against the 2nd respondent. The injunction will be until a fixed date. The date chosen will be the last day of the scheduled hearing. I propose to grant leave to the 2nd respondent to apply to set the injunction aside in the event of any further evidence giving rise to a concern that there will be insufficient funds in the available pool of assets to enable either the husband or the wife to meet the liability of the 2nd respondent.
I propose to order that the wife file and serve a Financial Statement within seven days.
In order to protect the interests of the 2nd respondent I propose to order that, pending further order, the wife is restrained from further encumbering her interest in the property at C (the former matrimonial home).
I certify that the preceding one hundred and twenty four (124) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Le Poer Trench
Associate:
Date: 16 July 2010
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