Lin & Ruan
[2021] FamCAFC 90
•9 June 2021
FAMILY COURT OF AUSTRALIA
Lin & Ruan [2021] FamCAFC 90
Appeal from: Ruan & Chui & Anor [2020] FCCA 426 Appeal number(s): EAA 122 of 2020 File number(s): SYC 4113 of 2018 Judgment of: AINSLIE-WALLACE, WATTS & AUSTIN JJ Date of judgment: 9 June 2021 Catchwords: FAMILY LAW – APPEAL – PROPERTY – Leave to appeal – Appeal against interim orders for the conditional sale of the appellant’s property to ensure the second respondent husband’s payment of a mortgage – Appellant holds 95 per cent legal interest and husband holds remainder – Orders permitting first respondent wife to lodge a caveat over the property – Where none of the parties applied for interim orders in those terms – No identification of the source of power to appropriate the appellant’s property to cover the husband’s individual liability – No legal or equitable interest to enable the lodgement of a caveat on the title – Leave to appeal granted – Appeal allowed – Orders set aside – No order as to costs. Legislation: Family Law Act 1975 (Cth) Pts VIII, VIIIAA, ss 79, 80, 90AE, 90AF, 90AK, 92, 94AA, 105, 106B, 114
Real Property Act 1900 (NSW) Pt 7A
Family Law Regulations 1984 (Cth), reg 15A
Federal Circuit Court Rules 2001 (Cth) rr 11.01, 25B.11
Cases cited: Ascot Investments Pty Ltd v Harper (1981) 148 CLR 337; [1981] HCA 1
Australian Eagle Insurance Co Ltd v Parry [1991] TASSC 111
Chernischoff and Chernischoff (1980) FLC 90-848; [1979] FamCA 83
Dougherty v Dougherty (1987) 163 CLR 278; [1987] HCA 33
Federal Commissioner of Taxation v Tomaras (2018) 265 CLR 434; [2018] HCA 62
Medlow & Medlow (2016) FLC 93-692; [2016] FamCAFC 34
Molier and Van Wyk (1980) FLC 90-911; [1980] FamCA 85
Mullanev Mullane (1983) 158 CLR 436; [1983] HCA 4
Praxoulis v Praxoulis (1995) FLC 92-621; [1994] FamCA 159
Ravasini and Ravasini (1983) FLC 91-312; [1982] FamCA 62
Re Bunn; Ex parte Bunn (1989) 20 FCR 393; [1989] FCA 120
Re Chemaisse; Federal Commissioner of Taxation (Intervener) (1990) FLC 92-133; [1990] FamCA 32
Division: Appeal Division Number of paragraphs: 49 Date of hearing: 9 June 2021 Place: Sydney Counsel for the Appellant: Ms Cohen Solicitor for the Appellant: Ren Zhou Lawyers The First Respondent: Litigant in person The Second Respondent: Litigant in person ORDERS
EAA 122 of 2020
SYC 4113 of 2018APPEAL DIVISION OF THE FAMILY COURT OF AUSTRALIA
BETWEEN: MS LIN
Appellant
AND: MS RUAN
First Respondent
MR CHUI
Second Respondent
ORDER MADE BY:
AINSLIE-WALLACE, WATTS & AUSTIN JJ
DATE OF ORDER:
9 JUNE 2021
THE COURT ORDERS THAT:
1.Leave to appeal is granted.
2.The appeal against the orders of a judge of the Federal Circuit Court of Australia made on 29 July 2020 is allowed.
3.Orders 1, 3 and 4 made by the primary judge are set aside.
4.There be no order as to costs.
Note: The form of the order is subject to the entry in the Court’s records.
Note: This copy of the Court’s Reasons for judgment may be subject to review to remedy minor typographical or grammatical errors (r 17.02A(b) of the Family Law Rules 2004 (Cth)), or to record a variation to the order pursuant to 17.02 Family Law Rules 2004 (Cth).
IT IS NOTED that publication of this judgment by this Court under the pseudonym Lin & Ruan has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
EX TEMPORE REASONS FOR JUDGMENT
AUSTIN J:
In June 2018, proceedings were commenced between the respondent spouses in the Federal Circuit Court of Australia seeking property settlement relief under Pt VIII of the Family Law Act 1975 (Cth) (“the Act”).
The spouses jointly own their former family home (“the Suburb B property”), which is occupied by the wife and the spouses’ adolescent son. However, the wife joined the husband’s mother (“the appellant”) to the proceedings due to her proprietary interest in another residential property (“the Suburb C property”), which the wife asserts is held on trust for the husband and is therefore property available for division between the spouses. The husband and the appellant both refute the proposition. They currently hold the Suburb C property as tenants in common, with the land title register reflecting the husband’s share at five per cent and the appellant’s share at 95 per cent. The husband asserts he holds his five per cent interest beneficially for the appellant. The appellant and the husband live in that property.
The wife’s application for final relief at first instance remains as set out in her Amended Initiating Application filed on 2 August 2018. Therein, she seeks orders for the sale of the Suburb C property and the use of the sale proceeds to completely discharge the mortgage registered over the Suburb B property (of which she seeks to acquire sole and unencumbered title), conditional upon the husband’s default of an obligation to do so from his own resources. The relief sought by the wife in respect of the Suburb C property does not specifically call to aid any equitable cause of action or any statutory power (such as that which may be available under ss 90AE, 90AF or 106B of the Act), as might be expected when orders are sought in respect of property in which a third party like the appellant enjoys proprietary interest.
Following the appellant’s joinder to the proceedings, she filed a Response on 1 March 2019, which has not since been amended. She seeks dismissal of the wife’s application for any orders which affect the Suburb C property and a declaration that the wife has no right, title or interest in the property. As can be seen, her position is and always has been an outright rejection of the wife’s conditional claim upon the Suburb C property (or, by implication, at least upon her 95 per cent share of it).
Interim orders were made on 6 August 2018, requiring the husband to meet the mortgage repayments upon the Suburb B property as and when they fall due. There seems to be no dispute he has since failed to regularly pay the mortgage repayments, but there is apparently some controversy over the extent of his default.
On 12 April 2019, after the appellant’s joinder, more interim orders were made by the primary judge. Relevantly, the appellant was restrained by injunction from alienating or further encumbering the Suburb C property.
In July 2019, the husband filed an application seeking further interim relief, to which the wife responded in August 2019 and October 2019 seeking more interim relief of her own. The primary judge made a series of further procedural and interim parenting orders in August, September and October 2019 but, relevantly for present purposes, the discrete dispute over interim property orders was adjourned to 1 November 2019 for hearing. That hearing resulted in the orders made by the primary judge on 29 July 2020, from which the appellant now seeks to appeal, subject to the grant of leave to do so.
The appealed orders require the conditional sale of the Suburb C property and use of the sale proceeds to defray the mortgage registered over the Suburb B property, provided the husband fails to rectify the mortgage arrears (Order 3) or fails to meet the repayments on an ongoing basis (Order 4) of his own accord. The orders additionally purport to empower the wife to lodge a caveat over the Suburb C property (Order 1).
Nobody – not even the wife – applied for interim orders in those terms. The husband had sought the sale of the Suburb B property, whereas the wife sought orders for the husband to rectify the arrears on the Suburb B mortgage (amounting to about $30,000), to account to her for another $282,000 withdrawn from bank accounts at or about the time of the spouses’ separation (in default of which the Suburb C property should be sold and the sale proceeds used for that purpose), and to pay her periodic spousal maintenance.
For the reasons which follow, leave to appeal should be granted and the appeal should be allowed.
LEAVE TO APPEAL
Leave to appeal is required because the challenged orders are interlocutory in nature and do not relate to children (s 94AA of the Act; reg 15A of the Family Law Regulations 1984 (Cth)).
While the statutory discretion to grant leave is unfettered, the appellant must ordinarily demonstrate the decision at first instance is attended by sufficient doubt to warrant appellate scrutiny and, additionally, substantial injustice would result if leave were refused, supposing the decision at first instance to be wrong (Medlow & Medlow (2016) FLC 93-692 at [44]–[57]).
Here, the appellant is able to capably demonstrate the orders were wrongly made and that she would suffer substantial injustice if they are implemented. The following reasons explain why the decision was wrong but the substantial injustice is this: the appellant is 82 years of age and is at risk of being forcibly ejected from the home in which she lives, being a home in which she enjoys 95 per cent proprietorship, unless and until proven otherwise.
THE APPEAL
Before dealing with the substantive appeal, it is as well to address a procedural issue.
The appellant was joined to the proceedings below when named as the second respondent to the Amended Initiating Application filed by the wife on 2 August 2018. Given the final orders sought by the wife in respect of the Suburb C property, the appellant is plainly a “necessary party” as contemplated by r 11.01 of the Federal Circuit Court Rules 2001 (Cth) (“the FCC Rules”).
Despite the appellant’s identification as the “second respondent”, by orders later made on 29 June 2020, the primary judge joined the wife’s former lawyers to the proceedings and also designated them as the “second respondents”. Those lawyers sought their joinder to the proceedings by way of an Application in a Case filed in March 2020, which was, in effect, an application by them to intervene under s 92 of the Act; not to be joined as respondents. They are not responding to any claim made against them, but are rather advancing their own claim against the spouses’ property to satisfy unpaid legal fees, said to be owed by the wife for their representation of her prior to their withdrawal.
Regardless of their designation, the lawyers are parties to the proceedings below, but were not joined as respondents to this appeal and none of the parties to the appeal had turned their mind to whether they should have been. In my view, we are nevertheless able to proceed and determine the appeal in the lawyers’ absence as they will not be denied procedural fairness, which proposition was not disputed by the appellant or the spouses. In the underlying proceedings, orders and notations were made (on both 2 September 2020 and 14 December 2020) acknowledging the appellant had appealed from the orders made on 29 July 2020, so it is highly likely the lawyers are aware of the appeal even though they are not parties to it. They have not sought to intervene, indicating their disinterest.
Turning then to the substance of the appeal, it is unnecessary to traverse each of the six grounds of appeal in the Amended Notice of Appeal filed on 2 February 2021 because the primary judge’s decision was undoubtedly infected by legal error.
The appellant enjoys 95 per cent legal ownership of the Suburb C property and the primary judge was obliged to assume she holds the corresponding equitable interest in the property. The wife’s attempt to demonstrate otherwise in the pursuit of her application for final relief would have to wait until the trial. Although the wife alleges the appellant only holds her legal share of the Suburb C property beneficially for the husband, at this point in time, that remains a bare assertion, fiercely contested by the appellant and the husband.
In the reasons for judgment, the primary judge correctly said this:
24.While on an interim application, with no testing of any evidence it is neither possible nor appropriate for me to make any findings…
In an interim hearing, no findings could be made on controversial but as yet untested evidence to definitively settle any factual or legal disputes between the parties.
That being so, in what was an interim dispute between only the spouses, the primary judge was astute to recognise how any interference with the appellant’s property rights ought be avoided, saying:
28.… [T]he Court must be careful not to act in a way which interferes with [the appellant’s] legal rights, in particular in a way which may not be reversible.
Unfortunately, such caution was not then exercised.
The primary judge was satisfied there was no basis upon which the earlier interim order (made in August 2018) requiring the husband to pay the mortgage instalments for the Suburb B property should be varied. There was no appeal from the order (at [13]) and the husband did not discharge his onus of proving the need for any variation (at [32]).
That being so, since the husband had failed to diligently comply with the order and the mortgage repayments on the Suburb B property were in arrears, his Honour turned to consider what “machinery provisions” were necessary to ensure the mortgage repayments were met if the husband’s default continued (at [33]).
To that end, without any further discussion or explanation in the reasons for judgment, the primary judge concluded:
35.… [I]t would be appropriate to make machinery provision orders for the sale of the [Suburb C property] to use at least [the husband’s] 5% legal entitlement in that property, to pay the outstanding mortgage costs.
The errors inherent in the decision and the orders which flowed from it may be succinctly stated.
The orders made by the primary judge did not readily correlate with the reasons for judgment. Quite properly, the primary judge expressly found the appellant bore no separate obligation to financially support the wife (at [29]) and so, if the orders for the conditional sale of the Suburb C property were only being made to ensure rectification of the husband’s personal default in paying the Suburb B mortgage, as the primary judge surmised (at [23] and [35]), then no more than his own five per cent stake in the Suburb C property should have been the subject of such garnishment. Instead, the appealed orders authorise the use of the entire net proceeds of sale realised on the Suburb C property to rectify the husband’s default.
Even if the primary judge concluded that the appropriation of the appellant’s property to cover the husband’s individual liability was justified, it was obligatory to identify the source of power to make the orders and to satisfy himself that the pre-conditions for its exercise were fulfilled. That was not done. In the absence of the regular exercise of statutory power, the primary judge could not make an order impinging upon the appellant’s property rights (Ascot Investments Pty Ltd v Harper (1981) 148 CLR 337 at 342–343 and 351–357).
Neither the orders nor the reasons for judgment identify the source of power for the orders made and so, if it exists, it must be inferred.
The primary judge might have conceived the orders as “machinery provision orders” in an attempt to distinguish them from substantive Pt VIII orders (Molier and Van Wyk (1980) FLC 90-911; Ravasini and Ravasini (1983) FLC 91-312 at 78,125–78,126), but the orders certainly had a profound and substantive effect upon the appellant as a third party, even if only in a conditional sense. The orders were not simply to assist the implementation of final and operative property settlement orders between the spouses, which is the common context in which consequential orders are made, or indeed the interim spousal maintenance order binding only the husband.
The orders were made to conditionally enforce the underlying order requiring the husband to pay the Suburb B mortgage, thereby enabling the wife’s continuing occupation of the property, but in those circumstances the underlying order could only have been enforced against the husband’s property; he being the only person fixed with an obligation to pay money for the wife’s benefit. The appealed orders were not made in the guise of a warrant for enforcement or as attachment, sequestration, or receivership orders, which r 25B.11 of the FCC Rules envisages as being the only available forms of order to enforce an obligation to pay money pursuant to the power reposing in s 105 of the Act.
The only other conceivable sources of power for orders compelling the appellant to sell her property and to apply its capital value for the benefit of the spouses are s 90AE and s 90AF of the Act, but the pre-conditions for the exercise of power under either of those provisions were not considered, let alone found to be fulfilled.
If the orders are considered to be part of an interim adjustment of property interests between the spouses under s 79 of the Act, there was no indication of it in the reasons for judgment. The first pre-condition for an order under s 90AE is that it be made in the context of an application for a property settlement order, but that was not the case here. It is difficult, if not impossible, to imply that the orders were part of a package of interim property settlement orders since the orders were only intended to enforce an underlying order requiring the husband to pay the Suburb B mortgage to enable the wife’s continuing occupation of the property, which is characteristic of an order for spousal maintenance, to which s 90AE of the Act could not apply. In determining the category into which orders fall, it is more important to consider substance rather than form (Mullane v Mullane (1983) 158 CLR 436 at 444). Then his Honour had to, but did not, make findings that the orders affecting the appellant were “reasonably necessary”, that it was “just and equitable” to make the orders, or that the appellant’s administrative costs had been taken into account (ss 90AE(3)(a), 90AE(3)(d)) and 90AE(4)(d)).
If the orders are instead considered to be injunctions, there was no indication in the reasons for judgment why the primary judge found the orders affecting the appellant were “reasonably necessary”, that it was “proper” to make the orders under s 114(1) of the Act, that it was “just or convenient” to make the orders under s 114(3) of the Act, or that the appellant’s administrative costs had been taken into account (ss 90AF(3)(a)), 90AF(3)(d), 90AF(3)(e) and 90AF(4)(d)). The appellant’s administrative costs were not an insignificant consideration. For the Suburb C property to be compulsorily sold, the appellant would need to engage a real estate agent, for whose commission on the sale she would be at least partially responsible. She would also bear the expense of vacating the property before sale and then finding alternate accommodation.
Finally, it may be wondered how the orders, if purportedly made under either s 90AE or s 90AF of the Act, could possibly meet the threshold requirement of an acquisition of the appellant’s property on just terms (s 90AK(1)(a)), since they simply extinguish her property rights if certain obligations which are entirely beyond her personal control are not met.
As the High Court of Australia has recognised in analogous circumstances, the conditional power to make orders under Pt VIIIAA of the Act is not commonly capable of engagement when the rights of a third party, like the appellant in this case, are trammelled (Federal Commissioner of Taxation v Tomaras (2018) 265 CLR 434 at [6], [8], [26], [63] and [69]).
Lastly, it is necessary to address the order purporting to authorise the wife’s registration of a caveat over the title to the Suburb C property. In that respect, the primary judge said this:
30.If the wife wishes to, she should be allowed to file a caveat on that property against the possibility that [the appellant] will breach the Court’s injunction, and I will make that Order to further protect her rights. The injunction against [the appellant], which is matched by an in Court undertaking by the husband, would also support such a caveat being lodged if the wife considers it necessary.
(Emphasis added)
The injunction referred to there by the primary judge is the one made on 12 April 2019, restraining the appellant from alienating or further encumbering the Suburb C property.
Based on such reasoning, the primary judge made an order in these terms:
(1)The [wife] be granted leave to lodge a caveat over the real property known as [the Suburb C property].
Pursuant to Pt 7A of the Real Property Act 1900 (NSW), caveats may be registered on the title to land in which the caveator claims a legal or equitable estate or interest. But the wife claims no legal or equitable estate or interest in the Suburb C property at all. She only asserts the husband’s equitable interest in the Suburb C property exceeds his five per cent legal interest in it. Even if that proves to be true, the wife does not thereby derivatively enjoy some form of inchoate equitable interest in the property. Any claim which she makes upon the husband’s share of the Suburb C property is speculative and depends upon a favourable exercise of discretion under Pt VIII of the Act to adjust the spouses’ then existing property interests. If her claim succeeds, her interest in the Suburb C property is created at that point in time, but does not endow her with a caveatable interest now (Dougherty v Dougherty (1987) 163 CLR 278 at 293; Re Chemaisse; Federal Commissioner of Taxation (Intervener) (1990) FLC 92-133 at 77,915; Australian Eagle Insurance Co Ltd v Parry [1991] TASSC 111 at [5]; Praxoulis v Praxoulis (1995) FLC 92-621 at [19]–[21]).
Despite the primary judge’s observation to the contrary (at [30]), the injunction made in April 2019, restraining the appellant’s alienation or encumbrance of the Suburb C property, did not incidentally invest the wife with any legal or equitable interest in the property.
The wife is not presently seized of any proprietary interest in the Suburb C property capable of supporting a caveat and the primary judge certainly had no power to make an order which merely gave her permission to register a caveat on the title. The primary judge could have created a caveatable interest in the property for the wife, such as by way of an equitable charge to secure the husband’s payment of the existing spousal maintenance liability (s 80(1)(c) of the Act; Chernischoff and Chernischoff (1980) FLC 90-848; Molier and Van Wyk; Re Bunn; Ex parte Bunn (1989) 20 FCR 393), but that was not done in this instance and, in any event, only the husband’s minor proprietary share could then have been encumbered. Conversely, if the wife did presently enjoy some proprietary interest in the Suburb C property, she would have a lawful right to register a caveat without any need for the primary judge’s permission.
DISPOSITION
The appeal should be allowed because the appealed orders are vitiated by error.
Orders 1, 3 and 4 made by the primary judge should be set aside. Because nobody sought orders in either the same or similar terms, there is no need to remit the parties’ interim applications for re-hearing. The parties were apparently content with the way in which the various other issues in dispute were determined by the primary judge.
The other orders, which restrain the husband from alienating or further encumbering his interest in the Suburb C property (Order 2) and otherwise deal with procedural issues (Orders 5 and 6), remain intact.
The appellant did not comply with the appeal registrar’s procedural orders requiring her to file and serve a schedule of her costs (if costs orders were to be sought), so there should be no order as to costs.
WATTS J:
I agree with the reasons given by Austin J.
AINSLIE-WALLACE J:
I too agree with the reasons proposed by Austin J and the orders of the Court will be:
(1)Leave to appeal is granted.
(2)The appeal against the orders of a judge of the Federal Circuit Court of Australia made on 29 July 2020 is allowed.
(3)Orders 1, 3 and 4 made by the primary judge are set aside.
(4)There be no order as to costs.
I certify that the preceding forty-nine (49) numbered paragraphs are a true copy of the ex tempore Reasons for Judgment of the Honourable Justices Ainslie-Wallace, Watts & Austin. Associate:
Dated: 11 June 2021
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