Martin and Martin
[2015] FamCA 260
•9 April 2015
FAMILY COURT OF AUSTRALIA
| MARTIN & MARTIN | [2015] FamCA 260 |
| FAMILY LAW – Property enforcement of interim orders – Husband and wife seek consent orders but then withdraw leaving creditor pursuing repayment – Questions of jurisdiction and power discussed as creditor is the wife’s former solicitor yet orders sought as against the husband – Creditor to be paid. |
| Bankruptcy Act 1966 (Cth) Ascot Investments Pty Ltd v Harper and Harper (1991) FLC 91-000. | |
| Kirkpatrick v Kotis (2004) 62 NSWLR 567 Langford v Coleman [1992] FamCA 68, (1993) FLC 346 Lasic and Lasic [2007] FamCA 837 Martin and Martin [2012] FamCA 869 Rand & Rand (2010) 43 Fam LR 570 In the Marriage of Ramsey (1983) FLC 91-301 Zdravkovic and Zdravkovic (1982) FLC 91-220 | |
| APPLICANT: | Ms Martin |
| RESPONDENT: | Mr Martin |
| INTERVENOR: | X Firm |
| FILE NUMBER: | MLC | 9829 | of | 2007 |
| DATE DELIVERED: | 9 April 2015 |
| PLACE DELIVERED: | Melbourne |
| PLACE HEARD: | Melbourne |
| JUDGMENT OF: | Cronin J |
| HEARING DATE: | 16 March 2015 |
REPRESENTATION
| THE APPLICANT: | Mr Koroneus, Solicitor for the Trustee In Bankruptcy |
| COUNSEL FOR THE RESPONDENT: | Mr Glick QC with Mr Puckey |
| SOLICITOR FOR THE RESPONDENT: | Taussig Cherrie Fildes |
| COUNSEL FOR THE INTERVENOR: | Mr North QC with Dr Ingleby |
| SOLICITOR FOR THE INTERVENOR: | X Firm |
Orders
That pursuant to Rule 17.02 of the Family Law Rules 2004 Order 3(a) of the 12 September 2011 Orders be amended to state as follows:
3(a)Property E in the State of Victoria more particularly described as the whole of the land comprised in Certificate of Title Volume … Folio … and Certificate of Title Volume … Folio … (“E”).
That by way of enforcement of the September 2011 Orders, the husband deposit the sum of $993,022 plus interest at the rate prescribed in Rule 17.03 of the Family Law Rules 2004 to the date of payment, into the trust account of X Firm (“X FIRM”) within seven (7) days or such other time as may be agreed, to be applied by X FIRM as follows:
a.In payment of the Costs Settlement Sum as defined in the annexure to these orders (or part thereof);
b.In payment of the QF Settlement Sum as defined in the annexure to these orders (or part thereof); and
c.In payment of such costs as the Court has already ordered, payable to X FIRM as set out in paragraph 49 of the Affidavit of Ms X filed 22 January 2015 and Order 2 of the Orders made 18 December 2014 (or part thereof); and
d.The balance then to be held on trust in an interest bearing account for the husband and/or X Family Lawyers pending further determination of any outstanding dispute between the parties.
That in default of the deposit referred to in paragraph 2 above, the Husband sign all such documents and do all such acts as required to authorise and direct the solicitors for X Firm, K & L Gates, to sell the E property.
That the Husband authorise K & L Gates to communicate with the ANZ Bank to determine which loans secured by mortgage dealing number …, registered against the Title of E, the ANZ bank will require to be repaid from the proceeds of sale of E pursuant to paragraphs 2 and 3 (“the E Loans”).
That the Husband be required to do all such acts and things and sign all documents necessary to ensure that the ANZ Bank will release funds from the sale of E pursuant to paragraphs 2 and 3 in accordance with the August 2011 ANZ letter, including but not limited to paying or causing to be paid to the ANZ Bank such sum as may be necessary to discharge each of the E Loans, save for the Payable E Loan.
That the proceeds of the sale of the E property pursuant to paragraphs 2 and 3 then be applied as follows:
a.Firstly, in payment of the costs and expenses of the sale, including any professional costs reasonably incurred by K&L Gates in complying with paragraph 9(a);
b.Secondly, in payment of the Payable E Loan to the ANZ Bank, after compliance by the Husband with paragraph 5 above;
c.Thirdly, the next $993,022 (or part thereof), plus interest at the rate prescribed in Rule 17.03 of the Rules to the date of payment, to be deposited into X Firm Trust Account, and applied as provided by these orders
That in the event that the E property fails to sell for the sum of $1.56 million or greater, the husband deposit into X Firm Trust Account on the day of settlement of the sale of that property, a sum equivalent to the difference between the actual gross sale price realised and $1.56 million to be applied by X FIRM in accordance with these orders.
That in the event the sums deposited into X Firm Trust Account pursuant to either paragraph 2 or paragraphs 6(c) and 7 are insufficient to pay X Firm the Costs Settlement Sum, the QF Settlement Sum and any costs ordered, or in the alternative to paragraphs 2 to 7:
a.
i.The Husband pay the sum of $993,022, to be deposited into X Firm Trust Account and applied by X Firm according to these orders;
b.Further or in the alternative to paragraph 8(a) and in the alternative to paragraph 8(b), the Husband pay to X Firm the balance of the Costs Settlement Sum, the QF Settlement Sum and any costs the Court has already ordered, payable to X Firm as set out in paragraph 49 of the Affidavit of Ms X filed 22 January 2015 and Order 2 of the Orders made 18 December 2014 payable within 30 days.
That in respect of any sale of the assets pursuant to paragraphs 2 and 3 above:
a.K&L Gates is authorised to make arrangements regarding the following matters:
i.the selling agent to be engaged;
ii.the commission to be paid on the sale;
iii.the listing price or reserve price as the case may be;
iv.the terms of the sale contract;
v.the preparation of the relevant documentation to effect the sale;
vi.any other necessary matter to effect the marketing and sale of the properties; and
vii.to prepare documents in duly executable form, including contracts of sale, land transfers and the like, required to effect the arrangements referred to in paragraphs 9(a)(i) to 9(a)(vi) and to effect the sale of the properties, for execution by the husband on this own behalf and/or on behalf of the entities in which he may have an interest (“Sale Documents”).
b.the Court directs the Husband to execute any Sale Documents when produced to him for that purpose by K&L Gates;
c.in default of the Husband so executing the Sale Documents as required by paragraph 9(b), a Registrar of this Court is authorised pursuant to section 106A of the Family Law Act 1975 (Cth) (“Act”) to execute any such document, and an affidavit from a solicitor from K&L Gates deposing to the existence of the default will constitute sufficient proof thereof;
d.the Husband will do all such acts and things reasonably required of him by the selling agent and/or K&L Gates to sell the property in accordance with paragraph 2 and 3 above.
e.the husband shall vacate the properties no later than 7 days prior to the date fixed for completion of each sale; and
f.That pending the sale of the properties, the registered proprietor of the properties continues to be responsible for the costs of all outgoings (including any mortgage and loan repayments), taxes and rates as and when they fall due.
That all extant applications are otherwise adjourned to a date to be fixed upon application before the Honourable Justice Cronin or if he is unavailable, as the case management judge otherwise directs for determination of such issues arising out the implementation of these orders as the parties so require.
The annexure to these orders is deemed to be a part of these orders.
Notations
The Court notes the following definitions for the purpose of the Orders Sought:
A.“the Relevant Final Orders Applications” means:
I.The Amended Initiating Application filed by the Wife on 23 April 2009;
II.The Amended Response to an Initiating Application filed by the Husband on 29 April 2009;
III.The Application of the Husband and the Wife that orders for settlement of property be made by consent, as referred to in paragraphs 2 and 3 of the Orders of 17 October 2012; and
IV.Any Applications for Final Orders (including any Applications for Final Orders in Response) made by the Husband and/or the Wife that are extant as at the final hearing of this matter.
B.“X Firm” means X Firm.
C.“the Act” means the Family Law Act 1975.
D.“the Rules” means the Family Law Rules 2004.
E.“Reserved Costs Orders” means the following Orders:
I.Paragraph 21 of the Orders of 12 September 2011;
II.Paragraph 1 of the Orders of 6 December 2012;
III.Paragraph 5 of the Orders of 3 May 2012; and
IV.Any subsequent Orders reserving X Firm’s costs from 30 August 2013 until the date of the Final Orders.
F.“the Costs Settlement sum” means the sum of $450,000, which is the amount payable by the Wife to X FIRM by way of agreed outstanding legal costs pursuant to Terms of Settlement executed 6 August 2013, together with interest thereon at the rate prescribed in Rule 17.03 of the Family Law Rules 2004 from 7 August 2012, or such other date as the Court deems appropriate, to the date of payment.
G.“the QF Settlement sum” means the sum of $399,241.94, payable by the Wife to X Firm in satisfaction of the debt owing by the Wife to QF Pty Ltd, which has been assigned to X Firm pursuant to a Deed of Assignment dated 7 June 2013, together with interest thereon at the rate prescribed in Rule 17.03 of the Rules from 7 June 2013, or such other date as the Court deems appropriate, to the date of payment.
H.“the E property” means the property situate at and known as Property E, being the whole of the land described in Certificate of Title Volume … Folio … and the whole of the land described in Certificate of Title … Folio...
“the E Security” means the security granted to X Firm over the E Property by way of:
I.Orders 3, 8(g) and Notation A of the Orders dated 12 September 2011; and
II.Deed of Charge entered into by the Wife dated 10 January 2012 (supported by Caveat lodged 13 January 2012).
J.“the September 2011 Orders” means the Consent Orders made by the Family Court of Australia on 12 September 2011 between the Husband, the Wife, X Firm and QF Pty Ltd which deals with, inter alia, the application of the proceeds of the sale of the E property.
K.“the August 2011 ANZ letter” means the letter from the ANZ to Martin Pty Ltd dated 19 August 2011, which was annexed to the September 2011 Orders, which sets out, inter alia, the loans to be discharged from the sale of E.
L.“the Payable E Loan” means the loan referred to as “ANZ Business Loan facility in the name of Martin Pty Ltd for the amount of principle being $532,000 plus any interest and fees accrued” in the August 2011 ANZ letter.
M.“the Y Interest” means the Wife’s 1/6th interest in the property situate at and known as 188-192 Y Street, Geelong, being the whole of the land described in Certificate of Title Volume 8301 Folio 286.
N.“the Y Security” means the security granted to X Firm by way of Deed of Charge entered into by the Wife dated 22 July 2010 (supported by Caveat lodged 13 August 2010).
O.“the Z Partnership Interest” means the Wife’s 10 per cent interest, in her capacity as appointor and apparent Trustee of the Ms Martin Trust, in Stage 2 of the Z Partnership Development.
P.“T Street” means the property situate at and known as T Street, Q Town being the whole of the land described in Certificate of Title Volume … Folio ….
Q.“L Street” means the property situate at and known as L Street, Suburb N, being the whole of the land described in Certificate of Title Volume … Folio ….
R.“the S Street property” means the property situate at and known as S Street, Q Town, being the whole of the land described in Certificate of Title Volume … Folio ….
S.“the AA Property” means the property situate at and known as AA Street, BB Town, being the whole of the land described in Certificate of Title Volume … Folio ...
T.“the CC Deed of Assignment” means the Deed of Assignment between the Wife and X Firm dated 28 November 2011, pursuant to which the Wife assigned to X Firm “For securing to (X Firm) the payment of all monies which are by the (Legal Services Agreement between X Firm and the Wife) to become due and payable by the (Wife) to (X Firm)…all of her right title and interest in any monies which are resolved to be paid, or which are, paid to her by the Trustee (of the Ms Martin Trust) pursuant to the Order (of 4 November 2010), or otherwise”.
U.“the Handwritten Contract” means the handwritten contract signed by the Husband and Wife and dated 16 August 2012.
“the Wife’s Z Payment” means the payment intended to be made to the Wife pursuant the Handwritten Contract of the “Net Proceeds of Z Stage 2”.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Martin & Martin has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
| FAMILY COURT OF AUSTRALIA AT MELBOURNE |
FILE NUMBER: MLC 9829 of 2007
| Ms Martin |
Applicant
And
| Mr Martin |
Respondent
And
| X Firm |
Intervener
REASONS FOR JUDGMENT
X Firm (“X Firm”) were the lawyers for Ms Martin (“the wife”) until August 2012 when their professional services were terminated. At that time, X Firm were owed significant legal costs. The professional services related to proceedings in this Court between the wife and Mr Martin (“the husband”).
Not long after the retainer of X Firm was terminated, the husband and the wife sought final orders by consent before Coleman J. His Honour refused to make the orders but did not dismiss their application (see Martin and Martin [2012] FamCA 869).
Although the formal orders made by Coleman J showed the wife as the applicant and the husband as the respondent, there could be no doubt from reading the judgment that both parties treated the application for consent orders as joint.
The reason Coleman J refused to make the proposed orders was that they would impact on the ability of X Firm (and at that time a commercial funding company QF Pty Ltd) to recover money owed by the wife. His Honour then ordered that pursuant to s 92 of the Family Law Act 1975 (Cth) (“the Act”), both X Firm and the commercial funding company be granted leave to intervene and the matter be adjourned to be heard “on the merits”. It will also suffice to say that the consent orders proposed by the husband and wife did not deliver to the wife significant property but rather what she later described to her accountant (20 August 2014 by text message) as a maintenance package for life.
Initially, in the final hearing before me, there were two applications. First, there was the outstanding application by the husband and wife seeking final consent orders as between themselves. Secondly, there was an application by X Firm for enforcement of orders made in September 2011. The unusual feature was, and remains, X Firm seeks the enforcement orders against the husband.
It was the wife who was the client of X Firm and she charged her interest in property to X Firm. When the husband withdrew the proceedings, he submitted there was no jurisdiction enabling X Firm to continue. It was submitted that the Court should read the 2011 orders strictly (Langford v Coleman [1992] FamCA 68, (1993) FLC 346). Thus, it was submitted, there was no room to go behind the orders and see what was intended or why they were made. To do otherwise would invite consideration of the parties’ subjective intentions. In my view, it is permissible to look at the surrounding circumstances of the orders if that will shed some light on why there is still a dispute. Those surrounding circumstances are available to assist in what amounts to a construction of the order (see Rand & Rand (2010) 43 Fam LR 570 and Kirkpatrick v Kotis (2004) 62 NSWLR 567)
Before dealing with the enforcement issue, it is important to understand what happened to the proposed final consent orders of the husband and the wife.
Just days before the final listing of the determination before me, the wife voluntarily entered into a bankruptcy arrangement. Her trustee appeared at the hearing and indicated that he neither opposed nor supported the continuation of the proceedings. In respect of the statutory prohibition set out in s 60(3) of the Bankruptcy Act 1966 (Cth), he maintained that any proceeding against the wife was stayed. In my view, based on their oral application, leave should be given to X Firm to continue because their pursuit of orders is directed to the husband as orders were being sought to alter his interests in property as well as property of entities under his control.
To the extent that the husband’s property, or property owned by entities under his control, is altered and such alteration favours the wife in some way, the trustee can take that issue up with X Firm. I have concluded that X Firm is a secured creditor in any event. If I am wrong about that, the trustee has his remedies.
I further ruled during the hearing that to the extent the proceedings before Coleman J in 2012 were joint, the bankruptcy of the wife had severed that joint approach. Consequent upon those rulings, and with great reluctance fearing a consequent order for costs against the husband, Mr Glick QC on his behalf, withdrew the husband’s pursuit of the orders set out in the minutes proposed by both parties in 2012. He conceded the minutes could not proceed. The application was accordingly struck out. In so far as the application may have affected the wife, the trustee remained silent.
To the extent that the wife had any entitlement to pursue orders, any property interest to which she would have been entitled (save as to certain personalty and superannuation) would have vested in the trustee in bankruptcy (s 58 of the Bankruptcy Act). The trustee had, as I have indicated, adopted a neutral position to the proceeding continuing saying that in his view, any proceedings were stayed but I interpreted that to mean only as against or by, the wife.
I turn then to the claim for relief by X Firm. It requires an understanding of some background because first, it was submitted that with the ending of the proceedings as between husband and wife, the claim of X Firm also ended. There is a second point which is that if the first is not right and X Firm is able to enforce rights under an order, discretionary principles apply (see s 105 of the Act, In the Marriage of Ramsey (1983) FLC 91-301 and Collins and Olsthoorn [2005] FamCA 138; (2005) FLC 93-216)
In the litigation between the husband and the wife there were numerous hearings at all of which, the wife was represented and on many occasions, by senior counsel. A brief examination of the history shows innumerable interlocutory disputes. Whilst in that context, it is hardly surprising that the wife’s legal fees were enormous, the evidence of the husband was that much of the proceeding was unnecessary and uncontrolled. The Court was not in a position to test any of the evidence here nor did it have to, because all parties requested a determination on the basis of the submissions put and the references to various documents.
After the termination by the wife of the X Firm retainer, a number of things occurred but two need to be mentioned now. First, on 7 June 2013, X Firm entered into a deed of assignment with the commercial funders in relation to the debt owed by the wife in the sum of $399,241.94. Secondly, there were proceedings in the Supreme Court of Victoria Costs Court over the wife’s fees. The result was an agreement fixing the wife’s outstanding legal fees at $450,000. Thus, absent accruing interest and costs associated with subsequent court attendances, X Firm claims about $850,000.
In an interlocutory proceeding in November 2014 conducted before Berman J, there is appended to orders the following notations:
That the husband will not challenge the terms of settlement entered into between the wife and the intervener on 21 August 2014 and will not re-agitate the same.
That the husband and the wife will not challenge the assignment to the intervener of the debt between the wife and [QF Pty Ltd] and will not reagitate same.
When X Firm began acting for the wife, she was unable to pay fees as they fell due so those fees, as were accruing, were deferred on the basis of a deed of charge executed by the wife over two real properties of which she was the registered proprietor. One of those was later sold but it produced no net proceeds. Further charges and a covenant were executed over trust property. The trust was controlled by the wife and it owned a share in a particular property development then underway.
The consequence of the various charges just mentioned was that X Firm lodged caveats over the real properties.
As part of the family law proceedings between the husband and the wife, injunctive orders were made on 10 December 2010. The husband consented to those orders, restraining him from extending his borrowings. The husband at that time did, and still does, conduct a major car dealership.
In July 2011, the husband sought orders for the removal of one of the X Firm caveats because he wanted a property so caveated sold (notwithstanding the wife was the registered proprietor) to reduce his existing borrowings in order to borrow further to settle the acquisition of a commercial property. The husband had committed himself to this purchase without notice to the wife. In addition therefore to the caveat hurdle, the husband also had the problem of the injunction. These July 2011 proceedings culminated in orders on 12 September 2011.
The orders made on 12 September 2011 were made by Dessau J with the consent of the parties. Bearing in mind it is said that the retainer ceased in August 2011, it is noticeable that the wife was shown on the court record as being represented by X Firm, the solicitor who appeared for the wife being an employee of X Firm yet the principal of X Firm was also made a party. As I have indicated, the September 2011 orders were only a month after X Firm’s services were terminated and “Ms X” (the Principal of X Firm) was shown as a party for that specific hearing. Those orders largely underpin the current proceedings. It is important that they be seen in detail and in particular, reference is made to the language used by the parties.
The orders began by varying the extant injunctions enabling the husband’s development to proceed. But then the following appears:
3.That the Husband and the Wife each forthwith do all things necessary and sign all such documents as may be required to sell the properties at:
(a)[Property E] in the state of Victoria more particularly described as the whole of the land comprised in Certificate of Title Volume … Folio … (" E");
(b)[Property N] in the state of Victoria more particularly described as the whole of the land comprised in Certificate of Title Volume … Folio … ("N"); and
(c)[Property A] in the State of Victoria more particularly described as the whole of the land comprised in Certificate of Title Volume … Folio … ("A"),
(hereinafter collectively "Properties") in accordance with the terms of these orders so that the total net proceeds of sale of all of the Properties after payment of the amounts prescribed by the terms of these orders in relation to each of the Properties respectively be disbursed such that the Wife receive the first one million dollars as and by way of partial property settlement ("Wife's Million Dollar Entitlement") such amount to be paid to [X Firm] and the parties share any remaining balance equally as and by way of partial property settlement respectively and the parties be equally responsible for the sale of the Properties.
Further orders were made that the wife be restrained from further encumbering the N property and that:
The wife hold her interest in [N] on trust for the husband and the wife.
Of the first sale referred to in the orders, that is, the property at E, provision was made for a regime of funds-disposal, the last two provisions of which read:
8. That upon settlement of the sale of [E] the sale proceeds thereof including the deposit be disbursed as follows:
…
(g)seventhly, there be disbursed to [X Firm] such of the Wife's One Million Dollar Entitlement as shall then be outstanding (or such part thereof as shall be available after payment of the amounts referred to in paragraphs 8(a) to 8(f) inclusive) after deduction of all amounts as may have been paid to [X Firm] in respect of the Wife's One Million Dollar Entitlement from the sale of [N] and/or [A].
(h)eighthly, the balance (if any) be divided equally between the Husband and the Wife by way of partial property settlement and paid to Each of [X Firm] on behalf of the Wife and Taussig Cherrie Fildes on behalf of the Husband respectively.
Similar provisions to those quoted above appeared in respect of the property in A and N. The orders then provided:
11.That prior to settlement of the sale of each of the Properties the Wife do all things necessary and sign all such documents as may be required to withdraw all caveats and charges lodged by her or on her behalf including but not limited to those lodged by [Ms X] (…) and [QF Pty Ltd] (…) over the title of [N] and any caveat lodged by Ms X and/or [QF Pty Ltd] over the title to [E].
…
13.That:
(a)at or prior to settlement of the sale of [N], [Ms X] do all things necessary and sign all such documents as may be required to withdraw caveat … lodged by her or on her behalf of the title of [N];
(b)at or prior to settlement of the sale of [E], [Ms X] do all things necessary and sign all such documents as may be required to withdraw caveat which she will lodge hereafter over [E];
(c)[Ms X] pay [QF Pty Ltd] from the Wife's One Million Dollar Entitlement such sum as may be agreed between Ms X and [QF Pty Ltd].
To make clear that the payment to X Firm was not necessarily satisfied by those orders, it was then provided:
15.That notwithstanding paragraph 8 of the December 2010 Orders, the Wife be permitted to provide her solicitors, [X Firm], security over her one half share of the proceeds of sale of stage one of the [Z] development to which she is entitled in accordance with the provisions of order 4(b) of the Orders made 4 November 2010 subject to her obligations in accordance with the provisions of order 4(c) of the Orders made 4 November 2010.
The orders ended with a discharge of Ms X and the commercial funder (albeit the funder did not seem to have been a party) but the parties went further and appended the following notations which presumably were intended to indicate why the preceding orders were being made by the Court:
A. That the Husband has agreed not to seek to remove:
1.A caveat lodged by [Ms X], securing the fees of [X Firm]; and
2. A caveat lodged by [QF Pty Ltd]
over the Wife's interest as provided by these Orders, in [E] (in addition to [N]) pending settlement of the sale save as may be necessary to ensure the continuation of financing for the [B Group] by the ANZ Bank / Esanda Finance and these Orders provide that such caveat be removed upon settlement of the sale of [E].
B.[Ms X] acknowledges that payment of such amount as shall be available from the Wife's One Million Dollar Entitlement (and any such further amount to which the Wife is entitled from the sales of the Properties) in accordance with the provisions of these Orders, is accepted by her in substitution for the caveats over [N] and [E].
This arrangement may appear convoluted but much thought appears to have gone into it. The parties had all agreed to append to the orders (presumably for their benefit rather than that of the Court) a letter from the ANZ Bank confirming how the various monies were to be expended. There could be no doubt that what the parties were ordered to do should have therefore been mathematically achievable. It did not work out that way.
In the discrete proceedings in November 2014 before Berman J to which I earlier referred, there was also appended the following notation:
The husband will not contend that the consent orders made on 12 September 2011 between the parties are ultra vires or invalidly made. The husband reserves his position to argue the meaning and effect of the orders made on 12 September 2011.
The 2011 orders were then followed only weeks later by the approach of the husband and the wife to the Court and the hearing before Coleman J. It was what happened in the intervening period which gave rise to significant and subsequent proceedings but having regard to the discrete nature of the present application, it is unnecessary for me to go into a lot of detail. The evidence which remains unchallenged came mostly from the wife’s own accountant.
Prior to the termination of the X Firm retainer, there were direct negotiations between the husband and the wife. In 2012, the wife received advice from counsel that after paying out her then legal expenses, there was little net benefit in running the property trial.
In July 2012, an arrangement was proposed by the husband to the wife’s accountant which, in part, encapsulated the maintenance arrangement to which the wife referred as I have mentioned earlier. What was not mentioned in the proposed court-declared arrangements was the creation of a trust by the husband’s father in which the wife had a role as a joint appointor with the father and with her own accountant.
As this financial plan began to evolve, there were discussions between the wife’s accountant and the wife’s new solicitor. It was at that time that X Firm’s retainer was terminated. The accountant met a separate solicitor to obtain advice for the wife and that solicitor noted that the wife would declare herself bankrupt and the foreshadowed arrangement would be set up which included a component of $1 million which would be “outside” the family law settlement.
In the shadow of the termination of the instructions of X Firm, the husband handwrote an offer to the wife which would have given her:
·The property registered to the new trust unencumbered;
·The net proceeds of a stage of the property development that I have already mentioned but ultimately were the subject of the 12 September 2011 orders;
·Money for Y Street (then registered to her) and for her to then buy it back (it was said to be worth approximately $233,000);
·Cash of $100,000 in two tranches.
This written document which also provided that the husband was to fund the proceedings against X Firm and the commercial lenders was signed by the husband and the wife.
There is no doubt that the husband and the wife with the assistance of the wife’s accountant were endeavouring to avoid property falling into the hands of the wife which would have been attachable under the X Firm charge. The issue before me relates to the 2011 orders which were not being enforced by the wife. Had she done so, it is conceivable on their face, that she would have received $1 million which would have then belonged to X Firm. The wife had no incentive (other than to be debt free and also avoid bankruptcy) to enforce the orders having received advice that whatever property settlement entitlement she was pursuing would have gone to X Firm.
Much was made during this long set of hearings about conduct and it is relevant because it affects the exercise of discretion but it is unnecessary for me to make findings about what was described as collusion.
The uncontroversial facts are that:
·wife’s accountant sought advice as to whether he could be sued personally by X Firm;
·the accountant sought advice about a variety of options which would best protect the wife from “the foreseen legal attack” by X Firm;
·the accountant was concerned that the arrangement looked “poor in the eyes of the Court”;
·the accountant told the wife’s new lawyer to move things along because there was concern the husband would change his mind about the signed settlement;
·when the accountant began to implement the settlement, he insisted on confidentiality. For example, he wanted the real estate agent’s advertising board on the trust’s property which was to be the wife’s residence, to be taken down quickly.
·In late December 2012, the wife’s accountant expressed concern that drawings from the property development might have given rise to a claim being made by X FIRM against the husband if X Firm gained control of the wife’s trust because the husband had a beneficiary loan account due to the trust.
·By February 2013, the new trust instructions were prepared under the hand of the wife’s accountant.
·The accountant asked solicitors to advise on the question of whether a trustee in bankruptcy could take control of the trust and specific instructions were given that the wife was not to be made a specific beneficiary.
·By August 2014 when the accountant was subpoenaed to give evidence, the wife was giving him advice not to go “on (the) stand”.
In December 2012, the husband pursued the consent orders again but this time, being conscious of the angst and accusations of X Firm, he swore an affidavit saying that orders were not intended, calculated or designed, to distinguish the security that the wife gave to X Firm and the litigation funder or to defeat the claim of X Firm. That application did not proceed.
That is the background.
The husband’s position was that the Court should not be distracted by voluminous evidence presented by X Firm to some of which, objection was taken. However, that position was premised on relevance because of the Langford v Coleman argument. It was only at the very end of the submissions that the husband raised the potential to object to evidence. In my view, based on an obvious reading of the orders and the uncontroversial matters to which I have just referred, it is not necessary for me to deal with the evidence further.
Mr Glick QC for the husband submitted:
·The invocation of the s 79 power between husband and wife was a matrimonial cause within the meaning of the Act but there was no power to order the husband to pay;
·The lynchpin was the existence of a matrimonial cause and there was not one;
·The decision of Gibbs J in Ascot Invetsments v Harper was authority for the proposition that a case did not improve by becoming an intervener;
·The orders referred to in September 2011 did not say anything about the husband paying X Firm. The orders certainly provided for the husband and wife co-operating in respect of the sale of properties but on the sales, the $1 million was to be paid to the wife. That was the wife’s $1 million by way of partial property settlement;
·X Firm could take security for its debt but there was no legal or equitable interest they could maintain in the proceeds of sale directly;
·The order of September 2011 provided for dispersal of the monies but at the end of it, the order provided for the remaining money to be divided equally between husband and wife;
·The debt to X Firm had nothing to do with the husband;
·X Firm as a creditor has an entitlement to payment but not before the husband and wife divided their assets.
Mr North QC for X Firm submitted that:
·X Firm sought enforcement of the orders pursuant to their existing legal and equitable interests under the orders and as chargee of the wife’s legal and equitable interest under the orders.
·The wife had charged any interest she received in the E property in favour of X Firm on 10 January 2012.
·the husband had consented to the orders for the purposes of being relieved of an obligation which existed because of the charge given by the wife in favour of X Firm;
·Not only was there an order for sale but the husband through his solicitor gave an undertaking in respect of a personal obligation if there was a shortfall
The undertaking by the husband’s solicitor, Mr Taussig QC was given on 21 January 2011 that the husband would be responsible for any shortfall in respect of the E sale if it did not make $1.56 million.
In their written submissions, counsel for X Firm submitted that:
·X Firm had been joined in the proceeding for the purposes of affecting a variation to orders previously made so that the husband could obtain an advantage and he had to pay for that, or give further security for that security which was released to enable the sale to proceed;
·The husband had agreed to stand in the shoes of the wife where she had given the security;
·The orders were amendable to the Court’s jurisdiction as being no more than a recognition of the entitlements of another party to the proceedings;
·The husband was bound by the orders because he undertook obligations.
There can be little doubt that had the sales gone ahead even if the $1 million was the money of the wife, it would have been paid direct to X Firm. The wording of the orders of September 2011 cannot be read any other way.
Senior counsel for the husband submitted that the absence of any proceedings as between the husband and the wife ended the matrimonial cause and hence there was no power for the Court to make the orders. He relied on Ascot Investments Pty Ltd v Harper and Harper (1991) FLC 91-000. Before examining what is the jurisdiction, I found it helpful to turn back to Ascot Investments.
In Ascot Investments, a number of statements were made by the High Court of Australia. Barwick CJ said:
[9] It may at once be conceded that the Family Court may make orders which are appropriate to render effective orders made by it within its jurisdiction. Such enforcing orders must, of course, do no more than is necessary and appropriate for the enforcement of the substantive order or orders……..
They cannot directly affect the rights of third parties. But it is no objection to such an enforcing order that it binds or operates upon a stranger to the Family Court proceedings or that compliance with it may indirectly or consequentially effect substantive rights of the stranger.
Here, the Court is not directly affecting the rights of X Firm in the adverse sense but rather, enforcing its rights.
Barwick CJ went on to say that in respect of the joinder of X Firm:
[17]Whatever the effect of s. 92, it is, in my opinion, quite clear that its operation cannot in this case cause any relevant accretion of jurisdiction to the Family Court. (at p344)
Gibbs J made similar statements. For example:
[19]The authorities to which I have referred establish that in some circumstances the Family Court has power to make an order or injunction which is directed to a third party or which will indirectly affect the position of a third party. They do not establish that any such order may be made if its effect will be to deprive a third party of an existing right or to impose on a third party a duty which the party would not otherwise be liable to perform.
His Honour then said:
It can safely be assumed that the Parliament intended that the powers of the Family Court should be wide enough to prevent either of the parties to a marriage from evading his or her obligations to the other party, but it does not follow that the Parliament intended that the legitimate interests of third parties should be subordinated to the interests of a party to a marriage, or that the Family Court should be able to make orders that would operate to the detriment of third parties. There is nothing in the words of the sections that suggests that the Family Court is intended to have power to defeat or prejudice the rights, or nullify the powers, of third parties, or to require them to perform duties which they were not previously liable to perform. It is one thing to order a party to a marriage to do whatever is within his power to comply with an order of the court, even if what he does may have some effect on the position of third parties, but it is quite another to order third parties to do what they are not legally bound to do.
His Honour then said:
[21]The Family Court cannot ignore the interests of third parties in the property, nor the existence of conditions or convenants that limit the rights of the party who owns it.
Thus, if anything, the decision assists X Firm.
Section 31 of the Act provides that jurisdiction is conferred on the Court with respect to matters arising under the Act and also matters with respect to which proceedings may be instituted in the Family Court under the Act or any other act.
Section 39 provides that a matrimonial cause may be instituted under the Act and s 39(4) provides that proceedings that fall within the definition of matrimonial cause require Australian citizenship, residency or presence in Australia at the relevant date. That issue has never been contentious.
“Matrimonial cause” is defined in s 4 of the Act and includes proceedings between the parties to a marriage with respect to the property of them or either of them being proceedings:
i.Arising out of the martial relationship;
ii.In relation to concurrent, pending or completed divorce or validity of marriage proceedings between those parties; or
iii.…
Matrimonial cause also means proceedings between the parties to a marriage relating to any other proceedings including proceedings with respect to the enforcement of a decree in relation to concurrent, pending or completed proceedings of the kind otherwise described in the definition of matrimonial cause. Thus, even if any proceedings between the husband and the wife were completed, there is power to continue proceedings providing the party seeking those, has standing. The position of a creditor therefore comes into focus.
It was therefore submitted that as a bona fide creditor, X Firm had an entitlement to payment before the husband and wife divided their assets. That was because the Court may make “some appropriate order which recognises his/her rights” by virtue of s 75(2)(ha) and/or s 90AE of the Act (citing Biltof and Biltof [1995] FamCA 45 and Deputy Commission of Taxation and Kliman and Kliman [2002] FamCA 629; (2002) FLC 93-113).
The unusual feature is that X Firm is not just a creditor but has rights by virtue of the charges executed in its favour. The husband acknowledged those rights when he agreed to the September 2011 orders. The undertaking adds to the strength of that argument.
X Firm submitted that there are a number of authorities that supported its contention.
In Lasic and Lasic [2007] FamCA 837, Coleman J was of the view that how the Court should approach the payment of a creditor depended essentially on whether or not there was a nexus between the liability and the marital relationship of the husband and wife. In that case, a third party claim for damages had resulted in a judgment against the husband and the judgment creditor endeavoured to have the payment taken off the top of the assets of the husband and the wife which would have included the potential for the wife to be paying the husband’s debt. In that case, his Honour observed that the wife had conspired with the husband to keep the judgment creditor out of his entitlement and as a matter of justice and equity, it being the test for the making of any order under s 79 of the Act, the liability should be regarded as a “matrimonial debt” in the same way that secured or other joint liabilities might be. His Honour observed that the wife had by deception, the sole enjoyment of the matrimonial assets subsequent to the period of time that she had absolute control.
There was no dispute that the court in Lasic had the power to make the order of the payment direct to the creditor once satisfied that there was sufficient nexus with the husband and wife. Coleman J pointed to s 75(2)(ha) and noted that in making any orders, the Court was obliged when exercising its discretion, to take into account the effect of any proposed order on the ability of a creditor of a party to recover the creditor’s debt so far as the effect of the order as between the husband and wife was relevant. His Honour observed that absent some order, the third party creditor would not be able to recover his debt. This case was subsequently heard on appeal. The Full Court noted that unlike the case before me, the point was not taken about jurisdiction. The Full Court then said:
Whether or not s 75(2)(ha) applied, we consider that endeavouring to arrive at the “just and equitable” outcome mandated by s 79(2), the Court would, in any event, have been required to have regard to the effect of any proposed order on the ability of a creditor of a party to recover the creditor’s debt (citing Biltoft and Biltoft [1995] FamCA 45; (1995) FLC 92-614).
Importantly, the Full Court looked back at the expression “matrimonial cause” in s 4 and in particular the reference to which I have mentioned earlier about completed proceedings.
The Full Court referred to the decision of Chemaisse and Chemaisse; Federal Commissioner of Taxation (1988) FLC 91-915 confirming that proceedings falling within the definition of “matrimonial cause” could be brought by a third party “provided that the requisite relationship to other proceedings exists”.
In November 2014, the husband confirmed that he did not dispute the validity of previous orders. In my view, the ability of the Court to order a payment by one party directly to a creditor does not need to rely on Part VIIIAA. The power lies in s 79 (see Deputy Commission of Taxation v Kliman and Kliman [2002] FamCA 629; (2002) FLC 93-113). A similar position was adopted by the Full Court in Zdravkovic and Zdravkovic (1982) FLC 91-220 where the Full Court held that once it was clear and beyond doubt that a debt was owing to a third person, and that it would in all probability be enforced, there are clearly appropriate cases where as part of the adjustment of the financial rights of the parties, the order could be made for the payment direct to the creditor. In this case, the wife remains silent regardless of her bankruptcy. It is clear that X Firm will enforce its entitlement as against the wife because of the charges, the covenant and the various orders of the Court. It is evident that there is no other prospect of X Firm being paid because of the fact that the wife has studiously avoided pursuing what would otherwise appear to have been her rights at law as against the husband.
The wife assigned her rights and permitted X Firm to make the commercial arrangement with the husband. It is telling in my view that the independent advice given to the wife (as discovered) was that with what she owed X Firm, the property proceeding was otherwise not worth pursuing. The absence of the wife doing anything about the enforcement of that order reinforces the fact that she acknowledged that the property belonged to X Firm.
In my view there is a sufficient nexus between the rights of X Firm and both the husband and wife and their specific interests in property. Because of the definition of matrimonial cause to which I have referred, there is a right to enforce the order notwithstanding the absence of an extant s 79 application inter partes for the alteration of their interests in property. X Firm has the property rights to enforce.
When considered in the light of the surrounding circumstances, the order does provide for the sale of property and the money to go to X Firm in its own right.
In their submission, X Firm said that in the alternative, the Court had the power under s 106B of the Act to set aside any transactions as between the husband and the wife. In my view, it is not necessary that I determine that issue.
I find therefore that X Firm must succeed.
Notwithstanding the way the proposed orders were drawn, some arrangement has been entered into such that the intent remains the same but the recipient is slightly different. Nothing was heard from the husband to dispute that.
I certify that the preceding Seventy One (71) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Cronin delivered on 9 April 2015.
Associate:
Date: 9 April 2015
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