Mollison and Mollison and Anor

[2014] FCCA 466

FEDERAL CIRCUIT COURT OF AUSTRALIA

MOLLISON & MOLLISON & ANOR [2014] FCCA 466

Catchwords:
FAMILY LAW – Property – marriage in excess of thirty years in duration – application to preserve assets at interim hearing stage – parties separated since 2011 – husband apparently engaged in business independently of the wife – wife asserts husband has incurred liabilities in period since parties separated – spousal parties are registered proprietors of two piece of real estate subject to mortgage – mortgagee concerned has agitated for sale of both properties – equity available in properties to spousal parties appears modest – third party creditor of husband has charged one of the properties concerned – settlement of sale imminent – is third party secured or unsecured creditor – evidence indicates husband has other debts – husband has not as yet provided disclosure of financial circumstances – impossibility of ascertaining asset pool at interim hearing stage in these circumstances – practical considerations – what is reasonable in circumstances – is it just and equitable to make order freezing proceeds of sale – right of third party to be heard – if order is made will it mean debt will not ultimately be paid in full – financial implication of such order.

Legislation:

Family Law Act 1975 (Cth), ss.75(2); 79(2);79(4);79(10); 90AA; 90AD; 90AE; 90AF; 90AK; 114

Acts Interpretation Act 1901 (Cth), s.15AB

Enforcement of Judgments Act 1991 (South Australia), s.8

Andersons Solicitors v Schigulski 88 SASR 1

Hickey & Hickey & Attorney-General (Intervener) (2003) FLC 93-143

Bevan & Bevan [2013] FamCAFC 116

Biltoft & Biltoft (1995) FLC 92-614

Prince & Prince (1984) FLC 91-501

Applicant: MS MOLLISON

First Respondent: MR MOLLISON

Second Respondent: J PTY LTD

File Number: ADC 4508 of 2013

Judgment of: Judge Brown

Hearing date: 6 March 2014

Date of Last Submission: 6 March 2014

Delivered at: Adelaide

Delivered on: 14 March 2014

REPRESENTATION

Counsel for the Applicant: Mr Bryant

Solicitors for the Applicant: Judith Jordan

Counsel for the First Respondent: In person

Counsel for the Second Respondent: Mr B Bowler

Solicitors for the Second Respondent: Hume Taylor

ORDERS

1. The company J Pty Ltd be granted liberty to be heard in respect of these applications and be added as a party to these proceedings.

2. Noting there is in existence a contract for the sale of the property at Property C being all that land comprised in Certificate of Title Register Volume (omitted) Folio (omitted), being a contract dated 9 February 2014 between the applicant wife, the respondent husband and one Mr T as vendor and Mr C as purchaser and that such is due to settle on 7 March 2014, the Registrar General on the request of the registered proprietors made by lodging an application to register an order of this court together with any relevant fees otherwise due and payable to the Registrar General according to law, will cancel or remove from the title of such land the registration of the Order of the District Court of South Australia as made thereon by Document No (omitted).

3. Upon settlement of the contract for sale of the property at Property C, being all that land comprised in Certificate of Title Register Volume (omitted) Folio (omitted) and noting that the agent of the applicant wife, the respondent husband and the said Mr T is one Mr P, conveyancer of (omitted) and that the said Mr P consents to be being so injuncted if this court thinks fit, the said Mr P;

   (a)will pay such monies otherwise due and payable to Mr T to the said Mr T;

   (b)will pay such monies remaining otherwise due and payable to the applicant wife and respondent husband into an interest bearing on call account ("the ACCOUNT") to be opened in the name of the applicant wife, the respondent husband and J Pty Ltd jointly.

4. Within 24 hours of the making of this order, the applicant wife, the respondent husband and the nominee of J Pty Ltd will attend upon a bank to be agreed between the parties and failing agreement the (omitted) Bank in Adelaide and do all things necessary including providing any identification as required by such bank in order to open such account so as to open with such bank an interest bearing on call account being the ACCOUNT and will immediately thereafter provide to the said Mr P details of the ACCOUNT as opened.

5. Upon being notified on the details of the ACCOUNT, the said Mr P will pay into such account any monies otherwise due to the said applicant wife and respondent husband from the settlement.

6. Such monies as are paid into the ACCOUNT will remain therein subject to any order of this court and in particular any order permitting the removal of such monies.

7. The said Mr P in his capacity as the conveyancer for the vendors of the subject land shall be injuncted upon any settlement of this property from handing over to any person except to an officer of the agreed or otherwise nominated bank any monies he holds for the applicant wife or the respondent husband.

8. Further consideration of this matter be adjourned to 14 March 2014 at 2.15 pm NOTING that reasons will be provided to the parties prior to this date.

IT IS NOTED that publication of this judgment under the pseudonym Mollison & Mollison & Anor is approved pursuant to s.121(9)(g) of the Family Law Act 1975 (Cth).

FEDERAL CIRCUIT COURT
OF AUSTRALIA
AT ADELAIDE

ADC 4508 of 2013

MS MOLLISON

Applicant

And

MR MOLLISON

First Respondent

J PTY LTD

Second Respondent

REASONS FOR JUDGMENT

Introduction

1. These proceedings were listed urgently at the request of the applicant Ms Mollison “the wife”, late in the afternoon of 6 March 2014.  The orders, as set out at the commencement of these reasons for judgment, were delivered orally immediately following the hearing of that application after discussion with counsel.

2. Due to the lateness of the hour and the urgency of the situation prevailing, it was not possible for the court to deliver lengthy reasons for judgment at that time. 

3. It was also apparent to me that the orders in question were highly controversial, particularly so far as the second respondent J Pty Ltd “the third party creditor” was concerned.  In such circumstances, it seemed likely that the third party creditor might seek to review the orders made in a superior court.

4. In addition, the application concerned a rarely utilised part of the Family Law Act 1975 – Part VIIIA, which delineates the court’s authority to make orders and injunctions binding on third parties, in proceedings commenced under section 79 of the Act. Section 79 empowers the court to make orders altering the property interests of the parties to a marriage.

5. In these circumstances, I elected to make the orders in question, but indicated to the parties concerned that I would deliver written reasons for judgment in due course as urgently as I could.  These are those reasons for the judgment.

6. The wife commenced the substantive proceedings before the court on 2 December 2013.  The respondent to the application is Mr Mollison “the husband”.  On a final basis the wife currently seeks an as yet inchoate order that the parties’ “matrimonial estate be divided on a just and equitable basis” to be determined by the court.

7. The application received its first direction hearing on 17 December 2013.  On this occasion the husband was directed to file answering documents within 28 days.  He has not as yet done so.  In addition, the solicitors initially acting for him have recently withdrawn from the proceedings. 

8. As a consequence of this, on 6 March 2014, the husband appeared on his own behalf before the court.  In a formal sense, I have not been advised what orders the husband seeks in response to the wife’s application for property settlement.

Background

1. Notwithstanding the lack of material from the husband, the general background to the case does not appear unduly controversial.  The wife was born on (omitted) 1956. She is employed as (occupation omitted) of a (employer omitted).  She earns a salary of around $47,500.00 per annum.

2. The husband was born on (omitted) 1952.  He has been involved in (occupation omitted) roles in the (omitted) industry and is the (occupation omitted) of a number of companies.  His current level of income is unknown to me and on her evidence, to the wife.

3. The parties married on (omitted) 1978.  On the wife’s case, they separated finally on 6 November 2011 at the instigation of the husband.  They are not as yet divorced.  There are two children of the marriage, now both adult and financially self-supporting.

4. The wife’s case is that she left all management of the parties’ financial affairs during their marriage to the husband, whom she trusted.  She further deposes that she had paid employment during the majority of the parties’ marriage, taking only brief periods of leave from the paid workforce in the times immediately after the birth of each child.

5. She deposes that her regular income was paid into a joint bank account from which the husband ensured household bills were paid.  She asserts that she did not know what the husband earned and what other financial arrangements he had entered into.  She describes her understanding of the parties’ financial arrangements as being “sketchy”.

6. So far as her own financial circumstances are concerned, the wife deposes that she holds superannuation to a value of approximately $64,000.00 and owns a car worth $8,000.00, which is subject to finance.  She has a number of credit card debts.

7. In 2002, the husband and wife purchased a property located at Property R.  This was the parties’ former matrimonial home.  After the parties separated, the husband vacated the property.  The wife continues to live there.  It is her evidence that she is unaware of the property’s initial purchase price.  

8. The property is subject to a mortgage in favour of the (omitted) Bank “the (omitted)”.  On the parties’ separation, it was her understanding that the husband would continue to maintain the mortgage payments in respect of the Property R property from his financial resources.

9. In either 2009 or 2010, the parties, in conjunction with their son Mr T “the son” purchased an investment property located at Property C.  The son is a registered proprietor of one half of the property; the husband and wife are registered as joint tenants of the remaining half.  The property is also subject to a mortgage in favour of the (omitted) Bank.

10. In late 2013, the wife became aware that both mortgages were in arrears and that the (omitted) Bank was intent on issuing proceedings to take possession of both properties in order to enforce its security.  She herself had no financial capacity to maintain either mortgage.

11. Ultimately the (omitted) Bank commenced proceedings in the Supreme Court of South Australia.  These proceedings were made returnable on 29 January 2014 but have been adjourned until 26 March 2014.  No formal orders have been made up to this stage by the Supreme Court.

12. The reason for the adjournment is that the (omitted) Bank has successfully agitated for both properties to be placed on the market for sale.  It is the wife understands that an amount of $434,683.60 is owed to the Bank in respect of the Property R property and a sum of $166,045.47 in respect of the Property C property. 

13. The wife has been cooperating with the sale process concerned and has arranged for estate agents to market both properties in an attempt to avoid their realisation in a fire sale.  The (omitted) Bank was content to allow this to happen.

14. The wife’s position is that she was shocked to learn of the (omitted) Bank’s action. As a consequence, she instituted the proceedings in this court as a matter of urgency. Her aim was to preserve as much as possible of the matrimonial estate for the purposes of her application under section 79 of the Family Law Act.  In this context, she deposed as follows:

    “I am most concerned that after 36 years until separation (sic) of being in the relationship with Mr Mollison that I may be left without a roof over my head because of his actions.”[1]

    [1] See wife’s affidavit filed 2 December 2013 at paragraph 41

15. In addition, in late 2013, the wife was served with an interlocutory application listed in the District Court of South Australia, in which the third party creditor was the applicant and the husband was the defendant. 

16. At this stage, it became apparent to the wife that the third party creditor had secured a judgement debt against the husband in the sum of $92,598.27.  It is the wife’s position, as yet unverified by the court and unanswered by the husband, that this debt was incurred by Mr Mollison post separation.

17. The interlocutory application in question sought to charge both the Property R property and the Property C property in this sum following the issue of a summons for the examination of a judgment debtor issued against the husband on 26 June 2013.  It is common ground between all concerned that the charges sought have in fact been registered against the relevant certificates of title.

18. The Property C property has been sold to Mr L for the sum of $413,000.00.  The relevant contract of sale stipulates 7 March 2014 as the settlement date.  Given the settlement date, the wife successfully sought that her current application be listed prior to the settlement date.  This is one of the factors surrounding the urgency of the matter from the wife’s perspective.

19. In this application, the wife seeks orders to the following effect:

    ·The third party creditor be given liberty to be heard;

    ·The Registrar-General be directed to cancel of remove the charge lodged against the Property C property to enable settlement of the sale to Mr L;

    ·That following the discharge of the mortgage in favour of the (omitted) Bank registered on the Property C property, any balance due to the husband and wife be paid towards the (omitted) Bank mortgage secured against the Property R property.

20. The husband has not formally responded to the application.  The third party creditor, through its solicitor Mr Bowler, has filed an affidavit.  It opposes the application.  It is the third party creditor’s position that, in addition to monies owed by the parties to the (omitted) Bank in respect of the Property R property mortgage, they are indebted to the Bank in a further sum of $50,490.63, which debt is also in arrears.

21. The wife’s further evidence is that she has been notified of a further judgment debt concerning the husband.  This is a judgment in the sum of $21,577.37 obtained against him in the Port Adelaide Magistrates’ Court on 26 February 2013 in favour of Mr P. 

22. The judgement remains unsatisfied.  As a consequence, Mr P has instituted further proceedings made returnable on 6 March 2014 to lodge a charge on the title relevant to the Property R property.  Again it is the wife’s position that this debt was incurred by the husband post separation.

23. The Property R property has not as yet been sold.  It has been placed with an agent and it is hoped that it can realise a sum in the vicinity of $440,000.00 to $460,000.00.  If it sells for a sum in this range, it will leave the parties with equity likely to be less than $25,000.00, after the mortgage to the (omitted) Bank is discharged.

24. On the basis of the evidence available to me, putting aside the question of any monies due to the third party creditor, the husband, wife and son have equity in the Property C property in the vicinity of $240,000.00. The son’s legal entitlement is $120,000.00 of this sum, given his half interest in the property, leaving a similar amount available for possible disposition between the husband and wife, as a consequence of any prospective order made pursuant to section 79.

25. This sum obviously has the potential to be consumed by the third party creditor and Mr P as well as by other creditors of the husband as yet unknown to the wife.  Accordingly, it is her position that the husband’s conduct, which she asserts occurred post separation and without her knowledge, has the potential to occasion her extreme prejudice and render her current application to this court otiose.

26. As already indicated, the husband has not as yet filed any answering documents to either the wife’s application for final orders in this court or to her interlocutory application.  In particular, the husband has not provided comprehensive details in the form of a sworn financial statement as to his financial circumstances, particularly details of any other assets owned by him which have been acquired by him during the course of his relationship with the wife.  In addition, the wife fears the husband may have other undisclosed liabilities.

27. On 17 December 2013 the husband was ordered to provide a full and frank disclosure of his financial circumstances, including details of any creditors.  He has not as yet complied with this order.

28. In these circumstances, the wife seeks to preserve as many potential assets of the marriage as possible until her application for settlement of matrimonial property with Mr Mollison can be determined by the court or otherwise resolved. 

29. It is her contention that consideration of justice and equity dictate that the third party creditor should not be elevated over her claim for property settlement until such time as the pool of marital assets and liabilities is ascertained by the court and her application fairly considered.

30. Pursuant to the provisions of section 79(10) of the Act, any creditor of a party to proceedings before the court relating to a matrimonial cause is entitled to become a party to those proceedings if such a creditor is able to establish that it might not be able to recover its debt if an order is subsequently made pursuant to section 79(4) altering the property interests of parties to a marriage.

31. On 6 March 2014 I joined the third party creditor as a party to the proceedings.  I also determined that following the settlement of the sale of the Property C property; the discharge of the mortgage to the (omitted) Bank and the payment to the son of his interest; the remaining sum should be paid into an interest bearing account in the names of the husband, the wife and the third party creditor.  This sum is not to be released pending further order of the court.

32. It is this aspect of the proceedings that it is controversial and to which these reasons for judgment are directed.  On the basis of the evidence available to me, which is currently significantly deficient as it includes no disclosure whatsoever from the husband, the parties’ marital estate appears to be modest in value.

33. If that estate (or a significant proportion of it) is transferred to the wife in recognition of her contribution made during the course of the parties’ long marriage, there appears to be a significant risk that creditors of the husband will not be paid their debts in full.  However, at this stage, the full extent of that risk so far as those creditors are concerned, remains undelineated in full.

The application of Part VIIIAA to these circumstances

1. At this stage, I am satisfied that the third party creditor (and potentially Mr P) is to be considered an unsecured creditors of the husband, notwithstanding the charge made pursuant to the provisions of section 8 of the Enforcement of Judgements Act 1991 (South Australia).

2. A charging order does not create an interest in land.  As such, it is to be distinguished from a mortgage.  Rather it confers a “right of realisation by judicial process in case of non-payment of a debt”.[2]  Thus the third party creditor does not automatically rank above any other unsecured creditors of the husband.

   [2] See Andersons Solicitors v Schigulski 88 SASR 1 per Mulligan J

3. In proceedings brought by one spouse against the other spouse for the settlement of matrimonial property proceedings pursuant to section 79, the court generally follows a prescribed path, entailing the following steps:

   ·ascertainment of the parties assets less their liabilities, usually at the date of trial;

   ·assessment of contributions made pursuant to section 79(4);

   ·assessment of factors arising under section 75(2);

   ·a consideration of whether it is just and equitable to make an order altering property interests of spouses pursuant to section 79(2).[3]

   [3] See Hickey & Hickey & Attorney-General (Intervener) (2003) FLC 93-143 at 78,386 [39] and Bevan & Bevan [2013] FamCAFC 116 at [60]

1. As outlined above, the normal practice for the court in determining the value of the assets of the parties to a marriage is to deduct from the gross value of those assets the parties’ total liabilities, including unsecured liabilities.

2. This normal procedure in relation to unsecured liabilities is neither absolute nor prescribed by statute.  In some circumstances, the court may properly decide not to take into account an unsecured liability.  The circumstances include, but are not limited to liabilities which are vague and uncertain; unlikely to be enforced; or unreasonably incurred.[4]

   [4] See Biltoft & Biltoft (1995) FLC 92-614 at 82,127

3. In addition, there is no requirement that the rights of an unsecured creditor or a claim by a third party must be considered and dealt with prior to any order made by the court pursuant to section 79 of the Act. However the court cannot ignore the rights of such a creditor or third party. Rather they must be recognised and balanced against the rights of the spouses concerned.[5]

   [5] ibid at 82,128

4. At this stage of the proceedings, the liability of the husband to both J Pty Ltd and to Mr P can hardly be described as being vague or uncertain and certainly not as being unlikely to be enforced. In addition both these creditors have an entitlement to be joined as parties to the proceedings pursuant to section 79(10) of the Act.

5. Part VIIIAA came into effect in December of 2004.  It is entitled Orders and Injunctions Binding Third Parties.  Although its provisions have been in force for close to a decade, in my assessment, its application has not been subject to extensive judicial analysis, as yet. 

6. The balancing of the claims of one spouse on matrimonial property with those of any third party creditors, which arise from a business operated largely by the other spouse, during the period of the marriage concerned, has the potential to be a source of both complexity and controversy.  The present case appears to have the potential to create the kind of dilemmas, to which, at first blush, Part VIIIAA is directed.

7. The object of Part VIIIAA is contained in section 90AA.  It clearly states that the object of the Part is to enable the court to make an order in relation to the property of a party to a marriage, under either section 79 or 114 (the injunction power) of the Act, which is “directed to or alters the rights, liabilities or property interests of third parties”.

8. In addition, pursuant to section 90AD, the definition of property is extended so that it includes “a debt owed by a party to a marriage”.    Thus it might be argued that the sole purpose of Part VIIIAA is to expand the jurisdiction of the Family Court (and this court) beyond the traditional boundaries of matrimonial causes, so that the applicable courts have a wide power, outside the tenets of general commercial law and equity, to determine the rights of third parties dealing with a party to a marriage.

9. However before reaching such a conclusion, it is incumbent to move from the objects of the legislation to its more particularised area of statutory operation.The machinery section of Part VIIIAA, so far as orders made by the court under section 79 which bind third parties, is contained in section 90AE.

10. Specific powers are set out in subsection (1), more general powers in subsection (2).  The section authorizes the court to make any of the following orders:

    ·an order directing a creditor of the parties to a marriage to substitute one party for both in respect of that debt [section 90AE (1)(a)];

    ·an order directing a creditor to one party of a marriage to substitute the other party in respect of that debt [section 90AE(1)(b)];

    ·an order directing a creditor of the parties to a marriage to alter the proportion of liability each party has in respect of that debt [section 90AE(1)(c)];

    ·an order directed to a director of a company or a company itself requiring the transfer of shares between the parties to a marriage [section 90AE(1)(d)];

    ·generally direct a third party to do anything in respect of the property to a marriage (which includes a debt) [section 90AE(2)(a)];

    ·generally alter the rights, liabilities or property interests of third parties in relation to a marriage.

11. The court’s authority to make any order altering or affecting the rights of a third party is subject to the satisfaction of a number of conditions which are set out in subsection (3).  Each such condition must be separately satisfied.  They are as follows:

    ·the making of the order must either reasonably necessary or appropriate and adapted to effect a division of the marital partners concerned [3(a)];

    ·further, if the order concerns a debt of one of the parties or both of them, it is not foreseeable, at the time that the order is made, that it will result in the debt not being paid in full [3(b)];

    ·the third party affected has been accorded procedural fairness [3(c)];

    ·the court is satisfied that it is just and equitable to make the order concerned [3(d)];

    ·a number of other matters, which are set out in subsection (4) and which relate to other expenses which may result to others arising from such a third party order.  These matters include the taxation and social security implications of the order and the administration costs of the creditor concerned by the order [section 90AE(4)(a)(b)(c) & (d)];

    ·importantly, in the context of this case, if the order concern a debt of one of the parties, the court must consider the capacity of that party to repay the debt in the period after the order is made [section 90AE(4)(e)].

12. In respect of the injunction power under section 114, the machinery section is section 90AF. The court is authorised to restrain a third party from repossessing property or commencing legal proceedings against a party to a marriage.

13. Thus, in the present proceedings, it is theoretically open to the court to make an order restraining a third party creditor from commencing proceedings, against one or other of the parties, in another court, to recover the debt owed to it.  However, as with the power under section 90AE, the injunction power is subject to the satisfaction of an analogous list of conditions.

14. Accordingly, the powers available to the court under Part VIIIAA, so far as they affect the rights of third parties, are subject to a number of strict preconditions for their use, which can be summarised as follows.

15. Firstly their use is subject to an objective standard of reasonableness.  Secondly it is just and equitable to make the order concerned.  Thirdly it cannot be foreseen that the making of the order will result in any debt affected not being paid in full.  Fourthly the third party debtor affected is given a right to be heard about the consequences of the order sought which concerns its rights.  Finally regard must be had to financial consequences for others, including government instrumentalities, of the making of the order.

16. Essentially, the powers available to the court under Part VIIIAA are closely circumscribed and their use should not result in the loss of any substantive rights by a third party, who is extraneous to the matrimonial relationship before the court.

17. The principle mechanism by which a statute is to be interpreted is of course the wording of the statute itself.  However in order to confirm the meaning of any particular piece of legislation or to resolve obscurities or ambiguities in respect of it, it is permissible for the court to have regard to certain specified pieces of extrinsic material.[6] 

    [6] See Acts Interpretation Act 1901 (Cth) at section 15AB

18. Two such extrinsic sources are any explanatory memorandum, which related to the legislation when it was in bill form; and the second reading speech made by the relevant minister to the legislature.  The examination of such extrinsic material is often a useful exercise for the court to follow, particularly in respect of novel pieces of legislation.

19. In the case of the Family Law Amendment Bill 2003 the then Attorney-General, Mr Williams said as follows in the bill’s second reading speech:

    “Of major significance are the provisions in schedule 6 of the bill that will allow the court to make orders binding third parties to give effect to property settlement proceedings under the act.  These provisions will apply to all creditors of the parties to the marriage, whether they are family, friends or financial institutions.  In limited circumstances, where it is considered necessary, the court will be able to alter the terms of a contract between the parties to a marriage and a creditor.  For example, the court could adjust the proportion of debt that each party of a marriage owes a creditor or order that the liability for a debts belongs to just one of the parties.  The changes do not affect the underlying substantive rights of creditors and provide creditors with procedural rights.

20. The relevant passage of the revised explanatory memorandum reads as follows:

    “Schedule 6 of the Bill provides for the Family Court to be given power to bind third parties in order to give effect to property settlements.  This will apply for any creditor of a party to a marriage irrespective of whether the creditor is a friend, relative or financial institution.  Procedural rights will be given to third parties to ensure that the changes do not affect the underlaying substantive property rights of the creditor.”

21. These sources, in my view, confirm that the court is not to utilise the provisions of Part VIIIAA of the Act in such a way that affects the “underlying substantive property rights” of any creditor. In addition, the court is directed to construe each piece of legislation, which it is empowered to apply, subject to the powers contained in the Constitution.[7] 

    [7] See Acts Interpretation Act 1901 (Cth) at section 15A

22. Specifically, pursuant to section 90AK of the Family Law Act, the court is prohibited from making any order, pursuant to Part VIIIAA, which would result in the acquisition of property from some other person other than on just terms. Reference is made to the provisions of paragraph 51 (xxxi) of the Constitution.

23. I regard a debt owed to a creditor as being a species of property to which the provisions of section 90AK apply. Accordingly, in applying the provisions of Part VIIIAA, the court is not entitled to act in such a way that the substantive property rights of any third party are affected.

24. I am fortified in this view by the opinion expressed by the learned author Mr Dickey QC, in his capacity as the editor of the Family Law section of the Australian Law Journal.  Mr Dickey also considered the revised explanatory memorandum referred to above and wrote as follows:

    “It seems apparent that the government did not intend s90AE to give to the court powers to divest a third party of his or her interests in favour of a party to a marriage.”[8]

    [8] See Anthony Dickey QC Alteration of Property Interests Against Third Parties (2005) 79 ALJ 483

25. Further Mr Dickey considered that the only circumstance in which a court could make an order transferring a third party’s property interest to a spouse was if that third party received proper compensation for it.   In effect, it received ad valorem that to which it was entitled for the extinguishment of its interest.

26. From the perspective of the third party creditor, the current case is simple.   It is owed a significant sum of money, in respect of which it is entitled to be paid, as the debt in question cannot be regarded, in any way, as being uncertain or unenforceable.  In this regard, its entitlement is recognised by the charging order made pursuant to section 8 of the Enforcement of Judgements Act 1991.

27. Its case is that the debt owed to it by the husband should be regarded as having crystallised both as a consequence of the sale of the Property C property and as a result of the charge which was issued by virtue of the authority of the District Court of South Australia. 

28. Otherwise, the debt to it is a factor which should be taken into account as part of the first step in the court’s deliberations and be recognised as a de facto joint liability of the parties.  If this occurs, it is disinterested in what the court does in any subsequent steps arising in the process of dividing whatever property remains between the husband and wife, so long as the debt to it is repaid.

29. In contrast, the wife’s position is that it is likely to be both unfair and prejudicial to her, if a debt which was incurred as a result of the actions of the husband alone is effectively sheeted home to her as a joint marital liability, with the consequence of rendering her previous contributions to the marriage effectively nugatory.   This is particularly so given that her various contributions to the marriage are as yet inchoate, in both a direct and indirect sense.

Conclusions

1. The controversy arising between the parties, regarding how the proceeds of sale of the Property C property are to be distributed and the implications of this for any future assessment of the wife’s contributions pursuant to section 79(4) of the Family Law Act, occur at the interim hearing stage.  Accordingly, the resulting hearing before me took place in a truncated or shortened form, in which the only evidence available to me was in the form of the parties’ respective written affidavits. 

2. At this interim hearing stage, there is invariably insufficient time to allow additional oral evidence, particularly in the form of cross examination.  So it was in this case, particularly given that the settlement of the sale of the property concerned was imminent.  Accordingly, it is difficult, if not impossible, for the court to make essential findings of fact or resolve issues in disputes between the parties concerned. 

3. In this particular case, it seems axiomatic, given the length of the marriage between the parties and the fact that the wife was in paid employment for the vast majority of its duration and contributed her wages to family purposes, as well as providing parenting obligations to the spousal parties’ two children that, at least in percentage terms, her overall contributions, pursuant to the criteria set out in section 79(4) will be assessed as significant.

4. However, in practical terms, what will be the implications of such an assessment is unknowable to me, as it depends on the extent of the marital estate to which such an assessment of contributions will be applied.  At this stage, the most significant area of evidence not yet delineated concerns any other potentially relevant assets and liabilities which are either in the husband’s possession or control through any other entity.

5. These considerations concern not only the husband and wife, but also the third party creditor and indeed other potential creditors of the husband. Mr P is one such creditor, but there may well be others, who may ultimately materialise as unsecured creditors in a similar position to that occupied by both him and J Pty Ltd. In these circumstances, for all I know at this stage, there may arise issues of fairness, as to how these as yet uncertain creditors are to rank with one another and indeed with the claims of the wife arising pursuant to section 79.

6. In addition and fundamentally, I am unable to determine whether the husband and any other entities related to him are insolvent and, if so, how Mr Mollison and any of his creditors will respond to such insolvency, particularly if bankruptcy proceedings will arise.

7. In my view, at this stage, it is something of a misnomer to assert that the effect of the orders made on 6 March was to alter the property rights of the third party creditor.  J Pty Ltd remains a creditor of the husband.  The company is now a party to these proceedings.  More importantly, a source of funds remains potentially available to satisfy its claims, albeit that source is now subject to the direction of the court.

8. Rather, in my view, the effect of the orders in question was to preserve rights – both of the wife and the third party creditor (and indeed other potential creditors) – and to freeze assets to which those rights might pertain. 

9. In addition, for the reasons provided above, I am satisfied that whatever rights the third party creditor has, they do not stem from any actual legal interest it holds in either the Property C or Property R property.  As such, its position is not analogous to a mortgagee and issues of fairness may be engaged if it is able to secure priority over other unsecured creditors.

10. In my view, it is more apposite to consider the orders of 6 March 2014 as being in the nature of an interim injunction to preserve assets pending trial, which arose as a practical response to the inherent uncertainty and urgency of the situation arising from the sale of the Property C property. 

11. In the context of my assessment of the practicalities of the matter before me, I found the following comments of Evatt CJ in Prince & Prince [9] to be very helpful  Her honour wrote as follows:

    “What are the practicalities of the matter?  Unless and until a stay is ordered, the outcome of the wife’s application will depend upon findings made by the Court as to the parties’ assets and liabilities, their contributions and their respective financial resources, means and needs.  It would be necessary for the Court to determine so far as is possible the value of the property held by each party.  In accordance with the usual practice this would be done by deducting the value of outstanding mortgages, debts and other liabilities…The Court may have to determine, as between the parties, the existence of a particular liability…

    The assessment of debts and liabilities is not necessarily arrived at by a strictly mathematical or accountancy approach in all cases.  While such liabilities are charges upon the property which can be accurately assessed at a certain date, other are at large, or have not been precisely determined, e.g. tax liabilities…In some cases there are sufficient uncertainties as to the alleged liability to lead the Court to disregard it entirely or partly (e.g. a loan from a parent of the party not likely to be enforced;…In other cases, the Court may take the view that because of the circumstances surrounding the incurring of the liability it ought in justice and equity to be wholly or partly disregarded in the determining the appropriate order to be made under sec. 79 as between the parties to the marriage.  Such a result could be reached where a spouse had incurred a liability in deliberate or reckless disregard of the other party’s potential entitlement under sec. 79…

    Of course, the Court cannot ignore the fact that there is or may be a liability; the effect is simply that it does not consider that the other spouse should be called upon to in effect ‘contribute’ to the liability by having that spouse’s fair share in the parties’ property reduced by virtue of its existence.  The effect may be that the party who has incurred the liability will be left to meet it out of whatever funds remain to that party after satisfy the property order made under sec. 79…

    It is of course, possible that a party may in the end be unable to meet all of his or her liabilities including those arising under sec. 79.  If this results in insolvency, the question of priorities between the spouses and other parties will then be determined by the law of bankruptcy…”

    [9] Prince & Prince (1984) FLC 91-501 at 79,076-7

12. In this particular matter, in my view, the practicalities of the situation dictate that orders of the type of 6 March be made pending further hearing and whist the process to ascertain the potential pool of assets and liabilities of the spousal parties to the proceedings is put in train.

13. In my view, the orders are reasonable one to have been made in those circumstances and given that their effect is to freeze an asset it cannot be said they are necessarily either inequitable or unjust in their operation. To the contrary, in my view, it would grossly unfair if the wife’s application for property settlement orders following the end of her marriage to the husband was rendered otiose because such orders were not made.

1. Finally and of fundamental importance, given the structure of Part VIIIAA, it cannot be said that the making of the order, of itself, will necessarily mean that the third party creditor will not be ultimately paid its debt.  A source of payment of the debt remains extant, albeit subject to the control of the court and the calls of other potential creditors.

2. For all these reasons, the orders of the court remain as set out at the commencement of these reasons for judgment.

I certify that the preceding eighty-eight (88) paragraphs are a true copy of the reasons for judgment of Judge Brown

Associate: 

Date:     14 March 2014