Morrison & Jepson & Anor

[2014] FCCA 1937

FEDERAL CIRCUIT COURT OF AUSTRALIA

MORRISON & JEPSON & ANOR [2014] FCCA 1937

Catchwords:
FAMILY LAW – Property – application for property settlement – where applicant is bankrupt – where second respondents are the applicant’s trustees in bankruptcy – where most of the assets are situated in (country omitted) – vested bankruptcy property – former matrimonial home – small property pool in Australia – contributions – future needs of the wife – interests of the creditors – consideration of Family Law Act 1975 (Cth) s.75(2)(ha) – effect of any proposed order on the ability of a creditor of a party to recover the creditor’s debt – consideration of the need for the non-bankrupt spouse to house and support a child of the marriage under the age of 18 years – where order not to take effect until child attains the age of 18 years.

FAMILY LAW – Costs – where costs sought on an indemnity basis.

BANKRUPTCY – Where applicant is bankrupt – where bankrupt’s property vested in trustees in bankruptcy – the interests of unsecured creditors do not automatically prevail over the interests of the non-bankrupt spouse – the legislation requires the court to balance the competing claims of unsecured creditors and the non-bankrupt spouse in the exercise of a wide discretion.

Legislation:

Bankruptcy Act 1966 (Cth), ss.58, 82, 115, 116

Family Law Act 1975(Cth), ss.43, 75, 79, 90AE, 106A, 117

Federal Circuit Court Rules 2001, r.22.01

Cases cited:
Colgate-Palmolive Co v Cussons Pty Ltd [1993] FCA 536; (1993) 46 FCR 225; 118 ALR 248
Hickey & Hickey [2003] FamCA 395; (2003) 30 Fam LR 35; FLC 93-143
In the Marriage of Kohan (1992) 16 Fam LR 245; (1993) FLC 92-340
Prantage & Prantage [2013] FamCAFC 105; (2013) 49 Fam LR 197; FLC 93-544
Stanford v Stanford [2012] HCA 52; (2012) 47 Fam LR 481; FLC 93-518
Trustee of the Property of G. Lemnos (a bankrupt) & Lemnos [2009] FamCAFC 20; (2009) 41 Fam LR 120; FLC 93-394 followed
West & West [2007] FMCAfam 681

Applicant: MR MORRISON

First Respondent: MS JEPSON

Second Respondent: MR DION AND MR SUMMERS TRUSTEES IN BANKRUPTCY FOR MR MORRISON

File Number: SYC 6441 of 2009

Judgment of: Judge Scarlett

Hearing date: 31 January 2013

Date of Last Submission: 31 January 2013

Delivered at: Sydney

Delivered on: 26 August 2014

REPRESENTATION

The Applicant: No appearance

Counsel for the First Respondent: Mr Mackey

Solicitors for the First Respondent: Tomaras Lawyers

Counsel for the Second Respondent: Mr Rosic

Solicitors for the Second Respondent: Aitken Lawyers

ORDERS

1. On or before 3 September 2018 the Second Respondents MR SUMMERS and MR DION, Trustees in Bankruptcy of the Applicant MR MORRISON (a bankrupt) are to transfer any interest in the whole of the land in Folio Identifier (omitted) situate at and known as Property N in the State of New South Wales to the First Respondent Wife upon her payment of the sum of $135,500.00 together with interest at the rate prescribed by Rule 22.01 from the date of these Orders to the Second Respondents in payment of their outstanding claims and the Trustees in Bankruptcy’s costs.

2. Simultaneously with Order (1) above, the Registrar of the Court at Sydney is appointed under the provisions of section 106A of the Family Law Act 1975 to execute all deeds or instruments in the name of the Applicant husband and do all acts and things necessary to give validity and operation to the deeds or instruments.

3. In the alternative to Order (1) above, if the Applicant Wife is in default of payment within one (1) month from the date specified in Order (1) then the Applicant wife and the Registrar appointed in accordance with Order (2) above are to do al acts and things necessary to sell the property being the whole of the land in Folio Identifier (omitted) being the whole of the land situate at and known as Property N aforesaid by private treaty.

4. Upon completion of the sale of the property aforesaid situate at and known as Property N, the parties are to do all acts and things necessary to cause the proceeds of the sale to be paid and distributed in the following manner and priority:

   (a)In payment of fees due for nomination of the Real Estate Agent, Real Estate Agent’s commission, legal costs and disbursements incurred in relation to the said sale;

   (b)Adjustment of rates, if any;

   (c)The balance is to be distributed as follows:

   (i)As to the sum of $135,500.00 together with interest at the rate prescribed by Rule 22.01 by way of bank cheque to Aitken Lawyers or their nominee on behalf of the Trustees in Bankruptcy to satisfy the outstanding claims in relation to the bankruptcy of the Applicant Husband; and

   (ii)The balance to the First Respondent Wife.

5. The First Respondent is declared to be solely entitled to the Ford motor vehicle currently in her possession to the exclusion of the other parties.

6. The Applicant and the First Respondent are otherwise declared to be solely entitled to all personal property possessed by them or registered in their sole name within the Commonwealth of Australia including but not limited to bank accounts, superannuation funds, furniture, furnishings, household appliances, jewellery and all other items of purely personal use and adornment.

7. The First Respondent is to indemnify and keep indemnified the Applicant in respect of the following debts and liabilities:

   (a)Any debt owing by her to the Australian Taxation Office; and

   (b)Any debt owing by her to Centrelink; and

   (c)Any other debt solely in her name.

8. If any party seeks an order for costs that party must file and serve an Application in a Case and an affidavit setting out the amount of costs and disbursements claimed and the basis upon which those costs are claimed within one (1) month from the date of this Order.

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

FEDERAL CIRCUIT COURT
OF AUSTRALIA
AT SYDNEY

SYC 6441 of 2009

MR MORRISON

Applicant

And

MS JEPSON

First Respondent

MR DION AND MR SUMMERS TRUSTEES IN BANKRUPTCY FOR MR MORRISON

Second Respondent

REASONS FOR JUDGMENT

Application

1. This is a property application where the protagonists are the First and Second Respondents. The original Applicant was the First Respondent’s husband, but he has since become bankrupt and his place in the litigation has been taken by the Second Respondents, who are the Applicant’s Trustees in Bankruptcy.

2. Essentially, the Trustees in Bankruptcy seek an order that the Wife, the First Respondent, pay the sum of $135,500.00 to the Trustees to satisfy the outstanding claims under the Applicant’s bankruptcy, in return for which the Trustees would transfer to her all their interest in the former matrimonial home at Property N, New South Wales.

3. The Wife seeks an order that the Husband should transfer all of his interest in the former matrimonial home to her, without any payment being made to the Trustees. 

Background

1. The Wife was born in (country omitted) on (omitted) 1969. She met the Husband in (country omitted), in (omitted) 1998.

2. In (omitted) 1992 the Wife came to Australia as a refugee. She returned to (country omitted) in October of that year and married the Husband on (omitted) 1992. She returned to Australia in March 1993 and applied for her husband to come to Australia as her spouse. This application was successful and the husband arrived in Australia in May or June 1993.

3. The parties’ first child was born on (omitted) 1996. Their second child was born on (omitted) 2000.

4. The Husband’s Father died in (country omitted) on (omitted) 2000. The Husband inherited an amount of $US 600,000.00 from his father’s estate. He also inherited real estate in (country omitted).

5. In March 2001 the parties purchased the property at Property N from the Wife’s father for $450,000.00, financed by the Husband’s inheritance.

6. The parties and the children moved to (country omitted) and remained there for several years. In August 2006 the Wife and the two children left (country omitted) for the (country omitted). The Husband, Wife and children returned to Australia in September 2006.

7. In late 2008 the Husband returned to (country omitted). The Wife and the children remained living in Australia. On 27^th October 2008 the Husband called the Wife from (country omitted) and informed her that he was not returning to Australia and he was separating from her.

8. On 31^st October the Wife was informed that the Husband was commencing divorce proceedings in (country omitted).

9. On 13^th November 2008 the Husband married one Ms N in (country omitted). The Husband ceased paying money into the parties’ Australian bank accounts.

10. The Husband commenced proceedings in this Court on 26^th October 2009 seeking parenting orders. He later filed an Amended Application on 12^th December 2009, again seeking parenting orders, and a Further Amended Application on 20^th May 2010, seeking more extensive parenting orders.

11. On 13^th October 2009 the Husband’s new wife gave birth to a daughter.

12. On 21^st July 2010, the Husband filed a second Further Amended Application, in which for the first time he sought property orders as well as parenting orders.

13. On 14^th December 2010 the Husband filed a Third Amended Application, in which he sought property and parenting orders.

14. On 30^th July 2011 the husband filed a Debtor’s Petition in Bankruptcy.

15. On 23^rd August 2011 Mr Dion and Mr Summers were appointed as the Trustees in Bankruptcy for the Husband.  

Orders Sought

1. The First Respondent Wife filed a Further Amended Response on 31^st January 2013, the day of the hearing, in which she sought the following orders:

   a)ORDER that, within 14 days hereof, the Husband do all acts and things and execute all documents as are necessary or desirable to effect the transfer to the Wife of all his right, title and interest in the property known as Property N being the land in folio identifier (omitted) and in particular but not limited to a Transfer in registrable form.

   b)In the event that the Husband fails to comply with Order 1, the Registrar is empowered pursuant to s.106A(1) to execute the said Transfer and do all such other acts and things as are necessary or desirable to carry order 1 into effect.

   c)Service of this Application may be effected by service upon the Husband’s Trustee in Bankruptcy and service upon that Trustee shall be deemed sufficient service for the purposes of the making of these orders.

   d)Other than what is referred to in these orders, each of the Husband and the Wife is declared to be the sole beneficial owner of all other property in those respective parties (sic) possession or control, including but not limited to cash, shares, superannuation entitlements, furniture and personal effects and motor vehicles.

2. The Trustees in Bankruptcy, by an Amended Response filed on the day of the hearing, sought the following orders:

   1. That within twenty-eight (28) days from the date of these Orders, that the Second Respondent, Mr Summers and Mr Dion (Trustees in Bankruptcy)(“Trustees in Bankruptcy”) transfer any right, title and interest in the Property N property to the Wife upon her payment of $135,500 to the Trustees in Bankruptcy in payment of their outstanding claims and the Trustees in Bankruptcy’s costs.

   2. That simultaneously to Order 1 herein, the Registrar of the Federal Magistrates Court of Australia[1] at Sydney is hereby appointed pursuant to Section 106A of the Family Law Act 1975 to execute all Deeds and/or Instruments in the name of the Husband and do all acts and/or things necessary to give validity and operation to the Deed and/or Instruments.

   [1] The name of the Court is now the Federal Circuit Court of Australia

   3. In the alternative to Order 1 above herein, if the Wife is in default of payment, that within fourteen (14) days from the date of these Orders, the Wife and the Registrar appointed as per Order 2 herein shall do all acts and things to sell the property situated at and known as Property N in the State of New South Wales, Folio Identifier (omitted) (“Property N property”).

   4. That upon completion of the sale of the Property N property pursuant to the Orders or otherwise, the Parties agree to do all acts and things necessary to cause the proceeds of the sale to be paid and distributed in the following manner and priority:

   4.1In payment of fees due for nomination of the Real Estate Agent, Real Estate Agent’s commission, legal costs and disbursements incurred in relation to the said sale;

   4.2.   Adjustment of rates, if any;

   4.3.   Then the sale proceeds are to be distributed as follows:

   4.3.1.$135,500 to be paid by way of bank cheque to Aitken Lawyers or its nominee on behalf of the Trustees in Bankruptcy to satisfy the outstanding claims in relation to the bankruptcy of the Husband; and

   4.3.2     The balance as determined by the Court.

The Proper Approach to determination of a Property Application

1. The way a court approaches a property application under s.79 of the Family Law Act 1975 (Cth) is, first of all, to follow the principles set out by the High Court of Australia in Stanford v Stanford.[2]First, the court must consider the requirement in subsection 79(2) of the Act that prescribes:

   The court shall not make an order under this section unless it is satisfied that, in all the circumstances, it is just and equitable to make the order.

   [2] [2012] HCA 52; (2012) 47 Fam LR 481; FLC 93-518

2. The High Court held that the court must first identify the existing legal and equitable interests of the parties in the property (at [37]). Although s.79 confers a broad power on a court to make a property settlement order, “it is not a power that is to be exercised according to an unguided judicial discretion” (at [38]).

3. The third principle, and perhaps the most important, is:

   …whether making a property settlement order is “just and equitable” is not to be answered by beginning from the assumption that one or other party has the right to an interest in marital property which is fixed by reference to the various matters (including financial contributions) set out in s.79(4).[3]

   [3] [2012] HCA 52 at [40]

4. Thus, the decision in Stanford means that the Court must consider the requirement of s.79(2) before embarking on the four-step process set out by the Full Court of the Family Court in Hickey & Hickey.[4]

   [4] [2003] FamCA 395; (2003) 30 Fam LR 35; FLC 93-143

5. In Hickey, the Full Court set out a process of four inter-related steps that must be taken by a court when determining a property application:

   Firstly, the Court should make findings as to the identity and value of the property, liabilities and financial resources of the parties at the date of the hearing. Secondly, the Court should identify and assess the contributions of the parties…and determine the contribution based entitlements of the parties expressed as a percentage of the net value of the property of the parties. Thirdly, the Court should identify and assess the relevant matters…including…the matters referred to in s.75(2) so far as they are relevant…Fourthly, the Court should…resolve what order is just and equitable in all the circumstances of the case.[5]

   [5] [2003] FamCA 395; (2003) 30 Fam LR 35; FLC 93-143 at [39] per Nicholson CJ, Ellis & O’Ryan JJ

6. It is neither contradictory nor redundant to consider again whether a proposed order is just and equitable under s.79(2), because the Court is considering the matter after having undertaking the three previous steps referred to in the decision.

Evidence

1. The Applicant husband did not attend Court and took no part in the proceedings.

2. The First Respondent relied on her affidavit affirmed on 30^th January 2013 and her Financial Statement filed on 11^th December 2012. She gave short oral evidence in chief in which, amongst other things, she identified the Husband’s signature on a copy of a Lease Agreement forming Annexure “D” to her affidavit.

3. The First Respondent tendered a document headed “Real Estate Appraisal and Property Analysis Report” relating to (property omitted). in (country omitted), showing a market value of the property as 9,178,000 (country omitted) pounds.

4. She was not required for cross-examination.

5. The Second Respondents, the Trustees in Bankruptcy, relied on the affidavit of Mr Summers sworn 30^th January 2013. Mr Summers was not required for cross-examination.

6. The evidence of the First Respondent went mainly towards setting out her current financial situation, which was somewhat dire.

7. The First Respondent deposed that since 31^st October 2008 her father has been supporting her with respect to her day to day living expenses in respect of her home. He made a loan to her of $243,000.00 which was used for the following purposes:

   a)Property expenses such as council rates, strata levies, water, electricity and general maintenance of the Property N property in which she lives, amounting to approximately $30,000.00;

   b)School fees for the parties’ two children at a private school amounting to approximately $100,000.00 over four years;

   c)Medical expenses for the children and herself of approximately $20,000.00;

   d)Purchase of a (omitted) Ford motor vehicle for $12,000.00;

   e)The Husband’s credit card debt of approximately $15,000.00;

   f)Day to day living expenses for herself and the children over four years being approximately $40,000.00; and

   g)Lawyers’ and accountants’ fees with respect to these proceedings amounting to approximately $60,000.00.

8. The First Respondent deposed that she is working for three days a week and earning approximately $550.00 per week.

9. She deposed that the Applicant Husband purchased a property being (property omitted) in (country omitted). He leased that property to tenants on 1^st November 2006. The property remained tenanted until 31^st October 2008.

10. The First Respondent stated that the Applicant owned the following properties in (country omitted), being:

    a)Unit (omitted), (country omitted), with a value of approximately $AU64,000.00;

    b)A unit in (omitted) in (country omitted) with an approximate value of $AU43,000.00;

    c)A block of land of approximately 1000 square metres in (country omitted) with an approximate value of $AU286,000.00;

    d)Another block of land next to the above block also of approximately 1000 square metres in (country omitted) with an approximate value of $AU286,000.00;

    e)A 50% share of a villa in (omitted) in (country omitted) worth approximately 10,000,000 with a rental income of $US5,000.00 per month and an approximate value of $AU715,000.00; and

    f)A 50% share of an agricultural block of approximately 40 hectares in (country omitted) of which his share is valued at approximately $AU357,000.00.[6]

    [6] Affidavit of Ms Jepson 30.1.2013 at paragraph [12]

11. The First Respondent also stated that she believed that the Husband owned other properties in (country omitted) but she did not know the details. She also believed that the Applicant and his brother are entitled to a substantial inheritance from the estate of their late mother, who died in August 2012.

12. The First Respondent deposed, or rather submitted, at paragraph [7] of her affidavit:

    If an order was made to pay an amount of money to the trustee for his costs and legal fees incurred in these proceedings, I would be forced to sell my home. I have no means of obtaining a loan or maintain interest on a mortgage in the short-term. In this regard I will not be able to purchase another home. However, once these proceedings have concluded I will be in a better frame of mind to work longer hours and increase my income to support my two dependent children.[7]

    [7] Ibid at [7]

13. The First Respondent was not cross-examined on her affidavit.

14. The Second Respondents relied on the affidavit of Mr Summers, one of the Trustees in Bankruptcy. He deposed that the Applicant Husband was placed into Bankruptcy on or about 23 August 2011.

1. Essentially, in his affidavit, Mr Summers made three main points:

   21.The Husband is alleging there is money owing to parties in (country omitted) of approximately $485,000. The Trustees are considering those debts and whether or not to accept Proof of Debts if filed by those alleged creditors. The difficulty with finalising the exact amount the Trustees will be seeking is that the Australian Taxation Office is not in a position to finalise the amounts outstanding by the Husband because he has not filed his tax returns for the last couple of years.

   …

   23.The Wife has obtained a Valuation of a property known as (property omitted) in (country omitted),  The date of this Valuation is 10 October 2012. The Valuation asserts that the market value of this property is 9,178,000 (country omitted) pounds. The approximate conversion to Australian Dollars would have its value as approximately $1,450,000.00.

   Annexed hereto and marked with the letter “B” is a copy of a Valuation Report by (omitted) for auction and Appraisal & Intellectual Property dated 10 October 2012.

   I am concerned with regard to this Valuation as it does not identify with any certainty who the owner of the property is, nor is there any evidence as to whether or not there is any liability associated with this property (e.g. a mortgage) and if so, if such a mortgage exists, and to what amount or if the property is unencumbered. From my experience as an insolvency practitioner in excess of 30 years, I am aware that many (omitted countries) do not have the same standards with regard to providing evidence to Court that can be relied upon. I am concerned that the aforementioned (country omitted) property should be included in the assets as it is not within the jurisdiction of the Family Court of Australia[8] or subject to the Bankruptcy Act.

   24.The Trustees seek that the Wife pay to the Trustees an amount sufficient to satisfy the claims by the accepted creditors to satisfy the outstanding claims in relation to the bankruptcy of the Husband.[9]

   [8] Sic The proceedings were commenced  in the Federal Magistrates Court of Australia. On 12 April 2013 the Federal Magistrates Court changed its name to the Federal Circuit Court of Australia.

   [9] Affidavit of Mr Summers 30.1.2013 at [21], [23] & [24]

2. Mr Summers also deposes that the Trustees seek that the First Respondent Wife pay their legal costs and disbursements on an indemnity basis. No reason is provided for an order that costs, if awarded at all, should be assessed on an indemnity basis.

3. If the Court is to consider an application for costs, it must be guided by s.117 of the Family Law Act 1975. It is well-established that the usual rule is that costs, when awarded, are assessed on a party and party basis. It has been held that there should be some special or unusual feature in the case to justify the Court in departing from the ordinary practice (In the Marriage of Kohan[10]; Colgate Palmolive Co v Cussons Pty Ltd[11]; Prantage & Prantage & Prantage[12]).

   [10] (1992) 16 Fam LR 245; (1993) FLC 92-340

   [11] [1993] FCA 536; (1993) 46 FCR 225; 118 ALR 248

   [12] [2013] FamCAFC 105; (2013) 49 Fam LR 197; FLC 93-544

Submissions

1. Mr Mackey of Counsel, who appeared for the Wife, submitted that there is only one asset in Australia, the former matrimonial home at Property N. The Husband has acquired property in (country omitted).

2. The Husband has “walked away” from the marriage with a comfortable lifestyle. The Wife is left in Australia with the two children, one of whom has had his own behavioural difficulties. The Wife has made substantial indirect contributions to the marriage.

3. The property in (property omitted) in (country omitted) was to be the family home. It is in the asset pool but the Court cannot make an order in respect of it. The Wife also claims that the Husband has inherited substantial assets from the estate of his late mother who died in (country omitted) in 2012.

4. Mr Mackey referred the court to s.43 of the Family Law Act 1975, with the aside that “everyone seems to forget about s.43”. The Wife has been the one who has provided for the children for the past few years without any support from the husband.

5. Section 43 of the Act provides at subsection (1):

   43(1)The Family Court shall, in the exercise of its jurisdiction under this Act, and any other court exercising jurisdiction under this Act shall, in the exercise of that jurisdiction, have regard to:

   (a)the need to preserve and protect the institution of marriage as the union of a man and a woman to the exclusion of all others voluntarily entered into for life;

   (b)the need to give the widest possible protection and assistance to the family as the natural and fundamental group unit of society, particularly while it is responsible for the care and education of dependent children;

   (c)the need to protect the rights of children and to promote their welfare;

   (ca)the need to ensure protection from family violence; and

   (d)the means available for assisting parties to a marriage to consider reconciliation or the improvement of their relationship to each other and to their children.

6. It was submitted was that all the Wife was seeking was to stay in the Property N property because she wanted to get the children through school.

7. The Wife opposes an order for costs against her.

8. Mr Mackey referred the Court to the decision of O’Sullivan FM[13] in West & West[14], which was a case where the Husband had become bankrupt and the trustees sought that the former matrimonial home should be sold and the net proceeds of sale should be divided equally between the trustees and the Wife.

   [13] Now Judge O’Sullivan

   [14] [2007] FMCAfam681

9. Mr Mackey asked rhetorically why the Wife should have to leave the home because of the Husband’s debts that he left behind. Her financial position was such that even a payment of $20,000.00 to the trustee’s would be “the straw that breaks the camel’s back.”

10. Mr Rosic of Counsel for the trustees submitted that the realisable asset pool is primarily the Property N property with an agreed value of $800,000.00 and its contents, monies held in the bank by the Wife and her motor vehicle, totalling approximately $840,000.00. There do not appear to be any registered dealings over the property and the debtors alleged both by the Wife and the Husband are unsecured.

11. It was submitted that the sum of $135,500.00 sought by the trustees in bankruptcy does not include possible debts to the Australian Taxation Office or an alleged debt of $60,000.00 to (omitted) Bank, as (omitted) Bank has failed to file a proof of debt. The Australian Taxation Office cannot calculate what monies are owed by way of income tax as the Husband has not lodged any tax returns in recent years.

12. Mr Rosic further submitted that the sum of $135,500.00 represents approximately 15.5% of the net asset pool aside from debts alleged to be owed by the Husband and Wife to family members. These debts are not contained in any executed contracts or deeds and there does not appear to be any record of regular repayments in respect of the alleged debts.

13. The submission goes that whilst the Wife asserts that the Husband owns property overseas she is unable to prove this assertion to the requisite standard of proof. The valuation relied on by the Wife does not provide any form of certificate of title that identifies the owners of the property or any secured mortgages over the property. The Court could not be satisfied that there is sufficient evidence contained within the report that proves that the Husband has ownership or an interest in the property. Even if there were sufficient evidence, it is unlikely that any order made by the Court under either the Family Law Act 1975 or the Bankruptcy Act 1966 could be enforced in (country omitted).

14. Mr Rosic submitted that the orders sought by the trustees are well within the range of division that could be considered as just and equitable in all of the circumstances. If the Court were to make the orders sought by the trustees and ordered that the remaining property should go to the Wife the effect would be that she would receive approximately 85% of the available asset pool and the Husband via the trustees in bankruptcy would receive approximately 15% of the asset pool.

15. A large portion of the sum sought by the trustees consists of costs incurred by the trustees. The Husband filed his own Application to become a bankrupt and as a result was placed into bankruptcy with the appointment of the trustees on 23^rd August 2011. It is the Husband who should be responsible for the trustees’ costs and these costs should come from his entitlement of a division of the property that is vested in the trustees.  

Just and Equitable

1. The Husband and Wife have separated permanently. It appears that the Husband has divorced the Wife in (country omitted) and remarried. There is no evidence that he is likely to return to Australia any time in the foreseeable future.

2. The Husband has become bankrupt by filing a debtor’s petition in Australia. There is a clear need to finalise the property arrangements between the parties.

3. I am satisfied that it is just and equitable to make orders by way of settlement of property under s.79 of the Act.

The property and Liabilities of the Parties

1. Counsel for the Second Respondents has very helpfully provided a balance sheet setting the assets and the agreed values as well as those values that are in issue. I have had recourse to this balance sheet for the purpose of setting out the net asset pool.

2. Notwithstanding the criticism levelled at the Real Estate Appraisal and Property Analysis Report relating to (property omitted) in (country omitted), I am prepared to accept it. It is doubtful that any better evidence would have been available. However, the fact that the property is situated in (country omitted) and therefore out of the jurisdiction of this Court is a significant limitation.

Non Superannuation Asset Pool

1. I find the non-superannuation assets to be:

   a)Property N                  $800,000.00[15]

   [15] Agreed value

   b)(property omitted), (country omitted) (50% share)             $2,000,000.00[16]

   [16] Wife’s value – not agreed

   c)Husband’s bank accounts  $           74.00

   d)Wife’s bank account  $     18,000.00[17]

   [17] Agreed value

   e)Husband’s Mercedes Benz motor vehicle      $      3,047.00

   f)Wife’s Ford motor vehicle  $      6,000.00[18]

   g)(omitted)   $   Nil

   h)(omitted)       $      NIL

   i)Contents of Property N property  $      10,000.00[19]

   j)Wife’s diamonds and gold  $             500.00

k)IT equipment left by husband  $      NIL

Total  $2,837,621.00

[18] Agreed value

[19] Agreed value

Liabilities

1. There is no evidence of any liabilities other than those contained in the Husband’s bankruptcy. The Wife has given evidence that she has an Income Tax debt of $9,563.24 and a debt owing to Centrelink of $11,767.57.

2. I find the parties’ liabilities to be $21,330.81.

Net non-superannuation asset pool

1. By deducting the Wife’s liabilities of $21,330.81 from the non-superannuation asset pool of $2,837,621.00 I arrive at a figure of $2,816,290.19.

Superannuation

1. I find the parties’ superannuation assets to be:

   a)Wife's (omitted) Super  $2,000.00

b)Husband’s superannuation  Not known

Total superannuation  $2,000.00

1. By adding the total of the parties’ superannuation entitlements, namely $2,000.00, to the net total of the non-superannuation asset pool, being $2,816,290.19, I arrive at a total of $2,818,290.19.

2. Accordingly, I find the total asset pool to be $2,818,290.19.

The Parties’ Contributions

1. It would appear that the initial contributions greatly favoured the husband, as the purchase of the property at Property N was financed by the Husband from his inheritance from his father’s estate when the property was purchased in March 2001.

2. However, the parties separated in October 2008 and it is the Wife’s evidence that she has been the one who has supported the children, both financially and as their mother, and maintained the matrimonial home without contribution from the husband. She claims that she obtained a loan of $243,000.00 from her father on 31^st October 2008. Whilst there is no evidence of the loan by way of any loan agreement or an affidavit by the Wife’s father, the support from the Father may be seen as a gift by the Father and therefore a contribution on the Wife’s side.

3. The Wife has made a substantial contribution to the welfare of the family, including a contribution in the capacity of homemaker and parent, both before and after separation.

4. In my view, even on a conservative basis, the Wife’s contributions are at least equal to those of the Husband.

The effect of any proposed order upon the earning capacity of either party

1. The orders sought by each party will have no effect on the parties’ earning capacity.

Relevant matters referred to in subsection 75(2) of the Family Law Act

1. The Husband was born on (omitted) 1967. He is 47 years of age. There is no evidence about his state of health. The Wife was born on (omitted) 1969. The Wife has given evidence about having paid medical and psychologists’ expenses for the children and herself[20] but does not bring any evidence that she is currently other than in good health.

   [20] Affidavit of Ms Jepson 30.1.2013 at [4](c)

2. The Wife deposes that she is working three days a week and earning approximately $550.00 per week. There is no evidence about the Husband’s earnings.

3. There is one child of the marriage under the age of 18, the child X, born on (omitted) 2000. The child is in the care and control of the Wife.

4. The Wife has to support herself and her daughter. The Husband has remarried in (country omitted) and has a child. There is no evidence about his commitments.

5. The Husband’s standard of living in (country omitted) appears to be significantly higher than that of the Wife in Australia.

6. The Wife lives with the two children of the marriage, one of whom is now an adult. She wishes to continue her role as a parent, bearing in mind that the parties’ daughter is not yet 14 years old.

7. The Husband does not pay any child support and has not done so since about April 2009. The Wife will have to support the parties’ daughter for another four years, until she attains the age of 18 on 3^rd September 2018.

8. The Court must consider, in a case of this nature, the requirements of s.75(2)(ha), which provides:

   the effect of any proposed order on the ability of a creditor of a party to recover the creditor’s debt, so far as that effect is relevant.

9. Clearly, the s.75(2)(ha) consideration is very relevant, as the only asset upon which the creditors can use to obtain payment is the former matrimonial home at Property N. If the home is to be sold, the creditors can be repaid, although the wife and the children will need to vacate or pay the amount of $135,500.00 sought by the trustees.

10. The Court also should consider the requirement under s. 75(2)(n):

    the terms of any order made or proposed to be made under section 79 in relation to:

    (i)     the property of the parties; or

    (ii)vested bankruptcy property in relation to a bankrupt party;

11. In my view, the circumstances under consideration under s.75(2) call for a significant adjustment in favour of the Wife, to the extent of about 25%. However, the Court needs to resolve the balance between the needs of the creditors and the needs of the non-bankrupt wife.

Just and Equitable

1. Again, the Court must consider whether the proposed orders are just and equitable, as provided by s.79(2) of the Act. The circumstances of this case are unusual, in that the husband has left Australia permanently and become bankrupt by his own petition. The wife has been left with the two children, one of whom is now an adult, and has been obliged to be their sole parent and source of financial support since the husband left. One of the children, the parties’ daughter, who will shortly turn 14 on (omitted).

2. It is a significant consideration that the bulk of the assets, in monetary value, consist of real estate in (country omitted), which is out of the jurisdiction of this Court. Those assets remain in the hands of the husband.

3. Although the total asset pool amounts to $2,818,290.19, this figure is illusory, because most of it is out of the jurisdiction. The only assets in Australia are these:

   a)Property N, valued at                 $800,000.00;

   b)The Wife’s bank account with a balance of                   $ 18,000.00;

   c)The Wife’s car valued at   $  6,000.00;

d)The Wife’s diamonds and gold   $  500.00

Total  $824,500.00

1. The Wife has a tax debt of $9,563.24 and a liability to Centrelink of $11,767.57, a total of $21,330.81.

2. The net asset pool in Australia is therefore only $803,169.19.

3. The Court must balance the interests of the Wife on the one hand against the interests of the creditors of bankrupt husband on the other. In doing so, the Court must consider the effect of subsection 79(1) of the Act, which says:

   79(1)In property settlement proceedings, the court may make such order as it considers appropriate:

   …

   (b)in the case of proceedings with respect to the vested bankruptcy property in relation to a bankrupt party to the marriage – altering the interests of the bankruptcy trustee in the vested bankruptcy property;

   including

   (c)an order for a settlement of property in substitution for any interest in the property; and

   (d)     an order requiring:

   (i)     either or both of the parties to the marriage; or

   (ii)     the relevant bankruptcy trustee (if any);

   to make, for the benefit of either or both of the parties to the marriage or a child of the marriage, such settlement or transfer of property as the court determines.

4. This issue was considered by the Full Court of the Family Court in Trustee of the Property of G. Lemnos (a bankrupt) & Lemnos[21], where Coleman J[22], with whom Thackray and Ryan JJ agreed, held at [57]:

   In my view, by the express wording of the amendments to the FLA[23] and the BA[24], the legislature revealed an intention that the rights of unsecured creditors of a bankrupt spouse to a share of the bankrupt’s estate were no longer to be automatically preferred to the property settlement rights of the non-bankrupt spouse. To the extent that support for this construction of the legislation is required, the second reading speech provides it. The more vexing question is how such rights are to be regarded.

   [21] [2009] FamCAFC 20; (2009) 42 Fam LR 120; FLC 93-394

   [22] As he then was

   [23] i.e. the Family Law Act 1975

   [24] i.e. the Bankruptcy Act 1966

5. His Honour went on to hold at [61]:

   On a proper construction of the legislation, I conclude that the reconciliation of the conflicting rights of unsecured creditors of the bankrupt and the rights of the bankrupt’s spouse involves the exercise of discretion. That discretion is clearly exercised by reference to the facts as found, and the relevant provisions of the FLA.

6. His Honour also held:

   [96]There is no legislative provision which expressly or impliedly constrains the court from making orders with respect to “property”. Commonsense and experience suggest that there will be many cases in which alterations to parties’ interests in property will be appropriate or necessary notwithstanding that the parties have unsecured liabilities which may exceed the parties’ equal total equity in such property. Subject to s90AE(3)(b), I perceive there to be no legislative impediment to the making of property settlement orders in such circumstances.

   [97]Accordingly, in cases where there is “property” of the parties to the marriage or either of them, the effect of the 2005 amendments is that the court has jurisdiction to make orders which have an adverse impact upon unsecured creditors. In this regard the term “property” includes property vested in the trustee of a bankrupt spouse.

1. Again, his Honour held at [99]:

   It follows that I agree with the alternative proposition made on behalf of the trustee which I have earlier set out, namely that the effect of the insertion of s 79(1)(b) in the FLA is that the interests of unsecured creditors do not automatically “trump” the interests of the non-bankrupt spouse and that the legislation now requires the court to balance their competing claims in the exercise of the wide discretion conferred upon the court by s 79.

2. In their joint judgment, Thackray and Ryan JJ held at [200]:

   We respectfully concur with all that Coleman J has said in relation to the effect of the 2005 amendments to the Family Law Act and the Bankruptcy Act. We accept that the effect of the amendments is that the interests of unsecured creditors do not automatically prevail over the interests of the non-bankrupt souse and that the legislation requires the court to balance their competing claims in the exercise of the wide discretion conferred by s 79.

3. Subsection 90AE(3) says at paragraph (b):

   The court may only make an order under subsection (1) or (2) if:

   …

   (b)if the order concerns a debt of a party to the marriage – it is not foreseeable at the time that the order is made that to make the order would result in the debt not being paid in full;

4. The Husband will retain the property in (country omitted), about which the Court has no jurisdiction to make any orders.

5. The Wife will be responsible for her income tax debt and her liability to Centrelink. She should retain her car, worth $6,000.00, her diamonds and gold worth $500.00, and her bank account with a balance of $18,000.00.

6. The amount of $135,500 sought by the trustees is approximately 16.87% of the net asset pool in Australia, which would mean that the wife would retain approximately 83.13% of the net asset pool in Australia. On the face of it, this division does not appear to be unreasonable, except for the fact that the Wife does not have the capacity to pay the amount of $135,500.00 to the trustees. This would mean that the house would need to be sold and the Wife would need to find other accommodation for her teenage daughter and herself.

7. I am not satisfied that it would be just and equitable to place the Wife and her child who has not yet reached the age of 14 years in a position where their home should be sold, requiring them either to buy a cheaper home or, quite possibly, find rental accommodation. The parties’ son is now 18 years and 4 months old. He was born on (omitted) 2014. He is an adult.  He may still be living at home, but there is no current evidence. He may or may not be still at school, but, again, there is no evidence.

8. In my view, a just and equitable result would be for the creditors to wait for some time to be paid whilst allowing the Wife to remain living in the former matrimonial home until the daughter attains the age of 18 years, on (omitted) 2000. This should allow the child to finish high school and provide her and her mother with some stability for the next four years. The lapse of time will also allow the Wife to make arrangements either to obtain finance to pay the trustees the sum of $135,500.00, together with interest, or look for other accommodation.

9. There is no evidence that the Wife contributed in any way to the debts incurred by the Husband which led to his bankruptcy, quite the reverse, in fact, as she has given evidence that she used money she obtained from her father to pay her husband’s credit card debt in the sum of $15,000.00.[25]  

   [25] Affidavit Ms Jepson 31.1.2013 at [4](e)

10. On the face of the evidence, I find it difficult to see why the Wife should pay the trustees’ legal costs in any amount, let alone on an indemnity basis. However, if the trustees seek an order for costs they should file and serve an Application in a Case together with an affidavit within one month and the question of costs will be considered.

I certify that the preceding one hundred and five (105) paragraphs are a true copy of the reasons for judgment of Judge Scarlett

Associate: 

Date:  27 August 2014