Moy & Pao (No 2)
[2025] FedCFamC1A 48
•20 March 2025
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 1) APPELLATE JURISDICTION
Moy & Pao (No 2) [2025] FedCFamC1A 48
Appeal from: Pao & Moy (No 2) [2024] FedCFamC1F 643 Appeal number: NAA 275 of 2024 File number: MLC 6493 of 2011 Judgment of: ALSTERGREN CJ, AUSTIN & SCHONELL JJ Date of judgment: 20 March 2025 Catchwords: FAMILY LAW – APPEAL – PROPERTY – Consensual allowance of the appeal and cross-appeal – Where judgment debt was entered in the Supreme Court of Victoria in favour of the cross-appellant against the husband – Where the wife initiated financial proceedings against the husband – Where the cross-appellant was granted leave to intervene at first instance but restrained from executing its judgment against the husband pending disposition of the spouses’ financial cause – Where the primary judge omitted the judgment debt from the balance sheet – Where the claims of creditors should not be subordinated to the claims between spouses in the matrimonial cause – Where the unsecured debt was neither treated as an individual debt of the husband, nor as the joint and several liability of the spouses – Error of law – Appeal allowed – Orders of the primary judge set aside – Matter remitted for rehearing – No order as to costs Legislation: Family Law Act 1975 (Cth) Pt VIII, ss 75, 79, 90AE, 90AF
Federal Proceedings (Costs) Act 1981 (Cth)
Cases cited: Bhatnagar & Riju [2018] FamCAFC 144
Biltoft & Biltoft (1995) FLC 92-614; [1995] FamCA 45
Boensch v Pascoe (2019) 268 CLR 593; [2019] HCA 49
Hill & Weston [2022] FedCFamC1A 98
Puddy & Grossvard (2010) FLC 93-432; [2010] FamCAFC 54
Stanfordv Stanford (2012) 247 CLR 108; [2012] HCA 52
Trustee for the Bankrupt Estate of Lasic & Lasic (2009) FLC 93-402; [2009] FamCAFC 64
Trustee of the Property of Lemnos; a bankrupt & Lemnos (2009) FLC 93-394; [2009] FamCAFC 20
Number of paragraphs: 21 Date of last submissions: 3 March 2025 Date of hearing: 3 March 2025 Place: Melbourne Counsel for the Appellant/ First Respondent to Cross-Appeal: Mr Puckey KC with Dr Smith Solicitor for the Appellant/First Respondent to Cross-Appeal: Kennedy Partners The Respondent/Second Respondent to Cross-Appeal: Litigant in person Counsel for the Intervener/Cross-Appellant: Mr Hutchings Solicitor for the Intervener/Cross-Appellant: McDonald Lawyers ORDERS
NAA 275 of 2024
MLC 6493 of 2011FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
DIVISION 1 APPELLATE JURISDICTIONBETWEEN: MS MOY
Appellant/First Respondent to Cross-Appeal
AND: MR PAO
Respondent/Second Respondent to Cross-Appeal
AND: B PTY LTD
Intervener/Cross-Appellant
ORDER MADE BY:
ALSTERGREN CJ, AUSTIN & SCHONELL JJ
DATE OF ORDER:
20 MARCH 2025
THE COURT ORDERS BY CONSENT THAT:
1.The appeal and cross-appeal be allowed.
2.The orders made 23 September 2024 be set aside.
3.All extant applications be remitted for rehearing by a judge other than the primary judge.
IT IS FURTHER ORDERED THAT:
4.Applications for costs certificates of the appeal and rehearing pursuant to the Federal Proceedings (Costs) Act 1981 (Cth) be dismissed.
5.Reasons for judgment are reserved.
AND THE COURT NOTES THAT:
A.The respondent seeks to bring application for the payment of capital gains tax as soon as possible and that is an application for the trial Judge to consider.
Note: The form of the order is subject to the entry in the Court’s records.
Note: This copy of the Court’s Reasons for judgment may be subject to review to remedy minor typographical or grammatical errors (r 10.14(b) Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 10.13 Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth).
IT IS NOTED that publication of this judgment by this Court under the pseudonym Moy & Pao has been approved pursuant to subsection 114Q(2) of the Family Law Act 1975 (Cth).
REASONS FOR JUDGMENT
ALSTERGREN CJ, AUSTIN & SCHONELL JJ:
These reasons explain the consensual allowance of an appeal and cross-appeal from property settlement orders made under Pt VIII of the Family Law Act 1975 (Cth) (“the Act”) by a judge of the Federal Circuit and Family Court of Australia (Division 1) on 23 September 2024.
The spouses separated in 2008, but it was not until 2017 that the wife instituted financial proceedings against the husband under Pt VIII of the Act.
The financial proceeding between the spouses was commenced after a judgment in the sum of $5,762,345 was entered in the Supreme Court of Victoria in 2016 against the husband in favour of a corporation with which he was associated (“[B Pty Ltd]”). The judgment was premised upon the husband’s misappropriation of funds from B Pty Ltd.
B Pty Ltd was granted leave to intervene in the financial proceedings between the spouses, but was restrained from executing its judgment against the husband pending disposition of the financial cause, the trial of which was heard between March and July 2024.
At the trial, the spouses adopted a mutual position that the husband’s debt to B Pty Ltd should be omitted from the balance sheet, such that the husband would bear exclusive responsibility for the liability. They contended the net value of their assets and other liabilities should be shared between them in proportions of 75 per cent to the wife and 25 per cent to the husband (at [4], [14] and [16]). Conversely, B Pty Ltd contended there should be no property adjustment orders made between the spouses and the husband’s assets should be immediately available to satisfy its judgment debt (at [5], [18], [109] and [122]). Neither the spouses nor B Pty Ltd sought any order under s 90AE or s 90AF of the Act to regulate liability for payment of the judgment debt.
Judgment was delivered in September 2024. Relevantly, the primary judge omitted the B Pty Ltd judgment debt from the balance sheet (at [63]), assessed the spouses’ contribution-based entitlements to the assets and other liabilities in shares of 55 per cent to the wife and 45 per cent to the husband (at [93]), determined it was not appropriate to make any adjustment in favour of the wife on account of her future needs (at [103]), and then considered B Pty Ltd’s claim upon the assets (at [104]–[190]), determining there should be an adjustment against the wife of 15 per cent (at [189]). The result was the husband’s entitlement to 60 per cent of the net assets, against which B Pty Ltd was free to execute its judgment debt.
In mathematical terms, the husband’s entitlement to 60 per cent of the net assets and liabilities (excluding the B Pty Ltd debt) was worth $810,434 (at [195]). By the accrual of statutory interest, his debt to B Pty Ltd then stood at $7,203,556 (at [63]), so the debt could only be partially satisfied by the husband from his assets.
The wife appealed from the judgment. Although the B Pty Ltd debt was excluded from the balance sheet, as she argued, she only received 40 per cent of the net property when she had instead sought 75 per cent.
B Pty Ltd then cross-appealed from the judgment. It contended the debt owed to it ought not have been omitted from the balance sheet and, furthermore, no property adjustment orders should have been made between the spouses at all.
As an aside, it should be observed that B Pty Ltd’s position both at trial and in the appeal is difficult to fathom. Had the primary judge done as B Pty Ltd proposed, the husband would have had property worth about only $760,000 to satisfy its debt (at [63]). Yet, after the judgment, the husband had property worth $810,434 against which the B Pty Ltd debt could be executed and B Pty Ltd also obtained the benefit of an order compelling its payment of $195,607 from joint assets. While the whole of the B Pty Ltd debt could never be satisfied by the husband, B Pty Ltd was nearly $250,000 better off because of the judgment.
In the appeal, the wife and B Pty Ltd both contended the primary judge erred by quarantining the B Pty Ltd debt from the spouses’ assets and other liabilities and by not considering the implications of the liability until after the provisional determination of the spouses’ property entitlements by reference to their contributions and future needs. To the extent the grounds of the appeal and the grounds of the cross-appeal overlapped, the wife and B Pty Ltd each respectively conceded the appeal and the cross-appeal. They consented to orders allowing the appeal and cross-appeal, discharging the orders made by the primary judge, and remitting the financial cause for re-hearing. The husband appeared at the hearing, but had not filed a Summary of Argument, did not actively participate, and did not oppose the orders sought by the other parties.
The appeal and cross-appeal were allowed consensually and the reasons for that outcome were reserved, as reasons are still necessary when appeals are conceded (Hill & Weston [2022] FedCFamC1A 98 at [6]; Bhatnagar & Riju [2018] FamCAFC 144 at [3]).
Property settlement orders under Pt VIII of the Act altering the property interests of spouses may only be made if the Court is first satisfied it is just and equitable to make such orders and it is necessary to begin that inquiry by identifying the existing legal and equitable property interests of the parties (Stanfordv Stanford (2012) 247 CLR 108 at [37] and [50]).
When determining the property available for division between the spouses, the long-standing practice is to identify and ascertain the gross value of their assets and liabilities and to then deduct the secured and unsecured liabilities from the assets to establish the overall net value of their property. In that process, circumstances may require some liabilities to be either disregarded (Biltoft & Biltoft (1995) FLC 92-614 at 82,124–82,128) or exclusively attributed to one spouse for payment (Puddy & Grossvard (2010) FLC 93-432 at [62] and [101]–[111]; Trustee for the Bankrupt Estate of Lasic v Lasic (2009) FLC 93-402 at [198]–[200]).
Neither the claims of spouses nor creditors enjoy priority over the other. The claims of creditors, like B Pty Ltd, should not be subordinated to the claims between the spouses in the matrimonial cause, other than in the rather confined circumstances identified in those authorities (Trustee of the Property of Lemnos; a bankrupt & Lemnos (2009) FLC 93-394 at [99], [178]–[181] and [200]; Biltoft & Biltoft at 82,128).
Unsecured liabilities of the spouses may only be disregarded if they are vague, uncertain, unlikely to be enforced, or unreasonably incurred (Biltoft & Biltoft at 82,127). The unsecured B Pty Ltd debt certainly did not fall into any one of those categories, in which event it had to be taken into account when the primary judge undertook the first task of identifying and valuing the spouses’ existing assets and liabilities. It was not. The debt was neither treated as an individual debt of the husband, nor as the joint and several liability of the spouses.
We accept that was an error of law because, had the liability been taken into account either way at that early point, it could conceivably have influenced the primary judge’s decision about whether it was just and equitable to make any adjustment order at all (s 79(2)) and, if so, what effect the husband’s conduct in accruing the debt had upon the assessment of their respective contributions (s 79(4)) and how the attribution of the liability to one or both spouses would reflect in any adjustment of their entitlements to property (s 79(4) and s 75(2)).
The primary judge erred by only afterwards considering the B Pty Ltd debt and, as part of the discretionary process required by ss 79(4)(d)–(g) and 75(2) of the Act, deducting 15 per cent from the wife’s provisional entitlement and attributing it to the husband so he would then have more capital available to partly satisfy the B Pty Ltd liability. In the end, the primary judge ordered that $195,607 of jointly owned money be paid to B Pty Ltd (Order 6(c)) and otherwise the husband would indemnify the wife against the B Pty Ltd debt (Order 8).
The error necessitated the appeal and cross-appeal being allowed, the orders being set aside, and the proceedings remitted for re-hearing.
It was then unnecessary to consider the residual contested grounds of the appeal and the cross-appeal (Boensch v Pascoe (2019) 268 CLR 593 at [7]–[8]).
The parties’ applications for costs certificates under the Federal Proceedings (Costs) Act 1981 (Cth) were dismissed because their ultimate agreement to the disposition of the appeal and the cross-appeal evidently could have been reached much sooner at far less expense.
I certify that the preceding twenty-one (21) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Chief Justice Alstergren and Justices Austin & Schonell. Associate:
Dated: 20 March 2025
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