Needham and & Trustees of the Bankrupt Estate of Needham
[2016] FamCA 253
•20 April 2016
FAMILY COURT OF AUSTRALIA
| NEEDHAM & & TRUSTEES OF THE BANKRUPT ESTATE OF NEEDHAM | [2016] FamCA 253 |
| FAMILY LAW – PROPERTY SETTLEMENT – Where the husband has been declared bankrupt – Where the proceedings are between the wife and Trustees of the Bankrupt Estate of the husband – Where the only significant asset is the former matrimonial home and it is agreed between the parties that the asset is to be sold – Where the Court finds it is just and equitable to alter the interests of the parties pursuant to section 79(2) – Where the Court finds the contributions of the wife and husband were equal until separation – Where the Court finds the contributions of the wife in the period post separation were greater than the husband – Whether an adjustment should be made in favour of the wife due to alleged non-disclosure on behalf of the Trustees – Whether an adjustment should be made in favour of the wife as a result of the husband’s conduct that led to his bankruptcy – Where the Court finds section 75(2) considerations favour an adjustment of 5 per cent in favour of the wife – Orders made for the wife to receive 68 per cent of the proceeds of sale of the former matrimonial home and 68 per cent of the value of her other property – Orders made for the Trustees to receive 32 per cent of the proceeds of sale of the former matrimonial home and 32 per cent of the value of the wife’s other property. |
| Bankruptcy Act 1966 (Cth) ss 58, 81, 132 Bankruptcy and Family Law Legislation Amendment Act 2005 (Cth) (No. 20 of 2005) Family Law Act 1975 (Cth) ss 4, 74, 75(2), 75(3), 79(1), 79(2), 79(4), 79(11) Revised Explanatory Memorandum, Bankruptcy and Family Law Legislation Amendment Bill 2005 (Cth) |
Family Law Rules 2004 (Cth) rr 13.01, 13.02, 13.04, 13.07
Bevan & Bevan (2013) FLC 93-545
Carmel-Fevia & Fevia (No. 3) [2012] FamCA 631
Gould & Gould (2007) FLC 93-333
Kowaliw & Kowaliw (1981) FLC 91-092
Masoud & Masoud [2016] FamCAFC 24
Petruski & Balewa (2013) 49 Fam LR 116
Re Francis; Ex parte Official Trustee (1988) 82 ALR 335
Robb & Robb (1995) FLC 92-555
Sebastian & Sebastian (No. 5) [2013] FamCA 191
Sistrom v Urh (1992) 117 ALR 528
Stanford & Stanford (2012) 247 CLR 108
| APPLICANT: | Ms Needham |
| RESPONDENT: | Mr Vermeer and Mr Crawford as Trustees of the Bankrupt Estate of Mr Needham |
| FILE NUMBER: | SYF | 4097 | of | 2006 |
| DATE DELIVERED: | 20 April 2016 |
| PLACE DELIVERED: | Sydney |
| PLACE HEARD: | Sydney |
| JUDGMENT OF: | McClelland J |
| HEARING DATE: | 23 November 2015 |
REPRESENTATION
| COUNSEL FOR THE APPLICANT: | Mr Johnston |
| SOLICITOR FOR THE APPLICANT: | Not applicable |
| COUNSEL FOR THE RESPONDENT: | Mr Ash |
| SOLICITOR FOR THE RESPONDENT: | Hunt & Hunt |
Orders
The Court declares that Mr Needham and Ms Needham (“the wife”) as registered proprietors of the property known as B Street, Suburb C with Folio Identifier … (“the Property”) hold the Property on trust for the wife and the Trustees of the Bankrupt Estate of Mr Needham (“the Trustees in Bankruptcy”) as tenants in common in equal shares.
The wife and the Trustees in Bankruptcy are to join in and do all acts and things and sign all documents necessary to effect a sale of the Property and the net proceeds of sale are to be paid in the following manner and priority:
i.payment of the outgoings referred to in Order 4 below;
ii.68 per cent less the sum of $12 555 to the wife; and
iii.32 per cent plus the sum of $12 555 to the Trustees in Bankruptcy.
The wife is to have the authority to conduct the sale of the Property either by public auction or by private treaty and to nominate the agent and lawyer to have carriage of the sale and to nominate the minimum reserve price or contract price, as the case may be, and to transfer the Property to the purchasers and to receive and disburse the purchase money.
The following amounts are to be deducted from the proceeds of sale and are to be paid by the wife before any sum is paid from the proceeds of sale to the wife or the Trustees in Bankruptcy pursuant to these Orders:
a) The costs, expenses and commission of the real estate agent or agents acing on the sale of the Property;
b) The costs, fees and disbursements of the lawyer or lawyers acting for the parties on the sale of the Property; and
c) Adjustment of water rates and council rates.
The parties are granted leave to relist the matter on seven (7) days’ notice in respect of the implementation of all or any of these Orders and in relation to any further machinery orders required to effect a sale of the Property.
Otherwise, all outstanding orders sought in the Amended Application for Final Orders filed 2 January 2007 and the “Minute of proposed Order” contained in the Case Outline document of the Trustees in Bankruptcy filed 13 November 2015 are dismissed.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Needham & Official Trustee in Bankruptcy has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
| FAMILY COURT OF AUSTRALIA AT SYDNEY |
FILE NUMBER: SYF 4097 OF 2006
| Ms Needham |
Applicant
AND
| Mr Vermeer and Mr Crawford as Trustees of the Bankrupt Estate of Mr Needham |
Respondent
REASONS FOR JUDGMENT
Introduction
This matter concerns an application for final property orders pursuant to Part VIII of the Family Law Act 1975 (Cth) (“the FLA”), by the wife, Ms Needham (“the wife”), filed 19 October 2006 in respect to her marriage to Mr Needham (“the husband”). The parties married in 1985 and lived together until May 1999. The parties were divorced on 5 December 2006. The wife is currently 71 years of age and the husband is 73 years of age. As a result of the husband being declared bankrupt, on 16 February 2015, Mr Vermeer and Mr Crawford as joint and several Trustees of the Bankrupt Estate of the husband (“the Respondent Trustees”) became respondents to the proceedings pursuant to section 79(11) of the FLA.
As a consequence of the husband becoming bankrupt, the Court must consider the entitlements of the wife to the matrimonial property in the context of considering the entitlements of the creditors of the husband whose interests are represented by the Respondent Trustees.
I have determined that, in the period from 1984 until they separated in 1999, the parties made equal contributions in terms of the considerations set out in section 79(4) of the FLA. However, in the period post separation, the wife’s contributions have been substantially greater than those of the husband. I have also determined that the wife is entitled to an additional adjustment in her favour as a result of relevant section 75(2) factors. This includes, most relevantly, the fact that the wife is 71 years of age and has a limited ability to continue to earn an income.
In considering the matters set out in sections 79(4) and 75(2), I have had regard to the interests of creditors of the husband and specifically, the fact that any distribution in favour of the wife would result in those creditors receiving a smaller recovery from the vested bankruptcy property of the husband.
During the course of the proceedings, counsel for the wife argued that the Court should make an adjustment in favour of the wife as a result of non-disclosure by the husband and the Respondent Trustees as well as the manner in which the husband incurred the debt that lead to his bankruptcy. I have found that, in the circumstances, no such additional adjustment in favour of the wife is justified as a result of those matters.
Applications
By Amended Application for Final Orders filed on 2 January 2007, the wife sought the following orders:
1. That the husband do all things necessary to transfer to the wife at the husband’s expense the real property located at B Street, Suburb C being all of the property described in Folio Identifier ...
2. That the husband indemnify the wife as to all liabilities which may arise as result of any business activity he has participated in or is connected with since May 1999.
3. That pursuant to section 90AE an order or declaration that any debt found to be owing by the husband to the second respondent namely F Ltd is a debt owed by the husband alone.
4. That the second respondent namely F Ltd remove its claim against the family home that is the property referred to in order 1.
5. That the husband pays the cost of these proceedings.
As result of the husband becoming bankrupt on 16 February 2015, the Respondent Trustees became a party to the proceedings pursuant to section 79(11) of the FLA. On 23 February 2015 the second respondent, F Ltd, was removed as a party to the proceedings. As a creditor of the husband, the interests of F Ltd are represented in these proceedings by the Respondent Trustees.
In the Respondent Trustees’ Case Outline document filed 13 November 2015, the Respondent Trustees sought the following orders:
1. The Court declares that [Mr Needham] and [Ms Needham] as registered proprietors of the property known as [B Street, Suburb C] with Folio Identifier … [“the Property”] hold the Property in trust for [Ms Needham] and the Trustees of the Bankrupt Estate of [Mr Needham] as tenants in common in equal shares.
2. The Court orders that Ms Needham [hereafter “the Applicant Wife”] and the Trustees of the Bankrupt Estate of [Mr Needham] [hereafter “the Respondent Trustees”] join in and do all acts and things and sign all necessary documents in order to effect a sale of the Property and that the net proceeds of sale after payment of the outgoings referred to in paragraph 6 be divided equally between them.
3. The Court orders that the Applicant Wife have the authority to conduct the sale of the Property either by public auction or by private treaty and to nominate the agent and lawyer to have carriage of the sale and to nominate the minimum reserve price or contract price, as the case may be and to transfer the Property to the purchasers and to receive and disburse the purchase money.
4. As to the net proceeds due to the Respondent Trustees, these are to be held in a controlled money account to be arranged by the parties for application as follows:
a) Payment to indemnify the Respondent Trustees for any costs, charges and expenses property and reasonably incurred in relation to protecting and dealing with their share of the tenancy in common of the Property including their costs, charges and expenses of the Wife’s Application.
b) After payment of the indemnity, payment of the balance in the proportion [x%] to the Respondent Trustees and [y%] to the Applicant Wife [where for the reasons given y should be relatively small].
5. The Court directs that the reserve price in respect of the sale shall be that amount agreed upon between the parties and in the absence of agreement, it shall be $3,000,000.
6. The Court directs that the following amounts be deducted from the purchase money and paid out by the Applicant Wife before any money is paid to either party pursuant to these order[sic]:
a) The costs, expenses and commission of the real estate agent or agents acing on the sale of the Property.
b) The costs, fees and disbursements of the lawyer or lawyers acting for the parties on the sale of the Property.
c) Adjustment of water rates and council rates.
7. The Court directs that each party has leave to relist the matter on seven days’ notice in respect of the implementation of all or any of these orders and in relation to any further machinery required to effect a sale of the Property.
Chronology
Helpfully, the parties agreed to a joint chronology which, as modified, is as follows:
·The husband was born in 1942 and is currently aged 73. The wife was born in 1944 and is currently aged 71.
·Both the husband and the wife have children from previous marriages. The husband has a son, Mr G, who is currently aged 41, whilst the wife has two daughters, Ms H and Ms I, who are currently aged 32 and 35 respectively.
·The husband and the wife first met in 1984. During that year, they purchased B Street, Suburb C (“the Suburb C property”), for $305 000. The wife contributed approximately $120 000 to the purchase. The husband contributed the balance. No mortgage was required. The Respondent Trustees contended that it was reasonable to conclude that the husband also paid stamp duty, although this was not conceded by the wife.
·The husband and wife were married in 1985.
·Their first child, Mr J Needham, was born in 1985. He is currently aged 30.
·Between 1986 and 1987, the husband and wife lived in Country K.
·Between 1987 and 1988, the husband and wife extended their home by adding an additional level at a cost of $70 000 to $80 000.
·Their second child, Ms L, was born in 1989. She is currently aged 26.
·In May 1991, the wife graduated from university
·In December 1991, the wife was admitted to her profession.
·On 3 March 1997, the wife was awarded a Masters degree.
·In 1997, the husband left his employment at M Pty Ltd and spent the following two years in his own business. He was largely unsuccessful in that endeavour and became depressed and abused alcohol.
·On 17 May 1999, the parties separated. All five children initially remained living in the former matrimonial home with the wife although Mr G moved to the UK later that year. Currently two of the adult children of the marriage remain living with the wife.
·Following separation, the husband left Australia to commence employment with N Pty Ltd, in the Middle East.
·On 24 April 2004, the husband commenced employment with F Ltd, in Central Asia.
·On 1 March 2006, the husband ceased his employment with F Ltd.
·On 9 October 2006, F Ltd commenced proceedings in the Supreme Court of New South Wales against the husband, and others, seeking damages. On that day, the Supreme Court also froze the husband’s assets.
·On 19 October 2006, the wife commenced these proceedings in the Family Court of Australia.
·On 27 March 2007, F Ltd intervened in these proceedings and an order was made staying the proceedings.
·On 11 December 2009, judgment was delivered by Einstein J in the Supreme Court of New South Wales against the husband and others for $36 409 735.
·On 15 September 2010, the New South Wales Court of Appeal set aside the orders of Einstein J.
·On 1 December 2011, the High Court of Australia allowed an appeal by F Ltd and remitted the matter to the New South Wales Court of Appeal.
·On 31 May 2013, the New South Wales Court of Appeal reduced the judgment to $7 million.
·On 16 February 2015, the husband was declared bankrupt.
·It is agreed between the parties that the current claim of the creditors against the bankrupt estate of the husband is approximately $2.3 million together with legal fees which the Respondent Trustees estimate to be in the vicinity of $1.1 million, bringing the total to approximately $3.4 million.
·On 23 February 2015, the stay order in these proceedings was discharged, F Ltd was removed as a party and the matter was listed for final hearing on 23 November 2015.
Evidence concerning Contributions
There was limited cross examination of the wife and the evidence set out in her affidavit filed 6 November 2015 was substantially unchallenged. Relevantly that evidence was as follows:
·At the time of their marriage in 1985, the wife was studying full-time at … University. The wife had, at the time, two young children, Ms H who was then aged 5 and Ms I who was then aged 3. The children’s father resided in the United States and the children lived with the wife and the husband. The husband also had a child from a previous marriage, [Mr G] who was then aged 9. At the time, [Mr G] spent most weekends and school holidays with the wife and the husband.
·After the parties were married, the wife continued to study law part-time over the following few years. However, in 1986 she took a year off in order to accompany the husband to a posting with his then employer, M Pty Ltd, in City O, Country K.
·After being admitted professionally in December 1991, the wife commenced full time employment in 1992. After commencing full time work, the wife engaged a nanny, cleaner, ironing lady and a gardener which she paid for from her income.
·In approximately 1996 the wife set up her own business, initially working from home. This enabled her to cancel the services of the nanny, ironing lady and cleaner.
·The wife completed her Masters degree in 1997.
·Following separation in May 1999, all of the children continued to live with the wife, with the two youngest children, Mr J (then aged 13) and Ms L (then aged 9) spending Christmas with their father in Europe over the next few years. Mr G moved to the UK later that year.
·The husband paid the private school fees for the child of his first marriage, Mr G, who was an adult and had left school at the time of separation. After separation, the husband continued to pay the private school fees of Mr J and Ms L until they left school.
·Except for Ms L’s first year of high school, Mr G, Mr J and Ms L attended boarding school. Those fees were paid by the husband. Ms H and Ms I (the children of the wife’s first marriage) both attended public school.
·The wife was not cross examined in respect to her assertion that, from the time of separation, she paid for the children’s clothing, dental and medical bills and attended to their emotional, social and physical needs. This occurred, without contribution from the husband, until each of them acquired full time employment or moved out.
·The wife stated that, in the period from 1997 until 2014, her annual income varied from $50 000 to $80 000.
·The wife’s evidence was that the Suburb C property was built in 1948 and has required extensive upkeep as documented in paragraphs 64 to 74 of her affidavit filed 6 November 2015. The wife asserted that she has attended to all maintenance and outgoings in respect to the former matrimonial home since the parties separated. This included regular pest control expenses in respect to a colony of funnel web spiders as well as council rates (which are currently $3 200 per annum) and rent in respect to the car-port space of approximately $385 per annum.
·At paragraph 42 of her affidavit filed 6 November 2015, the wife states that she had an understanding with the husband that:
… I would retain the matrimonial home in Australia which housed us all, provided I maintain it and the children, and not make claim to any monies he had elsewhere. I agreed to this arrangement.
·It was recognised by both parties, however, that the alleged agreement was not a binding financial agreement as contemplated by Part VIIIA of the FLA. It was not suggested that the agreement created an estoppel against either party or prevented the Court from making such orders as it considers appropriate pursuant to section 79 of the FLA.
Contentions
The contentions of the applicant wife
Counsel for the wife submitted, that as a result of the relevant section 79(4) considerations, non-disclosure by the husband and the Respondent Trustees, and the manner in which the husband incurred the judgment debt that lead to his bankruptcy, the Court should order that Respondent Trustees’ interest in the Suburb C property be transferred to the wife. The reasons for this submission were as follows:
(a)The wife’s initial financial contribution comprised of approximately one half interest in the Suburb C property.
(b)The children from each of the parties’ previous marriages formed part of the family, together with the two children of the marriage.
(c)The wife worked to improve her earning capacity by completing her qualifications and subsequently obtaining a Masters degree.
(d)The wife was begun working in her profession in December 1991 and between 1997 and 2014 earned between $50 000 and $80 000 per annum. The wife applied this income towards supporting herself and her family, consisting of all five children, including those from the parties’ previous relationships.
(e)The wife was the primary carer for all five children up to the parties’ separation in 1999 and was the children’s sole carer after separation.
(f)The wife was overwhelmingly the homemaker for the family and carer for the children and that contribution should be regarded as substantial and not merely token. In that respect, counsel for the wife relied on Crawford & Crawford (1979) FLC 90-647 and also Mallet & Mallet (1984) 156 CLR 605 and Ferraro & Ferraro (1993) FLC 92-335.
(g)In the periods up to separation, and post separation, the wife’s financial and non-contributions must be seen as “far greater and far superior than those of the husband”.
(h)Other than in respect to private school fees for Mr G, Mr J and Ms L, the husband made effectively no contribution, financial or otherwise, to the marriage in the period post separation. Further, the husband paid no child support in respect to Ms I, Mr J and Ms L, who at the time of separation were aged 16, 13 and 9 respectively.
(i)Counsel for the wife summarised the wife’s contributions in respect to maintaining the Suburb C property without financial support from the husband as including:
(i)Making repairs every six or seven years to the timber front deck, including on one occasion re-decking at a cost of approximately $8 000.
(ii)Arranging for the house to be painted in 2004 at a cost of $18 000.
(iii)Attending to council rates which are currently at a cost of $3 200 per annum.
(iv)Attending to a rental fee in respect to the car-port attached to the property in the sum of $385.84 per annum.
(v)Attending to the replacement of roof tiles and repair of water damage caused by a storm in 2005.
(vi)Maintaining an extensive garden which has necessitated engaging the services of a gardener on a fortnightly basis.
(vii)Removing a damaged stone wall and replacing it with a cement wall in 2002 at a cost of $6 500.
(viii)Fumigating the property in respect to a colony of funnel web spiders every few years.
Counsel for the wife submitted, that on the basis of Robb & Robb (1995) FLC 92-555, the wife was also entitled to recognition for her contribution to raising the husband’s son from a previous marriage, Mr G.
It was submitted that the wife has a superior contribution based entitlement as at the date of separation because she was the primary carer of the children and primary home maker as well as an income earner and she made a substantial initial financial contribution to the purchase of the Suburb C property and its later improvement.
In respect to the post separation period, it was submitted, that aside from the contribution of the husband to the private school and boarding fees of three of the children, the wife was effectively the sole financial contributor and exclusive carer of the children and exclusive homemaker.
It was further submitted that the Court should have regard to the fact that the husband post separation paid no child support, provided no financial support nor contributed to major repairs of the Suburb C property.
In terms of section 75(2) factors it was submitted that the wife is currently aged 71 and in semi-retirement, with no superannuation entitlements available to her.
Counsel for the wife also submitted, that in respect to sub-section 75(2)(n)(ii), while the husband’s interest in the Suburb C property has vested in the Respondent Trustees that does not negate the obligation to consider the question of maintenance and property adjustment together. In that respect counsel relied upon Cantarella & Cantarella (1976) FLC 90-056 and Aroney & Aroney (1979) FLC 90-709.
Counsel for the wife also submitted that the husband’s professional dealings in the period post separation were such that he had acted “recklessly, negligently and wantonly” in respect to the matrimonial assets. Counsel for the wife submitted that the husband’s conduct therefore fell within one of the exceptions referred to by Baker J in Kowaliw & Kowaliw (1981) FLC 91-092.
That offending conduct was summarised in counsel for the wife’s written submissions in the following terms:
Upon ceasing [employment with [F Ltd]] in 2006 the husband and others established a rival law firm in [Central Asia] and with one [Mr P] (who continued to work for [F Ltd]) commenced to procure, solicit, conspire and collude to divert clients to the new law firm.
That conduct was found, among other things, to constitute a breach of a non-compete obligation and also a breach of the husband’s fiduciary obligations as an employee of F Ltd. The husband’s conduct has since been the subject of extensive litigation.
It was also submitted that the Respondent Trustees had failed to undertake a proper enquiry regarding the potential assets of the husband. It was submitted that the husband may possibly have additional assets in, at least, those entities made subject to a freezing order on 9 October 2006. Those assets were stated as including:
(a)Money held in the Q Trust.
(b)Money held by R Pty Ltd.
(c)A standard chartered account in the Country S.
(d)A standard chartered account in the Country T.
(e)A Westpac account in the name of Mr U.
(f)V International Ltd.
(g)V Services Ltd.
(h)V International FZE.
It was further submitted that it was significant that the Respondent Trustees have not attempted to examine the husband under oath. Based on the principle of Black & Kellner (1992) FLC 92-287 and Chapter 13 of the Family Law Rules 2004 (Cth) (“the Rules”), it was submitted that the Court should therefore make an adjustment in favour of the wife including contemplating that there be no distribution to the Respondent Trustees whom, it was submitted, “stood in the shoes of the husband” in respect to both the husband’s non-disclosure and negligent or wanton conduct.
The contentions of the Respondent Trustees
The Respondent Trustees submitted that, in considering whether to make an order requiring a Trustee in Bankruptcy to transfer to the non-bankrupt spouse property that forms part of the bankrupt spouse’s estate, the Court should “take into account the ordinary considerations of section 79(4), along with the requirement of justice and equity in sub-section [79(2)]”.[1]
[1] Anthony Dickie QC, Family Law (Lawbook Co, 6th ed, 2014) [44.810].
It was submitted, that by virtue of sub-section 79(4)(e), the Court is required to have regard to the matters referred to in section 75(2) of the FLA including, as provided in sub-section 75(2)(ha):
…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…
The Respondent Trustees submitted, that in exercising its power pursuant to section 79, the Court should follow the three fundamental propositions as outlined in Stanford & Stanford (2012) 247 CLR 108 at [37]-[40]. Those three propositions were summarised in the Respondent Trustees’ Case Outline document as being:
1. Identify, according to common law and equitable principles, the existing legal and equitable interests of the parties in the property.
2. The power in section 79 is a power which rests upon law and not upon judicial discretion and although the discretion is wide, the Court must exercise it in accordance with legal principles including the principles which the FLA itself lays down.
3. To conclude that making an order is “just and equitable” only because of and by reference to various matters in section 79(4), without a separate consideration of section 79(2) would be to conflate the statutory requirements and ignore the principles laid down by the FLA.
In terms of sub-sections 79(4)(a) and 79(4)(b), the Respondent Trustees submitted the following:
(a)The Suburb C property was purchased with a contribution of $185 000 from the husband and $120 000 from the wife which was calculated to be approximately 39 per cent.
(b)For the fifteen years prior to the separation (with the exclusion of private school fees), the financial contributions of the parties were equal.
(c)In the sixteen years subsequent to separation, the majority of the financial contributions have been that of the wife.
(d)The wife has, however, had the sole benefit of the Suburb C property for the last sixteen years.
In terms of sub-section 79(4)(c), the Respondent Trustees submitted that the Court should take into consideration the fact that the husband paid the private school fees, including the boarding fees, for the children. However, during oral submissions, it was conceded that the husband did not pay for the school fees of the wife’s two children from her previous marriage.
Insofar as sub-section 79(4)(e) requires the Court to have regard to the matters referred to in section 75(2) “so far as they are relevant” it was submitted that it would not be relevant to consider the personal circumstances of the husband.
In terms of sub-sections 75(2)(a) and 75(2)(b), in respect of the wife, it was submitted that she is aged 71 and in good health. She is semi-retired and the combination of her pension and income is about the same as her outgoings.
In terms of sub-section 75(2)(j), it was submitted that the husband’s financial contributions, including the payment of boarding fees, “must have made a substantial contribution to the Wife’s successful career”.
In terms of sub-section 75(2)(k), it was noted that the parties were married from 1985 to 1999 and separated for seven years prior to their divorce in 2006.
It was submitted that sub-section 75(2)(g), which requires the Court to consider the parties having “a standard of living that in all the circumstances is reasonable”, is not relevant to proceedings involving a Trustee in Bankruptcy. In the alternative, if it is relevant, the Court should have regard to the fact that had the parties not separated, it would have been necessary for the parties to have adjusted their joint standard of living to cope with the loss of the husband’s share in the Suburb C property.
In terms of section 79(2), it was submitted that neither the husband’s creditors nor the wife are to be preferred and that, in considering an order that is just and equitable in the circumstances, the Court should have regard to the following:
(a)The wife has no dependents, is in good health, receives the age pension, lives within her means and is entitled, on sale of the Suburb C property, to an estimated gross minimum of $1.5 million;
(b)The likely dividend to the husband’s unsecured creditors in the absence of an order in her favour is already relatively small; and
(c)Any additional order in favour of the wife has the necessary effect of decreasing the amount payable to the creditors.
In the circumstances, it was submitted by the Respondent Trustees that the application of fairness and equity demands that any adjustment in the wife’s favour should be minimal.
Counsel for the Respondent Trustees submitted that it was simply not practicable for them to conduct an examination of the husband under oath, pursuant to section 81 of the Bankruptcy Act 1966 (Cth) (“the Bankruptcy Act”) in the circumstances. This was because the husband had been recalcitrant and refused to say anything either to the Court or to the Trustees. It was therefore submitted that it was inappropriate to place the Trustees “in the shoes of the husband”.
In summary in respect to the issue of disclosure, it was submitted that further enquiry would have been a futility having regard to the fact that it was a difficult estate that included overseas investigations in circumstances where the husband was wholly uncooperative. The practicality of further investigation, it was argued, also had to be seen in the context of the investigators having limited funds available to pursue such investigations.
It was submitted that, while there is authority for the proposition that debts incurred by a party to a marriage as a result of that party entering into a frolic of their own can be isolated from the matrimonial assets available for distribution, that is not a relevant consideration in this matter. This is because those debts incurred by the husband are not being enforced against the wife’s interest in the Suburb C property and there is no reasonable basis to assume that there is any other matrimonial property available for distribution.
It was submitted that if the Court was minded to impute the conduct of the husband to the creditors, it would effectively be placing a double punishment on those creditors who will already be recovering significantly less than their debts.
Having regard to the section 75(2) factors, it was submitted that the wife will receive a significant amount of money that is capital gains tax free, she seems to be able to live prudently and comfortably and her children are over the age of 18 and are no longer dependent upon her.
It was further submitted that there is nothing to suggest that the process of downsizing, by virtue of selling the Suburb C property, will prevent the wife from continuing to live comfortably.
The Law
Section 79(4) considerations
Section 79(4) of the FLA sets out the matters the Court is required to consider in making orders pursuant to section 79. Those considerations are:
·The financial and non-financial contributions of the parties to the marriage to the acquisition, conservation or improvement of any of the property of the marriage;
·The contribution made by a party to the marriage to the welfare of the family including any children of the marriage. This includes any contribution made in the capacity of homemaker or parent.
·The effect of any proposed order upon the earning capacity of either party to the marriage;
·The matters referred to in subsection 75(2) so far as they are relevant; and
·Any other order made under the FLA affecting a party to the marriage or a child of the marriage; and
·Any child support under the Child Support (Assessment) Act 1989 (Cth) that a party to the marriage has provided, is to provide, or might be liable to provide in the future for a child of the marriage.
Section 75(2) considerations
Section 79(4)(e) requires the Court to have regard to the matters referred to in subsection 75(2) in so far as those factors are relevant. Those consideration are:
(a) the age and state of health of each of the parties; and
(b) the income, property and financial resources of each of the parties and the physical and mental capacity of each of them for appropriate gainful employment; and
(c) whether either party has the care or control of a child of the marriage who has not attained the age of 18 years; and
(d) commitments of each of the parties that are necessary to enable the party to support:
(i) himself or herself; and
(ii) a child or another person that the party has a duty to maintain; and
(e) the responsibilities of either party to support any other person; and
(f) subject to subsection (3), the eligibility of either party for a pension, allowance or benefit under:
(i) any law of the Commonwealth, of a State or Territory or of another country; or
(ii) any superannuation fund or scheme, whether the fund or scheme was established, or operates, within or outside Australia;
and the rate of any such pension, allowance or benefit being paid to either party; and
(g) where the parties have separated or divorced, a standard of living that in all the circumstances is reasonable; and
(h) the extent to which the payment of maintenance to the party whose maintenance is under consideration would increase the earning capacity of that party by enabling that party to undertake a course of education or training or to establish himself or herself in a business or otherwise to obtain an adequate income; and
(ha) 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; and
(j) the extent to which the party whose maintenance is under consideration has contributed to the income, earning capacity, property and financial resources of the other party; and
(k) the duration of the marriage and the extent to which it has affected the earning capacity of the party whose maintenance is under consideration; and
(l) the need to protect a party who wishes to continue that party's role as a parent; and
(m) if either party is cohabiting with another person--the financial circumstances relating to the cohabitation; and
(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; and
(naa) the terms of any order or declaration made, or proposed to be made, under Part VIIIAB in relation to:
(i) a party to the marriage; or
(ii) a person who is a party to a de facto relationship with a party to the marriage; or
(iii) the property of a person covered by subparagraph (i) and of a person covered by subparagraph (ii), or of either of them; or
(iv) vested bankruptcy property in relation to a person covered by subparagraph (i) or (ii); and
(na) any child support under the Child Support (Assessment) Act 1989 that a party to the marriage has provided, is to provide, or might be liable to provide in the future, for a child of the marriage; and
(o) any fact or circumstance which, in the opinion of the court, the justice of the case requires to be taken into account; and
(p) the terms of any financial agreement that is binding on the parties to the marriage; and
(q) the terms of any Part VIIIAB financial agreement that is binding on a party to the marriage.
The Bankruptcy and Family Law Legislation Amendment Act 2005 (Cth)
The Bankruptcy and Family Law Legislation Amendment Act 2005 (Cth) (No. 20 of 2005) (“the 2005 Amendment Act”) enhanced the powers of the Court in respect to proceedings in which a party to a marriage was bankrupt or had become bankrupt after proceedings were commenced. Most relevantly, section 79(1) of the FLA was amended to include a paragraph (b) which empowers the Court to make an order altering the interests of the Trustee in Bankruptcy in the vested bankruptcy property. A new paragraph (d)(ii) was also included to empower the Court to make an order against a Trustee in relation to the settlement or transfer of property. Incorporating those amendments, section 79(1) now provides:
(1) In property settlement proceedings, the court may make such order as it considers appropriate:
(a) in the case of proceedings with respect to the property of the parties to the marriage or either of them--altering the interests of the parties to the marriage in the property; or
(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.
Significantly, the 2005 Amendment Act also included a new sub-section 75(2)(ha) which requires the Court to take into account “the effect of any proposed order on the ability of a creditor of a party to recover the creditor’s debt, so far as that effect is relevant”.
In introducing the Bankruptcy and Family Law Legislation Amendment Bill, then Attorney General, the Honourable Philip Ruddock, stated:
The effect of these amendments will be to offer procedures and protections to the non-bankrupt spouse that were not previously available. At the same time the Court can be on notice about the interests of creditors of a bankrupt spouse and can take those interests into account in determining family property or spousal maintenance orders.[2]
[2] Second Reading, House of Representatives, 17 February 2005.
The obligation to consider the effect of any proposed order on creditors is relevant to property proceedings. Paragraph 52 of the Revised Explanatory Memorandum to the 2005 Amendment Act summarised the position in the following terms:
By virtue of paragraph 79(4)(e) the matters referred to in subsection 75(2) are also matters that the court is required to take into account, so far as they are relevant, in considering what property adjustment order should be made under section 79. The matters mentioned in paragraph 75(2)(ha) will therefore become matters to be taken into account in family property proceedings, so far as that matter is relevant to the property proceedings.[3]
[3] Revised Explanatory Memorandum, Bankruptcy and Family Law Legislation Amendment Bill 2005 (Cth).
It was common ground between the parties that the Respondent Trustees are representing the interests of creditors of the husband. As noted by the learned author, Anthony Dickie QC:
There is no provision in the Family Law Act 1975, or indeed the Bankruptcy Act 1966, which prescribes the way in which the Court is to take into account the competing interests of the non-bankrupt spouse and the bankrupt’s creditors. As a consequence of proceedings under s. 79, the court must simply take into account the ordinary considerations of s. 79(4), along with the requirements of justice and equity in subs.(2).[4]
[4] Anthony Dickie QC, Family Law (Lawbook Co, 6th ed, 2014) 44.810.
A point of distinction, in circumstances where a party to the marriage has become bankrupt, is the fact that sub-section 79(1)(b) empowers the Court to make an order altering the interests of the Official Trustee in Bankruptcy “…in the vested bankruptcy property.” This is in contrast to the Court’s general power, where bankruptcy is not an issue, to alter the interests of the parties in the property of the marriage. The jurisdiction granted by the 2005 Amendment Act therefore enables a Trustee to join proceedings for the purpose of resisting claims by a non-bankrupt spouse to vested bankruptcy property. The legislation does not, however, empower the Respondent Trustees to utilise the provisions of the FLA to enlarge the vested bankruptcy property available to the bankrupt spouse’s creditors.
With the differences noted above the Court’s task, in these proceedings, is nonetheless to apply the ordinary considerations set out in section 79(4).
Approach
Since the decision of the High Court in Stanford & Stanford (supra), there has been some debate as to the appropriate approach to be followed in exercising the Court’s discretion pursuant to section 79 of the FLA. In Bevan & Bevan (2013) FLC 93-545, the Full Court summarised at 87,230 the position in the following terms:
59. Prior to Stanford, property applications were commonly dealt with by reference to what the trial Judge called “a four stage process”. This process was described at [31] and [32] of his Honour’s reasons. The jurisprudential basis for the process was well established – see the line of cases cited in Hickey & Hickey[2003] FamCA 395; (2003) FLC 93-143 at [39].
60. The four stage (or step) process involves:
oidentification and valuation of the property of the parties;
oidentification and evaluation of contributions to the property (including property no longer owned by the parties);
oidentification and assessment of the various matters in s 79(4)(d) to (g) including, to the extent they are relevant, the matters in s 75(2);
oconsideration of matters of justice and equity.
61. Although the four step process has been regularly applied, the Full Court has stressed it is no more than a means to an end, since the statutory obligation is to alter existing interests only if it is just and equitable to do so. Thus, in Norman & Norman[2010] FamCAFC 66 at [60], the Full Court (Finn, May and Murphy JJ) said:
It is the mandatory legislative imperative (to reach a conclusion that is just and equitable) that drives the ultimate result. For all its usefulness and merit as a “disciplined approach” or a “structured process of reasoning” (per Fogarty, Lindenmayer, McCall JJ, N and N, unreported, 10 June 1992), the “three-step” or “four-step” approach merely illuminates the path to the ultimate result.
The Full Court in Bevan (supra) nonetheless emphasised that a precondition to the Court making any order pursuant to section 79 is a finding that “in all the circumstances, it is just and equitable to make the order.”[5]
[5] at [70] at 87,232.
Shortly prior to the decision of the Full Court in Bevan, in Sebastian & Sebastian (No. 5) [2013] FamCA 191, Young J considered the appropriate approach to take, post Stanford, in exercising the Court’s discretion pursuant to section 79 of the FLA. His Honour said at [144]:
What can be derived from Stanford is that the following approach is strictly required by the Act:
othe identification of the parties’ existing legal and equitable interests in property;
oan assessment of whether or not it is just and equitable to make an order, as is required by s 79(2); and
oif it is just and equitable to make an order, an assessment of what order should be made by applying s 79(4). Although not expressly authorised by the High Court, it may be useful to further categorise this last point into a separate consideration of contributions and s 75(2) matters as is commonly done by this Court.
In addition, Young J noted that, in considering whether an order is just and equitable, the FLA requires the Court to “take into account” the financial and non-financial contributions of parties to the marriage which are set out in section 79(4). In those circumstances, correctly, in my view, Young J held that, after considering the factors set out in sections 79(4) and 75(2), it was prudent to take a “holistic” view by ensuring that the outcome of the hearing and specifically, any orders for the alteration of property interests are just and equitable.[6] The approach taken by Young J was not inconsistent with Bevan and I will take a similar approach in these proceedings.
[6] at [161].
In Petruski & Balewa (2013) 49 Fam LR 116, the Full Court said at [49]:
The task of assessing contributions under s 79 of the Act is an holistic one; what is required is to evaluate the extent of the contributions of all types made by each of the parties in the context of their particular relationship (Dickons & Dickons [2012] FamCAFC 154). As was also said by the Full Court in Lovine & Connor [2012] FamCAFC 168 at [40] and [41] such an evaluation “inevitably involves value judgments and matters of impression”, and accordingly it cannot be treated as “a mathematical exercise”.
The parties’ existing legal and equitable interests in property
What is the “vested bankruptcy property” for the purposes of section 79 (1)(b)?
As noted, the first task of the Court is to identify the existing property interests of the parties. Significantly, in this case, the parties are the wife and the Respondent Trustees, not the wife and the husband.
Section 4(1) of the FLA defines "vested bankruptcy property" in relation to a bankrupt, as meaning “property of the bankrupt that has vested in the bankruptcy trustee under the Bankruptcy Act 1966”. The definition states that the term "property" in this context has the same meaning as in the Bankruptcy Act.
Sections 132(1) and 132(2) of the Bankruptcy Act relevantly provide:
(1) Subject to this section, and to section 158, where a trustee is appointed by the creditors, the property of the bankrupt passes to and vests in the trustee so appointed on the day on which the appointment takes effect.
(2) Subject to this section, the property of the bankrupt passes from trustee to trustee and vests in the trustee for the time being during his or her continuance in office or, if the Official Trustee becomes the trustee, in the Official Trustee, without any conveyance, assignment or transfer.
While there is disagreement between the parties as to whether the totality of the husband’s property has been disclosed, it is agreed that orders should be made in respect to the former matrimonial home at Suburb C. The parties are in agreement that the Suburb C property is valued somewhere between $2.8 million and $3.2 million. It is not necessary to identify the precise value of the property as both parties are in agreement that the property should be sold.
In Sistrom v Urh (1992) 117 ALR 528, the Full Court of the Federal Court held that the joint tenancy of Torrens title property is severed upon the bankruptcy of one of the registered proprietors. It was common ground between the parties that, after the joint tenancy is severed as a result of the husband becoming bankrupt, the interests of the wife and the Respondent Trustees in the matrimonial property are held as “tenants in common in equal shares”. In other words, severance of the joint tenancy occurs on the declaration of bankruptcy.[7] As a result, the Respondent Trustees initially have an equitable interest in 50 per cent of the Suburb C property. That interest vests at law when the statutory requirements of registration are met.[8]
[7] Re Francis; Ex parte Official Trustee (1988) 82 ALR 335.
[8] Bankruptcy Act 1966 (Cth) section 58.
Despite only the Suburb C property being referred to in the wife’s Amended Application for Final Orders filed 2 January 2007, counsel for the wife contended that, as a result of inadequate disclosure by both the husband and the Respondent Trustees, the Court should find that it is possible that other property of the marriage exists and an adjustment should be made in favour of the wife as a result. The inadequate disclosure, it was argued, is due, in part, to the Respondent Trustees failing to make appropriate enquiries of the husband’s potential interests, including those entities identified in a 2006 freezing order.[9] Counsel for the wife also strongly criticised the Respondent Trustees for failing to undertake an examination of the husband under oath, pursuant to section 81 of the Bankruptcy Act.
[9] Exhibit 1.
Counsel for the wife argued that it was not possible to determine whether there is any additional “vested bankruptcy property” as a result of the absence of full disclosure by the Trustees.
In that respect, counsel for the wife argued that the Trustee in Bankruptcy has the same obligations of full and frank disclosure pursuant to Chapter 13 of the Rules as any other litigant before the Court. Those obligations include, for instance, pursuant to paragraphs (b) and (c) of Rule 13.04, the obligation to disclose:
(b) any vested or contingent interest in property; and
(c) any vested or contingent interest in property owned by a legal entity that is fully or partially owned or controlled by a party.
The Respondent Trustees’ obligations of disclosure
The Respondent Trustees did not concede that the Trustee in Bankruptcy was bound by the duty of disclosure set out in Division 13.1.2 of the Rules. In that context it is of note that Rule 13.02(2) provides:
This division does not apply to a party to a property case who is not a party to the marriage or de facto relationship to which the application relates, except to the extent that the party’s financial circumstances are relevant to the issues in dispute.
Clearly, the Trustees were not a party to the marriage. Nevertheless, the financial circumstances of the husband’s bankrupt estate will be directly relevant to identifying the vested bankruptcy property and therefore to the issues in dispute.
In those circumstances, I am of the opinion that the Respondent Trustees are subject to Chapter 13 of the Rules including Rule 13.01 which imposes a “duty to the court and to each other party to give full and frank disclosure of all information relevant to the case, in a timely manner.”
That obligation includes, pursuant to Rule 13.07, the duty to disclose each document that “is or has been in the possession, or under the control, of the party disclosing the document.” There has been no suggestion that the Respondent Trustees have not disclosed documents in their possession or under their control. The complaint by counsel for the wife was in respect to alleged inadequate enquiry by the Respondent Trustees with a view to obtaining relevant information and documentation. In particular it was submitted that the Respondent Trustees fell short of fulfilling their duty of disclosure by not having utilised the provisions of section 81 of the Bankruptcy Act with a view to endeavouring to obtain information and documentation from the husband in respect to his financial affairs and those of associated entities.
The Rules are silent as to whether the Trustee in Bankruptcy is obliged to make enquiries of the bankrupt spouse in order to obtain relevant documentation for the purpose of disclosing such documentation in family law proceedings.
However, in Masoud & Masoud [2016] FamCAFC 24 at [21] – [23], the Full Court said that the duty of disclosure is not absolute in terms of obtaining documents that are not in the disclosing parties’ possession. Specifically the obligation does not oblige a party to “garner documents by any means”. The Full Court also said that the obligation does not include a party being required to utilise Court processes to compel a non-party to produce documents, for the purposes of the family law proceedings.
Although the facts in Masoud (supra) were different from the present case, I propose to take a similar approach in relation to this issue. I am not persuaded that there is an obligation under the Rules for the Trustees to undertake an examination of the husband pursuant to section 81 of the Bankruptcy Act. Amongst other matters, this would involve committing significant additional resources on the part of the creditors. In the absence of evidence of imprudent conduct, the Respondent Trustees were best placed to make an assessment as to whether utilisation of section 81 of the Bankruptcy Act was practicable.
It is unquestionably the case that the Court can have regard to a party’s non-disclosure in considering whether the party has other assets that should be considered in determining the matrimonial property pool. Non-disclosure can also be relevant to considering whether the non-disclosing party has earnings that remain undisclosed and whether that person has undisclosed potential for future income.
In Gould & Gould (2007) FLC 93-333 at 81,715, the Full Court said in that respect:
Where the Court is satisfied the whole truth has not come out it might readily conclude the asset pool is greater than demonstrated. In those circumstances it may be appropriate to err on the side of generosity to the party who might be otherwise be seen to be disadvantaged by the lack of complete candour.
However, even it is assumed that the Respondent Trustees have failed in their duty of disclosure, that does not necessarily result in an adjustment in favour of the other party. As the Full Court recently confirmed in Masoud at [24]:
It needs to be observed too that it is well recognised that there is a difference between circumstances where there is inadequate disclosure which suggests the existence of undisclosed assets and where it does not (see HDM & MM and Anor [2006] FamCA 47).
This is also made clear in Gould (supra) at 81,716 where the Full Court held that, where findings of non-disclosure are made, it may be “appropriate to increase the asset pool to take account of the non-disclosure”. Alternatively, or in addition, where there is evidence to satisfy the Court “on the balance of probabilities there existed assets other than those contained in the asset pool”, the Court can make an adjustment in favour of the other party on account of the non-disclosure pursuant to section 75(2)(o).
In this case, the question as to whether there is additional property is a matter for mere speculation. There is no evidence that satisfies the Court that additional property exists that should be included in the asset pool. In that context the Respondent Trustees have relied upon two affidavits sworn by Ms W, sworn respectively on 9 April 2015 and 22 June 2015, as well as an affidavit of Mr Crawford, sworn on 23 November 2015. Ms W is an accountant in the employee of Z Partners (QLD) Pty Ltd and has had the day-to-day conduct of the bankrupt estate of the husband. Mr Crawford is a chartered accountant and a director of Z Partners.
Ms W, who was not required for cross examination, provided evidence of her attempts to obtain information regarding the husband’s financial affairs from the husband. It is unnecessary to detail that evidence save as to note that the husband has been most uncooperative.
Mr Crawford’s affidavit sworn 23 November 2015 was tendered as Exhibit 4 in the proceedings. That affidavit detailed attempts made on behalf of the Respondent Trustees to ascertain whether the husband had any interest in those entities that were the subject of the 2006 freezing order.
The evidence of Mr Crawford was summarised in paragraph 4 of his affidavit in the following terms:
Since my appointment, I have investigated all known assets of the bankrupt’s estate including but not limited to those assets referred to in the Supreme Court of New South Wales freezing orders entered on 9 October 2006 and alleged to be assets of the bankrupt.
At paragraph 23, Mr Crawford concluded:
Other than the trustee’s interests in the real property, I have not identified any other commercially recoverable asset of the bankrupt.
It is accepted that the reference to the “real property” is a reference to the Suburb C property.
In my view, in all the circumstances, the Respondent Trustees have acted appropriately in endeavouring to ascertain what forms part of the vested bankruptcy property. The evidence falls short of establishing, on the balance of probabilities, that the husband has additional interests that should be included in the matrimonial property pool.
Inclusion of the wife’s property
In addition to the Suburb C property, the matrimonial property pool must include the wife’s property. This is identified in the wife’s Financial Statement filed on 5 April 2015 as follows:
·National Australia Bank account in the name of “Ms Needham and Associates” - $3198
·National Australia Bank account - $3231.15
·National Australia Bank savings account - $6804
·Motor vehicle - $20 000
·Household contents - $4000
·Jewellery - $2000.
TOTAL $39 233.15
Is it just and equitable to make an order pursuant to section 79 altering the property interests of the parties?
As noted, section 79(2) provides that “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”.
In the present case both parties accepted that it was appropriate for the Court to make an order pursuant to section 79 of the FLA altering the property interests of the parties. In the case of the Respondent Trustees, it was submitted that the alteration should be one that resulted in the wife receiving a division of between 55 to 65 per cent in her favour. Counsel for the wife submitted that the property interests should be altered such that the wife would receive the entirety of Trustees’ interest in the Suburb C property.
In this case the husband and wife jointly purchased the Suburb C property as a home for themselves and their children. They have been living separately and apart for some sixteen years during which time the wife has been solely responsible for maintaining the property. She has also been substantially responsible for exercising parental responsibility and providing for the parties’ children of their marriage and of each of the parties’ previous marriages.
The husband’s interest in the Suburb C property now rests with the Respondent Trustees who hold his previous interest as tenants in common in equal shares with the wife. If the Court was to refrain from making an order under section 79 to alter this interest, it would be most unfair to the wife. This is because, even on a broad view, the post separation matters referred to above would indicate some adjustment of the Respondent Trustees’ interest in favour of the wife would be appropriate. Indeed the Respondent Trustees have conceded that a modest distribution in favour of the wife would be appropriate.
In all the circumstances of this case, I find that it is just and equitable to alter the property interests of the parties in the Suburb C property.
Section 79(4) considerations
Section 79(4)(a) and 79(4)(b) – The respective financial and non-financial contributions of the wife and the husband made directly or indirectly to the acquisition, conservation or improvement of any property of the parties to the marriage.
It was common ground between the parties that the Suburb C property was purchased in late 1984, without a mortgage, with the wife contributing approximately $120 000 and the husband contributing approximately $185 000. Counsel for the Respondent Trustees submitted that the Court should infer that stamp duty was also paid by the husband. Counsel for the wife submitted that no such inference could be drawn. In the absence of evidence confirming payment, I am not prepared to draw the inference that the husband paid the stamp duty. The initial contribution to the purchase was therefore approximately 60 per cent by the husband and 40 per cent by the wife.
In addition, during the course of 1987 and 1988, the wife and the husband undertook renovations of the Suburb C property by adding an additional level at a cost of $70 000 to $80 000. No evidence was presented as to how those renovations were funded. However, the wife’s unchallenged evidence is that she directly contributed to the income of the household from 1992 and it is reasonable to assume the renovations were jointly funded.
I have referred above to the employment histories of each of the parties from the commencement of the marriage until separation. During that period, the husband was the primary income earner although the wife also earned an income. In that respect, the wife’s evidence was not challenged that she earned income from the commencement of her employment 1992, and in the period from 1997 until 2014 (when she turned 70 years of age), she earned an income that varied between $50 000 to $80 000 per annum depending on the amount of work available in her business.[10]
[10] Wife’s affidavit filed 6 November 2015 at paragraph 62.
The wife’s evidence in respect to maintenance of the former matrimonial home during the period post separation from 1999, to which I have referred earlier, was not challenged.
On the other hand, as the Respondent Trustees submitted, the wife has solely benefited from the use of the property for the past 16 years.
Section 79(4)(c) – The contributions to the welfare of the family generally and the children of the marriage.
There was no challenge to the wife’s evidence that, during the marriage, she was primarily responsible for attending to the needs of the children and ensuring that necessary household tasks such as cleaning, ironing and gardening were undertaken. During the time that the wife was in paid employment, the wife paid for these services from her income and, when she worked from home in her own business, the wife personally took on these responsibilities.
Finally, the wife’s evidence was not challenged that, in respect to the period post separation, other than when the two youngest children were visiting their father at Christmas, the wife was solely responsible for the children’s clothing, dental and medical bills and attended to the children’s emotional, social and physical needs until they acquired full time employment or moved out.[11]
[11] Ibid at paragraph 60.
The wife made a significant contribution as a homemaker and parent. This contribution should not be assessed in a “merely token way”. In Carmel-Fevia & Fevia (No. 3) [2012] FamCA 631 at [113], Cronin J summarised the applicable principle in the following terms:
In Rolfe v Rolfe(1979) FLC 90-629, Evatt CJ said that where one party was earning an income and the other fulfilling responsibility at home, there was no reason to attach greater value to the contribution of one of them to that of the other because that was the way the parties arranged their affairs. Her Honour said that the contribution of each should be given equal value. In Mallet[1984] HCA 21; (1984) FLC 91-507 Wilson J referred to Rolfe (supra) and agreed with Evatt CJ’s exposition subject to one reservation. His Honour said that the Act required that the contribution of the wife as a homemaker and parent be seen as an indirect contribution to the acquisition, conservation or improvement of the property of the parties regardless of whether legal ownership resided. His Honour then said:
The contribution must be assessed, not in any merely token way, but in terms of its true worth to the building up of the assets.
On the other hand, the husband met the private school fees of the parties’ children, Mr J and Ms L, as well as his own child, Mr G. Those fees included boarding fees in respect to two of the children for the period from year 7 through to year 12 and in respect to one of the children from year 8 to year 12.
Counsel for the Respondent Trustees submitted that the payment of the private school fees and boarding fees was a substantial contribution in itself. I accept this. It was further submitted that, by facilitating the three children attending boarding school, the wife had an enhanced opportunity to engage in her profession. I accept this also. On the other hand, the children of the wife from her previous relationship, Ms H and Ms I, attended public school and, at all times the wife was responsible for attending to their needs as well as attending to the needs of the other three children until they commenced high school and during school holidays.
At separation Mr G and Ms H were adults, Ms I was aged 16, Mr J aged 13 and Ms L aged 9. There is no evidence as to the age of each child when they left school. However, it is reasonable to assume that, in the period post separation, the husband was responsible for private school and boarding fees in respect to Mr J for four to five years and Ms L for eight to nine years.
Evaluation of contributions
There are effectively two periods to take into account when evaluating the section 79(4) considerations relevant to this matter. The first period is the period of approximately fourteen and a half years from 1984, when the parties commenced their relationship and purchased the Suburb C property until the date of separation in May 1999. The second period is a period of approximately sixteen years subsequent to the parties’ separation in 1999.
I have determined that the respective section 79(4) contributions of the parties during the period that they cohabitated from 1984 until May 1999 were approximately equal. In that respect, I have had regard to the husband’s greater initial financial contribution to the purchase of Suburb C property. However the Court must take into account of the totality of the contributions of each of the parties over the whole of the relevant period. It is clear that the husband made the major financial contributions over that first period. The wife also made financial contributions which were not insignificant. I am also satisfied that the wife made a much more significant contribution than the husband to the welfare of the family and as a homemaker and parent during this period. This is not, however, to suggest that the husband made no contribution to the welfare of the family. In summary, it is clear that during the course of the marriage the husband was the primary income earner whereas the wife was the primary homemaker and parent.
As noted, taking into account of all of these contributions, I find that the parties each made an equal contribution in terms of section 79(4) factors in respect to the period from 1984 up until May 1999 when the parties separated.
The wife’s contributions in the period post separation were, however, substantially greater than those of the husband. As stated above, the husband left the former matrimonial home and moved initially to the Middle East and subsequently to Central Asia, where he worked. Therefore, from 1999, the wife was in the position of being the parent solely responsible for the day-to-day care of the children, although Mr G moved to the UK later that year.
It is the case, as I have noted, that during the post separation period the husband paid the boarding school expenses for Mr J and Ms L. At the time of separation they were aged thirteen years of age and nine years of age respectively. However, the wife paid their other expenses and was the parent who, in the absence of their father, provided almost exclusively for all of their other needs. She did this for many years.
The wife also paid the rates and outgoings of the Suburb C property as well as some substantial maintenance expenses on the home. As against this, however, the wife had the benefit of being able to occupy the Suburb C property.
In the circumstances, the contributions by the wife in this post separation period were significantly greater than those of the husband.
Accordingly, the contributions overall have been greater by the wife than those made by the husband. In my view, the appropriate assessment of contributions overall is 63 per cent by the wife and 37 per cent by the husband.
Section 79(4)(e) requires the Court to have regard to the matters referred to in section 75(2) (so far as they are relevant).
The wife is currently semi-retired, undertaking some paid work and pro bono work. In her Financial Statement filed 5 April 2015 the wife declared that she currently receives an average weekly income of approximately $80 per week. The wife has no superannuation but receives the age pension at a rate which varies depending upon the income she receives from her business. The wife’s Financial Statement states that, as at 9 April 2015, her pension entitlement was approximately $425 per week. The wife also receives some assistance from three of her children in respect to her utilities and grocery expenses totalling approximately $260 per week.
The wife’s Financial Statement also indicates that she had total weekly expenditure of approximately $550 per week.
The husband has not filed a Response or Financial Statement in the proceedings. It is conceded, however, that he is currently in ill health and incapable of earning an income.
Counsel for the Respondent Trustees submitted that “[o]n the face of things, section 75(2) matters as they would have applied to the husband had he not been bankrupt would not be relevant.”[12] That proposition was not challenged by counsel for the wife. I accept that, in considering the matters set out in section 75(2), I am required to have regard to the relevant circumstances of the wife and also to the effect of any proposed order on the ability of creditors of the husband to recover their debts. I am not required, however, to consider the current personal circumstances of the husband.
[12] Trustees’ Case Outline document filed 13 November 2015 at paragraph 21(b).
The section 75(2) factors that I have determined as being relevant in this matter are set out in paragraphs (a),(b),(f),(g),(ha),(j),(k), (n) and (o). Those considerations will be discussed below.
75(2)(a)
The wife is 71 years of age and is in good health.
75(2)(b)
The wife is semi-retired and receives a relatively small income of approximately $80 per week from her business. While the wife appeared to be highly intelligent and in good health, at 71 years of age her capacity for gainful employment is necessarily limited by her age.
75(2)(f)
The wife does not have any superannuation entitlements. The wife is currently in receipt of the age pension which is approximately $425 per week. The wife’s pension is currently reduced on a proportionate basis as result of income that she receives from her business. Given her age, it cannot be expected that the wife will continue working and it is reasonable to assume that her primary source of income will become the age pension. For reasons that I will subsequently discuss, I do not consider that this matter can appropriately be characterised as an application for maintenance pursuant to section 74 of the FLA. Therefore, I have not applied section 75(3) which otherwise would have required me to disregard the fact that the wife is in receipt of the aged pension.
75(2)(g)
In terms of section 75(2)(g) the wife has maintained a relatively frugal but reasonable standard of living. It is the wife’s intention to sell the Suburb C property with a view to downsizing and purchasing a property that is easier to maintain. This will make it easier for her to adjust to her reduced retirement income.
75(2)(ha)
It was submitted by counsel for the Respondent Trustees that the likely dividend to creditors will be relatively small in circumstances where there are no other apparent assets other than the Suburb C property. In that context, it was said that the gross liability of the husband’s unsecured creditors is “well in excess” of the amount they are likely to receive as a result of any orders made in these proceedings. It was argued that any adjustment in favour of the wife from a position of equality would necessarily have the effect of decreasing the amount potentially payable to creditors, even further. I accept that this would be the effect as submitted.
75(2)(j)
Counsel for the Respondent Trustees, as noted, submitted that the husband’s contribution and, in particular, the payment of boarding and private school fees must have made a substantial contribution to the wife’s successful career. This, it was submitted, was because it freed up time that the wife otherwise would have had to apply to attending to the children’s needs.
As also noted, counsel for the wife, on the other hand, argued that while the husband paid for private school and boarding fees for the child of his first marriage and the children of his marriage to the wife, the wife nonetheless had to balance work and family commitments in so far as each child was at home until they attended high school. Further, the children of her first marriage attended public school and continued to live in the Suburb C property for the entirety of their schooling. The wife also attended to the needs of the children during their school holidays. I take these matters into account.
75(2)(k)
In terms of section 75(2)(k) the wife and the husband lived together in respect to the period from late 1984 until 1999, a period of approximately fourteen and a half years. They have been separated for a period of approximately sixteen years. In the period post separation, the wife has admirably balanced the responsibilities as a sole parent with maintaining a viable business. It is reasonable to assume that those family responsibilities had their impact on both the financial resources and time which the wife was able to devote to her business. This, in turn, would have impacted upon the wife’s ability to develop her business. As the wife is now 71 years of age, it is reasonable to assume that within the next few years she will cease working and become entirely dependent on the age pension.
75(2)(n)
Section 75(2)(n) requires the Court to have regard to the terms of any order made and proposed to be made under section 79 in relation to:
(i) ...
(ii) vested bankruptcy property in relation to a bankrupt party.
Counsel for the Respondent Trustees submitted that this provision is otiose given that this case is itself a section 79 application.
On the other hand, counsel for the wife submitted that the Court is required to consider section 75(2)(n) because it is necessary that the question of maintenance and property adjustment be dealt with together. In that respect, counsel for the wife made reference to Cantarelli & Cantarelli (1976) FLC 90-056 and Aroney & Aroney (1979) FLC 90-709.
In my view the Respondent Trustees submission is correct. Specifically, the application in this matter is appropriately characterised as an application pursuant to section 79. It is not an application pursuant to section 74. This is made clear in the Amended Application for Final Orders filed by the wife where she seeks in proposed Order 1 that:
…the husband do all things necessary to transfer to the wife at the husband’s expense the real property located at [B Street, Suburb C], being all the of the property described in Folio Identifier ….
Further, paragraph 1 of the wife’s affidavit filed 6 November 2015 describes her application as an application “for a distribution of marital property.”
In short, the Court is not being required to exercise its jurisdiction under section 74 to make an order with respect to the maintenance of a party to a marriage. In those circumstances, section 75(2)(n) is appropriately described by counsel for the Respondent Trustees as otiose.
75(2)(o)
In respect to section 75(2)(o) counsel for the wife argued that the wife is entitled to recognition for her role in raising Mr G, the child of the husband of a previous marriage, in accordance with the principles of Robb & Robb (supra). It is to the credit of both the wife and the husband that they raised each other’s children from previous marriages as their own. They did this, however, during the period until they separated. In particular, in the case of Mr G, he travelled to live and work in the UK in 1999. Ms H was also an adult at the time of separation and Ms I was 16.
While I have taken into consideration the fact that both the wife and the husband raised each other’s children from previous marriages, that consideration applied equally to both of them and is relevant only to the period until separation in 1999.
Non-disclosure
In terms of section 75(2)(o), counsel for the wife argued that the Court should have regard to the fact that the Respondent Trustees failed to conduct an appropriate investigation of the husband’s financial interests and failed to conduct an examination of the husband under oath pursuant to section 81of the Bankruptcy Act.
I repeat my earlier findings in respect to the issue of non-disclosure. The evidence is such that I am unable to infer that, as a matter of probability, there is additional matrimonial property that has not been disclosed.[13] In those circumstances, I do not propose to make any adjustment in favour of either the wife or against the interests of the Respondent Trustees as a result of non-disclosure by either the husband or the Respondent Trustees.
[13] Gould & Gould (2007) FLC 93-333 at 81,715
Significance of reckless, negligent or wanton conduct on the part of the husband
As noted counsel for the wife argued that the husband engaged in reckless, negligent or wanton conduct in respect to his former employer, F Ltd. This occurred, it was argued, as a result of the husband acting with others to divert clients from that firm to another law firm. The consequence of that conduct was that the husband was successfully sued and eventually declared bankrupt.
That submission was based on Kowaliw & Kowaliw (1981) FLC 91-092, where Baker J said at 76,644:
As a statement of general principle, I am firmly of the view that financial losses incurred by parties or either of them in the course of the marriage whether such losses result from a joint or several liability, should be shared by them (although not necessarily equally) except in the following circumstances:
(a) where one of the parties has embarked upon a course of conduct designed to reduce or minimise the effective value or worth of matrimonial assets, or
(b) where one of the parties has acted recklessly, negligently or wantonly with matrimonial assets, the overall effect of which has reduced or minimised their value.
Conduct of the kind referred to in paragraphs (a) and (b) above, having economic consequences is clearly, in my view, relevant under section 75(2)(o) to applications for settlement of property instituted under the provisions of section 79.
(Emphasis added)
In this matter it was not in dispute that the judgment debt founding the petition upon which the husband was made bankrupt resulted from conduct that could be regarded as reckless, negligent or wanton. However, the Respondent Trustees did not seek to impute the debt arising from the husband’s conduct to the wife.
In other words, the principle adumbrated by Baker J in Kowaliw (supra) is that, in the circumstances to which his Honour referred, it may be appropriate to exclude or quarantine, from the matrimonial pool of assets, indebtedness incurred by a party to a marriage.
The principle of Kowaliw does not, however, result in a financial or pecuniary penalty, not related to an identifiable property interest, being imposed upon the party at fault for engaging in that conduct. Similarly, in this case, no such additional penalty should be imposed on the creditors. That is not to say, however, that the husband’s conduct is irrelevant in so far as his failure to contribute to the matrimonial property pool in the period post 1999 has been a factor in the wife bearing the weight of the financial burden of raising a family as a sole parent.
Evaluation of section 75 (2) considerations
In having regard to the relevant section 75(2) considerations, as they apply to the wife, I have placed greatest weight on the wife’s age and what is now her limited earning capacity. In my view, to arrive at a just and equitable outcome would require an adjustment in favour of the wife. In all the circumstances, however, and bearing in mind that the assessment of the parties’ contributions overall favours the wife, in my view the adjustment in favour of the wife would be quite modest. In my view, 5 per cent would be appropriate.
Both parties were in agreement that it is appropriate for the Suburb C property to be sold and the proceeds of the sale distributed between the parties. Accordingly, for the reasons set out above, I will order that, once sold, the net proceeds of the sale of the Suburb C property be distributed as to 68 per cent to the wife and 32 per cent to the Respondent Trustees.
The orders will also include supplementing the amount to be paid to the Respondent Trustees from the proceeds of sale of the Suburb C property by an additional $12 555, which is approximately 32 per cent of the wife’s other property as identified in her Financial Statement.
This would result in the wife receiving the sum of approximately $2 027 445 (being 68 per cent of $3 000 000 minus the sum of $12 555). She could use these funds to purchase a more modest home that requires less maintenance or invest it to provide a source of income to supplement her earnings from her business and the age pension. She would also have her other property to the value of $39 233.
On the other hand, the Trustees would receive the approximate sum of $972 555 (or approximately 32 per cent of $3 000 000, plus the sum of $12 555). I understand that amount is insufficient to pay the husband’s creditors in full but would be applied to pay them a dividend. In my view, this would be a just and equitable outcome.
Costs
The Respondent Trustees submitted that it was appropriate to make an order to the following effect:
4. As to the net proceeds due to the Respondent Trustees, these are to be held in a controlled money account to be arranged by the parties for application as follows:
a) Payment to indemnify the Respondent Trustees for any costs, charges and expenses property and reasonably incurred in relation to protecting and dealing with their share of the tenancy in common of the Property including their costs, charges and expenses of the Wife’s Application.
b) After payment of the indemnity, payment of the balance in the proportion [x%] to the Respondent Trustees and [y%] to the Wife [where for the reasons given y should be relatively small].
The order proposed by the Respondent Trustees to indemnify the Respondent Trustees for costs incurred in respect to the proceedings would effectively amount to a costs order against the wife to the extent that the wife would effectively be contributing 68 per cent of the amount by which the Respondent Trustees would be indemnified for their legal costs. Such an order is, in my view, unjustified. No reasons have been advanced as to why the presumption referred to in section 117(1) of the FLA should not apply. That is, that each party pay their own costs.
I certify that the preceding one hundred and forty (140) paragraphs are a true copy of the reasons for judgment of the Honourable Justice McClelland delivered on 20 April 2016.
Associate:
Date: 20 April 2016
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