RAHMAN & RAHMAN
[2020] FamCAFC 279
•12 November 2020
FAMILY COURT OF AUSTRALIA
| RAHMAN & RAHMAN | [2020] FamCAFC 279 |
| FAMILY LAW – APPEAL – PROPERTY – Where the appellant husband seeks the discharge of an injunctive order preventing his departure from Australia pending his satisfaction of property settlement order made under Pt VIII of the Family Law Act1975 (Cth) – Where it was contended the property settlement order amounted to a money judgment, which debt the respondent wife had to prove in the husband’s bankruptcy – Whether the primary judge erred as to the operative effect of s 59A of the Bankruptcy Act 1966 (Cth) – No error demonstrated in the primary judge’s application of the legislation and the dismissal of the application – Where the designated sum of money did not vest in the trustee in bankruptcy and was not divisible amongst the husband’s creditors – Appeal dismissed – No order as to costs. FAMILY LAW – APPEAL – LEAVE TO APPEAL – Where the husband seeks leave to appeal from an interlocutory injunction – Where there was a fundamental error in principle and leave to appeal should be granted – Where final property settlement order made in February 2012 exhausted the jurisdiction under Pt VIII of the Family Law Act 1975 (Cth) – No jurisdictional basis for the wife’s application for further final and interim relief in 2020 – Where the interim injunction was made in error – Appeal allowed – No order as to costs. |
| Bankruptcy Act 1966 (Cth) ss 58, 59A, 82, 116, 153 Family Law Regulations 1984 (Cth) reg 15A |
| Adam P Brown Male Fashions Pty Ltd v Phillip Morris Inc (1981) 148 CLR 170; [1981] HCA 39 Trustee of the Property of G Lemnos, A Bankrupt & Lemnos and Anor (2009) FLC 93-394; [2009] FamCAFC 20 |
| APPELLANT: | Mr Rahman |
| RESPONDENT: | Ms Rahman |
| FILE NUMBER: | SYC | 7852 | of | 2007 |
| FIRST APPEAL NUMBER: | EAA | 44 | of | 2020 |
| SECOND APPEAL NUMBER: | EAA | 83 | of | 2020 |
| DATE DELIVERED: | 12 November 2020 |
| PLACE DELIVERED: | Newcastle |
| PLACE HEARD: | Sydney |
| JUDGMENT OF: | Strickland, Ainslie-Wallace & Austin JJ |
| HEARING DATE: | 12 November 2020 |
| LOWER COURT JURISDICTION: | Family Court of Australia |
| LOWER COURT JUDGMENT DATES: | 13 March 2020; 5 June 2020 |
| LOWER COURT MNC: | [2020] FamCA 156; [2020] FamCA 477 |
REPRESENTATION
| COUNSEL FOR THE APPELLANT: | Mr Johnson |
| SOLICITOR FOR THE APPELLANT: | MCW Lawyers |
| COUNSEL FOR THE RESPONDENT: | Mr Todd with Ms Webb |
| SOLICITOR FOR THE RESPONDENT: | Jordan Djundja Lawyers |
Orders made on 12 November 2020
Appeal number EAA 44 of 2020 be dismissed.
Leave to appeal in appeal number EAA 83 of 2020 be granted.
Appeal number EAA 83 of 2020 be allowed.
Order 1 of the orders made on 29 May 2020 be set aside.
There be no order as to costs.
Note: The form of the order is subject to the entry of the order in the Court’s records.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Rahman & Rahman has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
Note: This copy of the Court’s Reasons for Judgment may be subject to review to remedy minor typographical or grammatical errors (r 17.02A(b) of the Family Law Rules 2004 (Cth)), or to record a variation to the order pursuant to r 17.02 Family Law Rules 2004 (Cth).
| THE FULL COURT OF THE FAMILY COURT OF AUSTRALIA AT SYDNEY |
Appeal Numbers: EAA 44 of 2020; EAA 83 of 2020
File Number: SYC 7852 of 2007
| Mr Rahman |
Appellant
And
| Ms Rahman |
Respondent
EX TEMPORE REASONS FOR JUDGMENT
Austin J
In February 2012, a property settlement order was made between the parties pursuant to Pt VIII of the Family Law Act 1975 (Cth) (“the Act”). Such order required the appellant (“the husband”) to pay $377,000 to the respondent (“the wife”) and an ancillary order was made under s 114(3) of the Act restraining the husband’s departure from Australia pending his payment of that sum to the wife.
The order was made following findings that the husband had secretly amassed $580,000 in cash, mostly by drawing down funds from the mortgage encumbering the former family home, and then sending it to Lebanon to put it beyond the wife’s reach in the matrimonial proceedings. For all intents and purposes, that cash represented the totality of the parties’ assets.
The husband’s appeal against those orders was dismissed (Rahman & Rahman [2013] FamCAFC 162) and, within weeks of the dismissal, the husband was bankrupted on his own petition in October 2013. In his debtor’s petition, the husband declared his liability to the wife for $377,000 as being the principal component of his aggregated liabilities of $378,010.
The husband was discharged from bankruptcy in October 2016, by which time none of the $377,000 (or accrued interest) had been paid to the wife.
In May 2017, the husband filed an Application seeking the discharge of the injunction made in February 2012 precluding his departure from Australia. He contended the debt of $377,000 he owed the wife merged in his bankruptcy and, upon his discharge, he was relieved of the liability and hence there was no longer any proper basis upon which his freedom of movement could be impinged.
That application was heard and dismissed on 13 March 2020 and the husband’s first appeal (Appeal No. EAA 44 of 2020) lies from that dismissal order.
Then, in April 2020, the wife filed an Initiating Application seeking superannuation splitting orders against the husband and, pending the grant of such final relief, an interim injunction restraining the husband from operating some bank accounts in which he conceded some $115,000 was deposited.
That application was heard and the interim relief was granted on 29 May 2020. The husband’s second appeal (Appeal No. EAA 83 of 2020) lies from those orders.
The first appeal
Upon the husband’s bankruptcy, subject to certain exceptions, all of his property vested in his trustee in bankruptcy (s 58 of the Bankruptcy Act 1966 (Cth) (“the Bankruptcy Act”)).
For present purposes, one of the exceptions was critical. The trustee’s investiture with the husband’s property under the terms of the Bankruptcy Act had effect subject to the order made under Pt VIII of the Act between the parties (s 59A of the Bankruptcy Act). That provision is augmented by another, which provides that any property to be transferred to the bankrupt’s spouse under an order made pursuant to Pt VIII of the Act is not divisible amongst the bankrupt’s creditors (s 116(2)(q) of the Bankruptcy Act).
An order made under Pt VIII of the Act overrides the vesting provisions of the Bankruptcy Act, regardless of whether the Pt VIII order was made before or after the debtor became bankrupt (Oliver v Malanos (2011) 199 FCR 136 at [38]–[40], [61]–[62]; Trustee of the Property of G Lemnos, A Bankrupt & Lemnos and Anor (2009) FLC 93-394 (“Lemnos”) at [59]–[60], [200]–[202]).
Historically, sums owed by one spouse to another under an order made pursuant to Pt VIII of the Act were regarded as being capable of proof in the bankruptcy of the debtor spouse (Ejje and Ejje (2003) FLC 93-129 at [13]–[19]; Melnik v Melnik (2005) 144 FCR 141 at [21], [28], [41]–[48]). However, that was before the legislative reform enacted by the Bankruptcy and Family Law Legislation Amendment Act 2005 (Cth), to harmonise the operation of the Act and the Bankruptcy Act, which included the insertion of s 59A and s 116(2)(q) into the Bankruptcy Act (Lemnos at [45]–[61], [99], [200]–[202]).
The husband’s point was that the property settlement order made in February 2012 did no more than create a money judgment and thereby constituted the wife as the husband’s creditor, obliging her to prove the debt in the husband’s bankruptcy. That submission should be rejected. The husband asserted his argument was supported by Trustee for the Bankrupt Estate of N Lasic & Lasic (2009) FLC 93-402 (“Lasic”), but nothing said generically about bankruptcy principles in Lasic contradicts what was said more specifically in Lemnos about spouses’ rights being no longer subordinated to creditors’ rights.
The order for the husband to pay a fixed sum of money to the wife was the manifestation of an exercise of discretion under Pt VIII of the Act to justly and equitably adjust the parties’ property interests, upon the premise of a finding that the parties’ only property comprised some $580,000 in cash. Section 80(1)(a) of the Act empowered the adjustment order to take the form of the payment of a lump sum to the wife.
The husband was impelled to concede that, had the property settlement order specified the lump sum of $377,000 was to be paid to the wife from a specified bank account, it would instead then amount to an order requiring the transfer of property, which could be distinguished from a simple money judgment and would then be caught by s 59A of the Bankruptcy Act. That artificial distinction holds little attraction.
Pursuant to the operation of s 59A of the Bankruptcy Act, the designated sum of cash did not vest in the husband’s trustee and was not divisible amongst the husband’s creditors. Since that money continued to rest in the husband’s control and remained payable to the wife under the authority of the Pt VIII order, there was no need for her to prove the debt as a creditor in the husband’s bankruptcy. The husband remained separately liable to the wife for the sum of $377,000, together with any accrued interest.
When the husband was automatically discharged from bankruptcy after three years, he was only released from all debts which were provable in the bankruptcy (s 82 and s 153 of the Bankruptcy Act), which did not include his liability to the wife under the Pt VIII order.
The injunction precluding the husband from leaving Australia until he discharges his liability to the wife still serves a useful purpose and the primary judge was correct to conclude:
16.There is little more that can be done to force the husband to comply with the orders of the Court than to restrict his freedom to travel to Lebanon.
No error was demonstrated in the primary judge’s dismissal of the husband’s application and so the first appeal should fail.
The second appeal
The appealed orders made on 29 May 2020 were interlocutory in nature, so leave is required to appeal from them (s 94AA of the Act; reg 15A of the Family Law Regulations 1984 (Cth)).
As will be seen from the following short reasons, there has been a fundamental error of principle and so leave to appeal should be granted (Adam P Brown Male Fashions Pty Ltd v Philip Morris Inc (1981) 148 CLR 170 at 177).
The property settlement order made in February 2012 was intended to finally determine the financial relationships between the parties, as the Act implored be practicably done (s 81), and thereby exhausted the exercise of discretionary power under Pt VIII of the Act (Mullane v Mullane (1983) 158 CLR 436 at 440; Hickey and Hickey and Attorney-General for the Commonwealth of Australia (Intervener) (2003) FLC 93-143 at [40]–[48]; Gabel & Yardley (2008) FLC 93-386 at [57]–[69] (“Gabel & Yardley”); Strahan & Strahan (Interim Property Orders) (2011) FLC 93-466 at [108]–[113]).
Consequently, when the wife filed the fresh application in April 2020 seeking superannuation splitting orders to supplement the order made in February 2012, the Court’s jurisdiction was spent. The existing property settlement order could not be varied, reversed or supplemented outside the confines of an appeal or an application made at first instance under s 79A of the Act (Gabel & Yardley at [69]–[72]) and the proceedings initiated by the wife in April 2020 were neither of those things.
Although superannuation splitting orders are made pursuant to power found within Pt VIIIB of the Act, such orders are only rendered competent by the statutory extension of the “matrimonial cause” investing the Court with power under Pt VIII of the Act (ss 4, 90XC and 90XS).
Accordingly, there was no jurisdiction to entertain the wife’s application for final relief filed in April 2020 and, since there was no jurisdiction to entertain it, nor was there any jurisdiction to entertain her incidental application for interim injunctive relief and it should have been dismissed. The orders were therefore made in error and this appeal should succeed.
The wife was (and remains) entitled to initiate further proceedings seeking consequential orders to enforce the property settlement order. In fact, her application incorporated an additional proposed order requiring the husband to pay to her the funds deposited in his bank accounts, which the primary judge construed to be “property and/or enforcement proceedings” (at [17]), but her Honour declined to make such an order because:
13.… the interim orders sought by the wife [are] too widely framed, as the husband should not be prevented from all access to funds in bank accounts for any purpose.
The wife did not appeal from the refusal to make the order compelling the husband to pay his savings to her in partial satisfaction of the property settlement order – for that or any other reason.
If the wife decides to bring another application to enforce the property settlement order, it should be an enforcement application in both style and substance (Pt XIII of the Act and ch 20 of the Family Law Rules 2004 (Cth)).
Costs
Each party won an appeal, each party lost an appeal, and few of the parties’ submissions were usefully directed to the resolution of the appeals. The ordinary rule in s 117(1) of the Act should prevail. The wife agreed with that outcome in the event of one appeal being lost and one appeal being won. The husband sought costs certificates if he succeeded in either appeal on a point of law, but in my view no certificate should be granted.
Ainslie-Wallace J
I agree with the orders proposed by Austin J and the reasons which he gave.
Strickland J
I too agree with the orders proposed by Austin J and the reasons provided for those orders.
The orders of the Court will be:
(1)Appeal number EAA 44 of 2020 be dismissed.
(2)Leave to appeal in appeal number EAA 83 of 2020 be granted.
(3)Appeal number EAA 83 of 2020 be allowed.
(4)Order 1 of the orders made on 29 May 2020 be set aside.
(5)There be no order as to costs.
I certify that the preceding thirty-two (32) paragraphs are a true copy of the ex tempore reasons for judgment of the Honourable Full Court (Strickland, Ainslie-Wallace & Austin JJ) delivered on 12 November 2020.
Associate:
Date: 20 November 2020
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