Shipman & Shipman
[2021] FamCA 584
•9 August 2021
FAMILY COURT OF AUSTRALIA
Shipman & Shipman [2021] FamCA 584
File number(s): SYC 8192 of 2018 Judgment of: ALTOBELLI J Date of judgment: 9 August 2021 Catchwords: FAMILY LAW – INTERIM PROPERTY – application seeking injunctions against third party – application to add second respondent to proceedings – whether a third party be restrained by injunction from pursuing a creditor’s petition against the husband or from seeking enforcement of a debt – consideration of s 90AF of the Family Law Act 1975 (Cth) – application allowed – injunctive relief granted. Legislation: Bankruptcy Act 1966 (Cth) ss 43, 116(2)(d)
Family Law Act 1975 (Cth) ss 79, 90AD, 90AF, 114
Family Law Rules 2004 r 6.02
Cases cited: AC and Ors & VC and Anor (2013) FLC 93-540; [2013] FamCAFC 60
Allan & Allan (2009) 41 Fam LR 565; [2009] FamCA 553
AS and GW and AH; sub nom Samootin v Wagner (FLC) (2006) FLC 93-265; [2006] FamCA 432
B Pty Ltd and Ors & K and Anor (2008) FLC 93-380; [2008] FamCAFC 113;
Dowling v Colonial Mutual Life Assurance Society Ltd (1915) 20 CLR 509
F Firm & Ruane and Ors (2014) FLC 93-611; [2014] FamCAFC 189
Fencott v Muller (1983) 152 CLR 570
Hickey& Hickey & Attorney-General of the Commonwealth of Australia (Intervener) (2003) FLC 93-143; [2003] FamCA 395
King v Henderson (1898) AC 720
Patton & Patton [2015] FamCA 1083
Re Maddox ex parte the debtor (1979) FLC 90-630
Rozenbes v Kronhil (1956) 95 CLR 407
Sandell v Porter (1996) 115 CLR 666
Number of paragraphs: 58 Date of last submission/s: 5 July 2021 Date of hearing: 5 July 2021 Place: Sydney Counsel for the Applicant: Ms Beck Solicitor for the Applicant: Newnhams Solicitors Counsel for the Respondent: Mr Campton SC Solicitor for the Respondent: Barkus Doolan Counsel for the Intervener: Mr Lethbridge SC with Ms Dart Solicitor for the Intervener: Bundock Law Counsel for the Independent Children’s Lawyer: Ms Neilson Solicitor for the Independent Children’s Lawyer: Legal Aid NSW ORDERS
SYC 8192 of 2018 BETWEEN: MR SHIPMAN
Applicant
AND: MS SHIPMAN
Respondent
MS DOHERTY
Intervener
INDEPENDENT CHILDREN’S LAWYER
ORDER MADE BY:
ALTOBELLI J
DATE OF ORDER:
9 AUGUST 2021
THE COURT ORDERS THAT:
1.Pending further order, Ms Doherty be restrained by way of injunction from presenting a creditor’s petition to a Court with jurisdiction under the Bankruptcy Act 1966 in relation to the judgment debt dated 31 December 2020 (‘Judgment Debt’) obtained in New South Wales District Court Proceedings … as against Mr Shipman and/or taking any further steps to enforce the Judgment Debt.
2.Ms Doherty be joined as a party to these proceedings as the Second Respondent.
Note: The form of the order is subject to the entry in the Court’s records.
Note: This copy of the Court’s Reasons for judgment may be subject to review to remedy minor typographical or grammatical errors (r 17.02A(b) of the Family Law Rules 2004 (Cth)), or to record a variation to the order pursuant to 17.02 Family Law Rules 2004 (Cth).
IT IS NOTED that publication of this judgment by this Court under the pseudonym Shipman & Shipman has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
REASONS FOR JUDGMENT
ALTOBELLI J:
INTRODUCTION
By way of an Application in a Case filed by the husband on 8 June 2021, he seeks orders against a third party, Ms Doherty, the mother of the Respondent wife in the substantive proceedings between the parties. The relevant orders sought by him are as follows:
2. That pending further Order, Ms Doherty be restrained by way of injunction from presenting a creditor’s petition to a Court with jurisdiction under the Bankruptcy Act 1966 in relation to the judgment debt dated 31 December 2020 (‘Judgment Debt’) obtained in New South Wales District Court Proceedings ... as against Mr Shipman and/or taking any further steps to enforce the Judgment Debt.
3. That should this Honourable Court deem necessary, Ms Doherty be joined as a party to these proceedings.
For present purposes Ms Doherty will be referred to as the Second Respondent. The Second Respondent, by way of a Response to an Application in a Case filed 2 July 2021 asks the Court to dismiss the said Application in a Case, and order costs.
These reasons for judgment explain why the Court has made the orders sought by the Applicant husband.
BACKGROUND
The focus of this statement of background is the dispute between the Applicant husband and Second Respondent. There may be some overlap, however, as regards the dispute between the husband and wife. The dispute between the husband and wife is listed for final hearing before me commencing on 15 November 2021.
On or around 6 September 2012 the Second Respondent lent to the husband $400,000 on certain terms as to the payment of interest, and repayment of principal. These terms were not what could be described as commercial. It would be an unacceptable stretch of the language to describe this as a commercial arms-length transaction.
The Court notes that there is an issue raised by the husband as to whether the loan was made to him, or to the husband and wife jointly. One wonders whether that is relevant. For the purposes of Part VIIIAA of the Family Law Act 1975 (Cth) (‘Family Law Act’), a debt owed by a party to a marriage is to be treated as property: s 90AD(1). Therefore, whether it is the husband’s debt, or the wife’s debt, or a joint debt, it is a debt that must be taken into account in any alteration of property interests between the parties: Hickey & Hickey & Attorney-General of the Commonwealth of Australia (Intervener) (2003) FLC 93-143 at [39]. In the Response that she filed to the husband’s Initiating Application, the wife expressly recognises that repayment of this debt must be made as part of the final orders. Whilst the husband’s application does not explicitly refer to this loan, it is implicit in his evidence that the balance of the loan in question is to be repaid as part of that alteration of property interests.
I have not been able to ascertain what the purpose of this loan was at the time it was made. None of the affidavits read in the present application address this issue. It probably makes no difference, for present purposes. Even if it were, for example, for a commercial purpose, it would not necessarily make it a commercial arms-length transaction.
Over the years between 2012 – 2000, payments of principal and interest were made. In November 2020 the Second Respondent filed a Statement of Claim in the District Court of New South Wales seeking judgment in the sum of $133,841. Default judgment was entered in the Second Respondent’s favour in December 2020. The Applicant husband does not dispute his liability to pay this amount. Applications that he made to set aside the default judgment, and to pay by instalments, have been unsuccessful. He was issued with an examination notice. In May 2021, the Second Respondent caused the husband to be served with a bankruptcy notice. The husband is contesting the bankruptcy notice in the Federal Circuit Court of Australia. Those proceedings have not concluded. On 21 June 2021 a learned Registrar of the said Court ordered the time for compliance with the bankruptcy notice to be extended up to and including 29 June 2021. The Second Respondent has agreed not to cause a creditor’s petition to be presented pending receipt of these reasons for judgment.
This Court observes that even if it declined to grant the injunction sought by the Applicant husband there is the possibility that he could continue the litigation in relation to the bankruptcy notice and then, even if unsuccessful, litigate about the creditor’s petition. The bankruptcy litigation could continue well beyond the hearing of this matter in November. The relevance of this observation will become apparent below.
The husband and wife have seemingly substantial assets consisting primarily of valuable real estate on which the family home is constructed, as well as superannuation entitlements. The husband contends, and the wife does not seem to dispute, that the only way of paying the Second Respondent’s debt is through the liquidation of capital assets, in one way or another. One way of depicting the financial circumstances of the husband and wife is that they are asset rich, but income poor. From the husband’s perspective, he may well be insolvent if a cash flow test is applied, but may not be insolvent having regard to his balance sheet: Sandell v Porter (1996) 115 CLR 666. The husband, who is the sole registered proprietor of the family home, has, in fact, entered into a Put and Call Option Deed with another third party who sought leave to appear at the hearing on the basis that he was a person interested in the proceedings and who could be affected by any order of the Court: s 79(10) of the Family Law Act. This third party appeared through counsel. Leave was granted for the limited purposes of making submissions. No documents were filed. The submissions made were, in short, that the third party would be adversely affected by the making of a sequestration order against the husband i.e. if the husband went bankrupt. The contractual arrangements between the husband and this third party did not appear to contemplate the possibility of the former’s bankruptcy. The Court notes these submissions. A copy of these reasons for judgment will be made available to the third party. No order is made for the third party to be joined to the proceedings. If the third party wishes to make such an application, he is free to do so.
THE MATERIAL BEFORE THE COURT
In support of his case, the Applicant husband sought to rely on the following documents:
(a)His Application in a Case filed 8 June 2021;
(b)His Affidavit filed 8 June 2021; and
(c)An amended minute of orders sought, provided to Chambers on 5 July 2021, and marked by the Court as exhibit A1.
In support of her case, the Second Respondent sought to rely on the following documents:
(a)Her Response to an Application in a Case dated 2 July 2021;
(b)Her Affidavit in support dated 2 July 2021;
(c)A tender bundle provided to Chambers on 2 July 2021 and marked by the Court as exhibit SR1; and
(d)A Case Outline document provided to Chambers on 5 July 2021 and marked by the Court as exhibit SR2.
The Respondent wife did not seek to rely on any documents in the matter. She was represented by experienced senior counsel who made oral submissions on her behalf.
THE APPLICABLE LAW
It was common ground that the husband’s application was made pursuant to s 90AF of the Family Law Act. This section states:
90AF Court may make an order or injunction under section 114 binding a third party
(1) In proceedings under section 114, the court may:
(a) make an order restraining a person from repossessing property of a party to a marriage; or
(b) grant an injunction restraining a person from commencing legal proceedings against a party to a marriage.
(2) In proceedings under section 114, the court may make any other order, or grant any other injunction that:
(a) directs a third party to do a thing in relation to the property of a party to the marriage; or
(b) alters the rights, liabilities or property interests of a third party in relation to the marriage.
(3) The court may only make an order or grant an injunction under subsection (1) or (2) if:
(a) the making of the order, or the granting of the injunction, is reasonably necessary, or reasonably appropriate and adapted, to effect a division of property between the parties to the marriage; and
(b) if the order or injunction concerns a debt of a party to the marriage—it is not foreseeable at the time that the order is made, or the injunction granted, that to make the order or grant the injunction would result in the debt not being paid in full; and
(c) the third party has been accorded procedural fairness in relation to the making of the order or injunction; and
(d) for an injunction or order under subsection 114(1)—the court is satisfied that, in all the circumstances, it is proper to make the order or grant the injunction; and
(e) for an injunction under subsection 114(3)—the court is satisfied that, in all the circumstances, it is just or convenient to grant the injunction; and
(f) the court is satisfied that the order or injunction takes into account the matters mentioned in subsection (4).
(4) The matters are as follows:
(a) the taxation effect (if any) of the order or injunction on the parties to the marriage;
(b) the taxation effect (if any) of the order or injunction on the third party;
(c) the social security effect (if any) of the order or injunction on the parties to the marriage;
(d) the third party’s administrative costs in relation to the order or injunction;
(e) if the order or injunction concerns a debt of a party to the marriage—the capacity of a party to the marriage to repay the debt after the order is made or the injunction is granted;
Note: See paragraph (3)(b) for requirements for making the order or granting the injunction in these circumstances.
Example: The capacity of a party to the marriage to repay the debt would be affected by that party’s ability to repay the debt without undue hardship.
(f) the economic, legal or other capacity of the third party to comply with the order or injunction;
Example: The legal capacity of the third party to comply with the order or injunction could be affected by the terms of a trust deed. However, after taking the third party’s legal capacity into account, the court may make the order or grant the injunction despite the terms of the trust deed. If the court does so, the order or injunction will have effect despite those terms (see section 90AC).
(g) if, as a result of the third party being accorded procedural fairness in relation to the making of the order or the granting of the injunction, the third party raises any other matters—those matters;
Note: See paragraph (3)(c) for the requirement to accord procedural fairness to the third party.
(h) any other matter that the court considers relevant.
The application of this section is, of course, predicated on there being an application under s 114 of the Family Law Act. It was not clear to the Court whether the application was under s 114 (1) or (3). Those sections provide:
114 Injunctions
(1) In proceedings of the kind referred to in paragraph (e) of the definition of matrimonial cause in subsection 4(1), the court may make such order or grant such injunction as it considers proper with respect to the matter to which the proceedings relate, including:
(a) an injunction for the personal protection of a party to the marriage;
(b) an injunction restraining a party to the marriage from entering or remaining in the matrimonial home or the premises in which the other party to the marriage resides, or restraining a party to the marriage from entering or remaining in a specified area, being an area in which the matrimonial home is, or the premises in which the other party to the marriage resides are, situated;
(c) an injunction restraining a party to the marriage from entering the place of work of the other party to the marriage;
(d) an injunction for the protection of the marital relationship;
(e) an injunction in relation to the property of a party to the marriage; or
(f) an injunction relating to the use or occupancy of the matrimonial home.
…
(3) A court exercising jurisdiction under this Act in proceedings other than proceedings to which subsection (1) applies may grant an injunction, by interlocutory order or otherwise (including an injunction in aid of the enforcement of a decree), in any case in which it appears to the court to be just or convenient to do so and either unconditionally or upon such terms and conditions as the court considers appropriate.
This is relevant for the purposes of s 90AF (3)(d) and (e). This will be discussed below.
The Case Outline document prepared on behalf of the Second Respondent by her senior and junior counsel contained the following useful summary of the law:
5.13. The following principles emerge from Full Court authority with respect to
s 90AF:5.13.1. That pursuant to s 90AF, in proceeding under s 114, the Court may make injunctions against 3rd parties, subject to conditions which are designed to ensure the discretion is carefully linked and sufficiently connected to the subject matter of the matrimonial causes (Hunt v Hunt (2006) 36 Fam LR 64 at [119] per O’Ryan J): noted with approval in XYZ Pty Ltd and Anor & Charisteas and Ors; ABC Pty Ltd & Charisteas and Ors (2017) FLC 93-287;
5.13.2. The legislative safeguards provided for in ss 90AF(3) and (4) must be observed for the exercise of power to be valid: AC and Ors & VC and Anor (2013) FLC 93-540 at [87];
5.13.3. The proper construction of s 90AF(3)(a) requires the phrases “reasonably necessary” and “reasonably appropriate and adapted” to be read together with the balance of the subsection as providing “the requisite sufficient connection between the making of the order or the granting of the injunction in relation to a third party and the core of the marriage and the matrimonial causes power”. Such construction marks the limits of the power and direction of the Court: AC & Ors & VC & Anor at [91];
5.13.4. Section 90AF cannot be used in aid of increasing the property of the parties: B Pty Ltd and Ors & K and Anor (2008) FLC 93-280 at [63];
5.13.5. Section 90AF does not make provision for the joinder of 3rd parties but for the court to make orders against 3rd parties: Samootin v Wagner & Anor (2006) FLC 93-265 at [18].
5.14. In the first instance judgment of Allan & Allan and Ors [2009] FamCA 553, Watts J held [at 99] that s 90AF cannot be used to deprive a 3rd party of its rights simply to benefit a party to the marriage and an order under s 90AF(1)(a) cannot be used to deprive a 3rd party of its rights now in the mere hope that the 3rd party’s claim will be met at some time in the future.
5.15. It is submitted that the husband has failed to establish either that the injunction is reasonably necessary, or reasonably appropriate and adapted, to effect a division of property between the parties to the marriage and thus his application must fail. The gravamen of the husband’s case is that Ms Doherty, having secured the benefit of a judgment debt in her favour, should simply await the outcome of these proceedings (and presumably any appeal which may thereafter eventuate) to recover what is owed to her, albeit he makes no provision for the payment of such debt in the orders sought by him. The question of whether such debt may deprive the parties to recourse to the Put and Call Option Deed, such Deed having been entered into by the husband after judgment debt was entered into, is not a relevant consideration to the Court’s exercise of discretion. Further, any bankruptcy of the husband will only eventuate to the extent that he fails to satisfy the judgment debt legitimately obtained by Ms Doherty and enforceable by her.
During submissions it became apparent that the Applicant was not seeking to rely on the accrued jurisdiction of the Court. This is appropriate. It is unlikely that there exists a common substratum of facts in this case: F Firm & Ruane and Ors (2014) FLC 93-611 at [170]; Fencott v Muller (1983) 152 CLR 570 at [29]. .
The requirements of section 90AF of the Act
The Court is satisfied that if the Second Respondent were to file a creditor’s petition pursuant to s 43 of the Bankruptcy Act 1966 (Cth) (‘Bankruptcy Act’), she would in effect be ‘commencing legal proceedings against a party to a marriage’ for the purposes of s 90AF(1)(b) of the Family Law Act. Curiously, the litigation about the bankruptcy notice is probably not covered by this provision because it was commenced by the Applicant husband. In any event, the mere issue of a bankruptcy notice, unlike the filing of a creditor’s petition, does not commence legal proceedings: Re Maddox ex parte the debtor (1979) FLC 90-630. .
Section 90AF(2) does not inhibit the making of the order. Rather, its role is to afford the Court discretion to make an order binding a third party. The Explanatory Memorandum provides the following in this regard:
151. The provision is intended to apply only to the procedural rights of the third party it is not intended to extinguish or modify the underlying substantive property rights of third parties. The order can only be made if it is reasonably necessary or appropriate to effect the division of property between the parties and the third party must be provided with procedural fairness. The order also cannot be made if it is unlikely that the result of the order would be a debt not being paid in full
Section 90AF(3)(a) mandates that the Court may only grant the order if the making of the order, or the granting of the injunction, is reasonably necessary, or reasonably appropriate and adapted, to effect a division of property between the parties to the marriage.
The Court accepts that the proper construction of s 90AF(3)(a) requires the phrases “reasonably necessary” and “reasonably appropriate and adapted” to be read together with the balance of the subsection as providing “the requisite sufficient connection between the making of the order or the granting of the injunction in relation to a third party and the core of the marriage and the matrimonial causes power”. Such construction marks the limits of the power and direction of the Court: AC and Ors & VC and Anor (2013) FLC 93-540 at [91].
Moreover, the Full Court in B Pty Ltd and Ors & K and Anor [2008] FamCAFC 113 made it clear at [63] that any order made must be for the purpose of effecting the division of a property between the parties. It cannot be for the purpose of increasing the property of the parties.
In Allan & Allan [2009] FamCA 553, Watts J emphasised:
‘[99]…s 90AF(3)(a) [Family Law Act] means that any order made must lead to a result which helps effect a division of property between the parties to a marriage. The section cannot be used to deprive a third party of its rights simply to benefit a party to the marriage and an order made under s 90AF(1)(a) [Family Law Act] cannot be made to deprive a third party of its rights now in the mere hope that the third party’s claim will be met at some time in the future.’
In this regard, it is necessary to explore the potential consequences of the bankruptcy proceedings seemingly contemplated by the Second Respondent on the alteration of property interest proceedings between the husband and wife.
If a sequestration order is made against the husband (and this is by no means a certain prospect, and it is almost certainly not a timely prospect), all of his property vests in his trustee in bankruptcy: s 58 of the Bankruptcy Act. There may be issues about the extent to which the husband could continue to be involved in the present proceedings personally, and notwithstanding the potential involvement of his trustee, given that his superannuation entitlements do not vest in the trustee: s 116(2)(d) of the Bankruptcy Act; s 79(12) of the Family Law Act. The November hearing might need to be adjourned to accommodate a trustee. The trustee might not wish to become involved in the family law proceedings given the near certainty that the creditors he represents (and his costs) are likely to be paid out of the orders for alteration of property interests made by this Court, and the fact that the husband’s bankrupt estate is, on realisation, in surplus. The husband could seek to annul the bankruptcy for this reason. There are many other possibilities.
What is almost certain from this Court’s perspective, on the evidence before it, and based on its experience, is that additional costs and delay will be incurred. The property proceedings in this Court will be rendered more complex. The resolution of the parenting proceedings will be delayed.
What about from the perspective of the Second Respondent? How is she prejudiced? How are her prospects of being paid any greater than if she is made to await the outcome of the November proceedings in this Court? Interest continues to accrue. Her position as regards legal costs is preserved. It is possible she will be paid sooner than if she sought sequestration. She is no worse off than she is now and the gain she perceives from seeking sequestration may well be more illusory than real.
Having regard to the cases cited above, in reality the Second Respondent is being deprived of nothing, in return for the near certainty (not the mere hope) of payment as part of the orders to be made under s 79 of the Family Law Act. The injunction sought against her is clearly for the purpose of effecting a division of the property of the husband and the wife. That process would almost certainly be delayed and rendered unnecessarily more complex if the injunction is not granted against the Second Respondent. The injunction sought is temporary, not permanent. It goes no further than it needs to.
The Court is satisfied that conditions in s 90AF(3)(a) of the Family Law Act are met.
Under s 90AF(3)(b) the Court may only make an order or injunction concerning a debt of a party to the marriage if it is not foreseeable at the time that the order is made, or the injunction granted, that to make the order or grant the injunction would result in the debt not being paid in full. There is no suggestion that the Second Respondent’s debt will not be paid in full on the facts of this case.
Subparagraph (c) mandates that the third party has been accorded procedural fairness in relation to the making of the order or injunction. In this case the Second Respondent appeared with senior and junior counsel after having filed a response and evidence. No concerns were expressed about procedural fairness.
Subaragraphs (d) and (e) require the Court to establish whether the injunction sought is pursuant to s 114(1) or (3). The Court would have been assisted by submissions in this regard. As it turns out it makes no difference. The Court will treat this present application as one under s 114(3).
In Patton & Patton [2015] FamCA 1083, Kent J helpfully summarises the law in this regard:
[25] The juridical sources of power to grant an interlocutory injunction in the nature of asset preservation pending a trial of s 79 proceedings are found in ss 34(1) and 114(3) of the Act.
[26] Section 34(1) relevantly provides:
The Court has power, in relation to matters in which it has jurisdiction, to make orders of such kinds … as the Court considers appropriate.
[27] Section 114(3) relevant provides:
A court … may grant an injunction, by interlocutory order or otherwise … in any case in which it appears to the court to be just or convenient to do so and either unconditionally or upon such terms and conditions as the court considers appropriate.
[28] The following principles would seem to be well settled by authority:4
a) The applicant has the onus of demonstrating two central requirements, namely:
a That the applicant has an existing (or potential) claim to an order altering property interests under s 79 of the Act; and
b An objective risk or danger that the claim may be prejudiced unless an injunction is granted;
b) There is no “fundamental“ or “threshold“ question whether a scheme to defeat a judgment exists, to be answered in the affirmative on the balance of probabilities in every case before an order preserving property can be made. In an inquiry into the risk of disposal of assets, the question of an intention or scheme is but one of a number of factors relevant to the objective risk of disposition to defeat an order;
c) The Court is required to take into account the balance of hardship and the balance of convenience between the parties and in that context the Court will not usually restrain a party from ordinary business dealings unless there exists a substantial risk of dissipation of assets or some substantial reason justifying such a restriction;
d)Any injunction granted ought be limited to that which is in the reasonable protection of a legal or equitable right and it is not the function of an injunction to provide an applicant with security in advance of a judgment.
[29] In Sieling & Sieling (above) the Full Court observed:
The power to grant injunctions is, of course, a discretionary power, not to be exercised lightly. The Court must balance the hardship to each party of granting or refusing an order, and frame its order in such a way as to impose no further restriction that is necessary to achieve the protection of the applicant’s interest. It will not lightly interfere with the rights of an owner of property on the basis of a vague or uncertain claim.
It is clear in this case that the husband has an existing claim to an order under s 79 of the Family Law Act. The Court is satisfied that there is an objective risk that his claim may be prejudiced unless an injunction is granted. The Court is satisfied that the sequestration of the husband would substantively prejudice his claim under s 79, in the manner outlined earlier in these reasons. The husband’s claim will also be procedurally prejudiced by sequestration because of the delays that would be incurred.
The evidence suggests that the husband could have paid, or at the very least reduced, the debt in question, when he received funds from the Put and Call Option Deed. He prioritised other debts and commitments. This is a factor that weighs against him in terms of the Court’s discretion.
Nonetheless, the Court is satisfied that the balance of hardship, and balance of convenience as between the Applicant and Second Respondent, favours the Applicant husband. In this regard there are a number of important observations to be made.
As foreshadowed, the loan in question was not an arm’s length commercial transaction. The affidavit of the Second Respondent deposes to no interest accruing for the first two years, and thereafter interest accruing at five per cent per annum. The loan agreement was ultimately not documented. The term of the loan was not specified. Repayments of principal and interest appear to have occurred on an ad hoc basis. When the evidence of the Second Respondent, the Applicant husband, and indeed the Respondent wife, is considered in its totality, this particular loan transaction was one of several between the three parties over an extended period of time, none of which appear to have the character of being arm’s length commercial transactions.
The relationships between the three parties appeared to have waxed and waned over the years. At one stage the Second Respondent and the husband were aligned, or at least had shared interests in the context of the litigation between the husband and the wife. That alignment has, apparently, shifted so that the Second Respondent is now aligned with the wife and, indeed, has given evidence by way of an affidavit in support of her case against the husband. Senior counsel for the wife acknowledged that the wife’s relationship with her mother has been problematic and dysfunctional. Admittedly this was in the context of rebutting a submission made on behalf of the husband that there was some joint purpose as between the wife and her mother. The issue of a joint purpose, or improper purpose, will be discussed below. Whatever characterised the relationship between the wife and her mother in the past, there clearly has been a reconciliation. The wife acknowledges that she has borrowed money from her mother. In her Affidavit filed 18 September 2020 at paragraph 38.3, and at paragraphs 39 – 41, she acknowledges that she used the sale proceeds of jointly owned property to repay her.
As for the balance of convenience and hardship for the Second Respondent, in the Case Outline document prepared by her senior and junior counsel, a submission is made to the effect that the Second Respondent ‘having secured the benefit of a judgement debt in her favour, should simply await the outcome of these proceedings (and presumably any appeal which may thereafter eventuate) to recover what is owed to her…’. With respect, this is a simplistic approach to the issue of balance of convenience and hardship for the Second Respondent. The submission assumes that the Second Respondent will be paid more quickly in pursuing the bankruptcy proceedings. The potential fallacy of this has been foreshadowed earlier in these reasons. There is pending litigation over the bankruptcy notice. It would be naïve to believe that they would not be similar litigation over any creditor’s petition. But even if a sequestration order were made, it is not clear how that would improve the position of the Second Respondent who would surrender any control of enforcement proceedings to a trustee in bankruptcy who would face the same formidable obstacles to enforcing the judgment that the Second Respondent has at the moment. Thus, when a respondent to an application for an injunction pleads balance of convenience and hardship, the question must be asked: compared to what alternative? Seen in that perspective, the balance of convenience and hardship clearly favours the Applicant husband, not the Second Respondent.
There was no suggestion in the Second Respondent’s case that she would be financially disadvantaged if the order were made. The Court notes that no effort was made to respond to the assertions made by the husband as to the considerable personal wealth of the Second Respondent.
The husband raises the question of ulterior motives on the part of the Second Respondent, no doubt going to the issue of balance of convenience, hardship, and discretion generally. The picture he seeks to paint is one where, at the very least, the bankruptcy proceedings are an attempt to put pressure on him to settle the family law proceedings on terms favourable to the wife. Alternatively, at its highest, the suggestion is that as a result of his bankruptcy, the Second Respondent would, in collusion with the wife, in effect take over the development of the property on which the family home is built. The response of both the Second Respondent and the wife is that this is fanciful.
In the husband’s Affidavit filed 8 June 2020 he makes a number of assertions in support of his concern about ulterior motives. He suggests there is more than mere coincidence between the date of the reconciliation between the wife and her mother, and the commencement of the District Court proceedings in relation to the debt. This followed several years when no demand for payment had been made. The husband relies on statements made to him by his children as to what their grandmother, the Second Respondent, allegedly said about him, to establish what he says is the toxic relationship that now exists between them. The husband relies on statements made to him by the person with whom he has entered into the Put and Call Option Deed, about conversations held with the maternal grandfather, suggesting that he had been deprived of the opportunity of purchasing the property and developing it himself. The husband also relies on statements that he says were made by the children to the same effect.
No objections were made to any of the affidavits relied on at the interim hearing. The evidence in question is clearly hearsay, even though the source is identified. The evidence is untested, and by its very nature is unreliable. The Court places minimal weight on it.
Nonetheless, the Court cannot rule out the possibility of ulterior motive. The question of the Second Respondent’s bona fides is possibly a matter that would be examined in litigation about any creditor’s petition lodged against the husband: see Rozenbes v Kronhil (1956) 95 CLR 407 and Dowling v Colonial Mutual Life Assurance Society Ltd (1915) 20 CLR 509 approving the oft cited statement from King v Henderson (1898) AC 720. For present purposes it is merely one factor that the Court takes into account in ultimately concluding that the balance of convenience and hardship rests in favour of the husband, not the Second Respondent.
The discretion that the Court has should be exercised in the husband’s favour. The Court is satisfied that in all the circumstances it is just or convenient to make the order proposed. For the same reasons, the Court is satisfied that, in all the circumstances, it is proper to make the order proposed, for the purposes of s 114(1).
Paragraph (f) of s 90AF(3) mandates that the Court must take into account the matters referred to in s 90AF(4). On the evidence, there are no relevant taxation or social security impacts of making the order. If there are any administrative costs incurred by the Second Respondent in relation to this order, these may be drawn to the Court’s attention as part of any costs application.
Significantly, paragraph (g) requires the Court to consider the capacity of the husband in this case to repay the debt after the order is made. This has been discussed earlier in these reasons. The husband and wife are asset rich, but seemingly income poor. The debt of the Second Respondent will be paid out, in the normal course, as part of the order under s 79 altering the property interests of the husband and wife.
Paragraph (e) requires the Court to consider the economic, legal or other capacity of the Second Respondent to comply with the order or injunction. As mentioned above, the Second Respondent did not reply to the assertions made by the husband in relation to her considerable personal wealth, which assists the Court to form the impression that she will suffer no adverse impact in a financial sense as a result of the making of the order against her.
Paragraph (g) requires the Court to consider any other matters raised by the third-party as a result of having been accorded procedural fairness in relation to the making of the order. In this regard, the Second Respondent makes clear that she would rather not be a party to the family law proceedings.
In AS and GW and AH; sub nom Samootin v Wagner [2006] FamCA 432, the Full Court noted in this regard:
[18] The Act really does not make provision for the joinder of parties. It provides for the Court to make orders against third parties, that is under s 90AE and it provides that they must be accorded procedural fairness in relation to the making of the orders. So that, if an application names them as parties, they effectively become parties to the proceedings.
Accordingly, and consistent with r 6.02 of the Family Law Rules 2004 the Second Respondent was joined as a party as a result of the making of an application naming her, which sought orders against her. It is thus technically correct to describe her as the Second Respondent. If it is the case that the Second Respondent would prefer not to be a party, that is a matter entirely for her, and r 6.04 provides for removal.
Finally, s 90AF(3)(h) empowers the Court to consider any other relevant matter. In this regard the Court is conscious of a number of matters.
As a general principle (and without in any way detracting from my observation made before that there is no common substratum of facts between the Second Respondent’s claim, and the claim between the husband and wife) similar disputes should not be litigated in separate Courts. This Court has jurisdiction in bankruptcy matters and one option for the parties was to have the bankruptcy proceedings transferred to this Court.
This case is very different to cases such as Allan & Allan [2009] FamCA 553 where the Court was quite legitimately concerned about the boundaries relating to the exercise of power under s 90AF of the Family Law Act, in circumstances where the third parties are commercial entities who have entered into commercial transactions. The present case is not the sort of case described by Watts J at [97]: “A commercial lender should be able to lend without having to worry about whether the managing director of a trustee company has a spouse and that spouse is happy.” All the evidence in this case indicates a non-commercial transaction as between members of a family. This case is unlike AS and GW and AH; sub nom Samootin v Wagner [2006] FamCA 432 where the third parties were complete strangers to the parties to the family law proceedings.
The potentially broad reach of s 90AF, even in commercial contexts, was noted by the Full Court in AC and Ors & VC and Anor (2013) FLC 93-540:
[69] In a way that is particularly relevant to the present case, the Attorney-General’s position was put at paragraph 28 of his submissions:
28. The Attorney-General does not, for the purposes of this appeal, suggest the width of the discretion conferred on the Court in exercise of these powers ought to be detracted from by the identification of particular examples. Each case will depend on its facts. However, there is no reason in principle why, in an appropriate case, the Family Court could not make orders under Part VIIIAA altering the rights, liabilities or property interests of beneficiaries under a discretionary trust. This could include, where reasonably necessary or reasonably appropriate and adapted to effect a division of property between the parties to the marriage, orders, for example:
- directing a trustee to pay out the relevant notional entitlement of a party to the marriage in the trust as if the trust had vested, and removing the relevant spouse or spouses as future beneficiary or beneficiaries; or
- vesting and winding up the trust.
[70] While it is probably sufficient for the purpose of the determination of this appeal for us only to record the above summary of the Attorney-General’s submissions, we consider it useful because of the uncertainty which there has been in the jurisdiction concerning the proper construction and constitutional validity of Part VIIIAA, if we include in these reasons the following significant passages from the Attorney-Generals’ written outline of submissions concerning those matters.
Indeed, each case will depend on its facts.
I will make orders in terms of the husband’s Application in a Case, granting the injunctive relief sought by him and adding Ms Doherty to these proceedings as the Second Respondent.
I certify that the preceding fifty-eight (58) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Altobelli. Associate:
Dated: 9 August 2021
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