SPRING & SPRING
[2014] FCCA 970
•23 May 2014
FEDERAL CIRCUIT COURT OF AUSTRALIA
| SPRING & SPRING | [2014] FCCA 970 |
| Catchwords: FAMILY LAW – Procedure – summary dismissal – setting aside, variation, modification and discharge of orders –orders altering property interests. |
| Legislation: Family Law Act 1975, ss.79A(1), 93A Federal Circuit Court of Australia Act 1999, s.17A |
| Barder & Caluori [1988] AC 20; [1987] 2 All ER 440; [1987] 2 WLR 1350; [1988] Fam Law 18 Barker & Barker [2007] FamCA 13; (2007) 36 Fam LR 650 Bigg & Suzi [1998] FLC ¶92-799; (1998) 22 Fam LR 700 Cawthorn and Cawthorn [1998] FamCA 37; 144 FLR 255; [1998] FLC 92-805; (1998) 23 Fam LR 86 CDJ v VAJ [1998] HCA 67; (1998) 197 CLR 172; [1998] FLC ¶92-828; (1998) 157 ALR 686; (1998) 23 Fam LR 755; (1998) 73 ALJR 230; (1998) 20 Leg Rep 7 Deckers Outdoor Corporation Inc v Farley (No 2) [2009] FCA 256; (2009) 176 FCR 33; [2009] AIPC 92-340 Holland & Holland (1982) FLC ¶91-243; (1982) 8 Fam LR 233 Jefferson Ford Pty Ltd v Ford Motor Company of Australia Limited [2008] FCAFC 60; (2008) 167 FCR 372; (2008) 246 ALR 465; 103 ALD 505; [2008] ATPR 42-231 Korsky & Bright & Anor [2007] FamCA 245 Longmuir & Anor v Konstantopoulos [2014] FCCA 162 Maclean & Maclean [2011] FamCAFC 148 Molier & Van Wyk (1980) 50 FLR 404; (1980) FLC ¶90-911; (1980) 7 Fam LR 18 Monticone, In the Marriage of [1989] FamCA 92; (1990) FLC ¶92-114; (1989) 98 FLR 460; (1989) 13 Fam LR 592 Neat Holdings Pty Ltd v Karajan Holdings Pty Limited & Ors [1992] HCA 66 Public Trustee v Gilbert (1991) 103 FLR 282; (1991) FLC ¶92-211; (1991) 14 Fam LR 573 Sanger & Sanger [2011] FamCAFC 210; (2011) 254 FLR 275; [2011] FLC 93-484; (2011) 46 Fam LR 275 Spencer v The Commonwealth [2010] HCA 28; (2010) 241 CLR 118; (2010) 269 ALR 233; (2010) 84 ALJR 612; [2010] ALMD 7244 Stern v McArthur (1988) 165 CLR 489 Stuart, In the Marriage of (1991) 101 FLR 244; (1991) FLC ¶92-194; (1991)14 Fam LR 511 SZFDE v Minister for Immigration and Citizenship [2007] 232 CLR 189; (2007) 232 CLR 189; 96 ALD 510; (2007) 81 ALJR 1401; (2007) 237 ALR 64 Tanwar Enterprises Pty Ltd v Cauchi (2003) 217 CLR 315 Wentworth v Rogers (No 5) (1986) 6 NSWLR 534 |
| Applicant: | MS SPRING |
| Respondent: | MR SPRING |
| File Number: | MLC 3664 of 2013 |
| Judgment of: | Judge Riethmuller |
| Hearing date: | 31 March 2014 |
| Date of Last Submission: | 31 March 2014 |
| Delivered at: | Melbourne |
| Delivered on: | 23 May 2014 |
REPRESENTATION
| Counsel for the Applicant: | Mr Strum |
| Solicitors for the Applicant: | Taussig Cherrie Fildes |
| Counsel for the Respondent: | The Respondent appearing in person |
ORDERS
The Husband’s s.79A application, as set out in the Husband’s Response to an Application in a Case filed on 4 February 2014, be dismissed.
The Wife’s application for enforcement be listed for hearing on 8 August 2014 at 2.30 pm.
IT IS NOTED that publication of this judgment under the pseudonym Spring & Spring is approved pursuant to s.121(9)(g) of the Family Law Act 1975 (Cth).
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT MELBOURNE |
MLC 3664 of 2013
| MS SPRING |
Applicant
And
| MR SPRING |
Respondent
REASONS FOR JUDGMENT
The wife issued an application for property orders and spousal maintenance together with a child support departure application on 9 May 2013. Final property orders were made by consent on 27 June 2013.
On 4 November 2013 the wife issued an application in a case seeking enforcement of the final property orders, specifically those for a transfer of the former matrimonial home to her, the payment of the liabilities associated with the home pending the transfer, and seeking the Husband’s compliance with his child support obligations.
On 4 February 2014 the husband issued a response to the wife’s application in a case, seeking to vary the final property orders pursuant to s.79A of the Family Law Act 1975.
Background
The parties have two children (10 years and 7 years of age, both of whom have special needs). They separated in January 2011.
On 27 June 2013 the parties entered into final consent orders with respect to property. Those orders provided for the wife to retain the matrimonial home, valued by the parties at the time as being worth between $1.65 and $1.7 million, and that she take responsibility for the mortgage on the home. This resulted in assets to the wife (leaving aside the modest value of furniture and a motor vehicle) of around $1.1 million.
The husband retained his interest in what was described in the consent orders as “(omitted)” investment, which was said to have a value of $551,000. He also took responsibility for a line of credit of $150,000, apparently leaving him with net assets of around $400,000. The husband retained approximately $250,000 in superannuation, after transferring $26,000 of his superannuation interest to the wife, bringing her superannuation (inclusive of the split from the husband’s superannuation) to around $84,000.
At the time the property settlement orders were made, counsel for the parties estimated that the overall split of assets and superannuation was around 65 per cent in favour of the wife and 35 per cent in favour of the husband. This split reflects the fact that this was a case that involved a wife who was engaged in home duties with two children with special needs, and a husband on a salary of around $200,000 per annum.
The settlement transfers and refinancing were ordered to occur within 90 days of the orders of 27 June. This did not occur as the husband had encountered difficulties in accessing monies in his “(omitted)” investment. The wife then issued an application in a case, seeking enforcement of the property orders on 4 November 2013, to which the husband filed a response on 4 February 2014, as amended on 21 March 2014, seeking to set aside the property orders (among other orders sought) pursuant to s.79A(1) of the Family Law Act 1975.
The husband particularises his case in his amended response as follows:
1. That paragraphs 20 to 42 inclusive of the final Orders made by Judge Riethmuller on 27 June 2013 (“the said Orders”) be set aside pursuant to s 79A(1) of the Family Law Act as there has been a miscarriage of justice.
Particulars
(a) There has been a fraud upon the Court. At the time the orders were made (omitted) investment did not have a value of $551,000 but was worthless. The Court was misinformed as to the true facts and so has unwillingly been deceived into making final orders.
(b) There has been a suppression of evidence. Unknown to the parties at the time of the orders there were facts that existed but [suppressed] that (omitted) investment was worthless and did not have a value of $551,000. The evidence of the true value of (omitted) was unwittingly suppressed.
(c) False evidence was given to the Court. The evidence that was given to the Court was that (omitted) investment was valued at $551,000. This evidence was false. The investment was worthless at the time the orders were made.
(d) There are other circumstances constituting a miscarriage of justice. These include:
· The Husband is obliged under the orders to pay out the line of credit secured over the family home (approximately $150,000). See paragraph 22 of the orders. The financial circumstances of the Husband were that he was relying on (omitted) investment to honour his obligations under the orders. He falsely believed as did the Wife and the Court that he could honour his obligations under the orders which is not the case.
· The orders were unjust and inequitable at the time they were made within the principles of Stanford v Stanford [2012] HCA 52 as they were premised on false evidence.
· The orders do not in fact give the Husband $551,000 so effect cannot be given to the settlement and was approved by the Court as being just and equitable
(e) Circumstances have arisen since the orders were made that make it impractical for them to be carried out.
The Husband is unable to redeem the value of (omitted) investment and so is unable to pay out the line of credit and meet his commitments under the Court orders.
This matter was listed for hearing with outstanding parenting issues on 25 March 2013. Unfortunately, the parenting matters could not proceed as the husband had not given notice to the family report writer that they were required for cross-examination and the report writer was not available on short notice. As a result, the parenting issues had to be adjourned.
Summary Judgment Application
On the morning of the hearing, counsel for the wife applied for orders summarily dismissing the husband’s s.79A application, as occurred in Korsky & Bright [2007] FamCA 245 on the principles set out by Brown J in that case at paragraphs 24 to 32.
In the Federal Circuit Court, the Federal Circuit of Australia Act 1999 provides that summary judgment may be granted in favour of a respondent as follows:
s.17A (1) The Federal Circuit Court of Australia may give judgment for one party against another in relation to the whole or any part of a proceeding if:
(a) the first party is prosecuting the proceeding or that part of the proceeding; and
(b) the Court is satisfied that the other party has no reasonable prospect of successfully defending the proceeding or that part of the proceeding.
(2) The Federal Circuit Court of Australia may give judgment for one party against another in relation to the whole or any part of a proceeding if:
(a) the first party is defending the proceeding or that part of the proceeding; and
(b) the Court is satisfied that the other party has no reasonable prospect of successfully prosecuting the proceeding or that part of the proceeding.
(3) For the purposes of this section, a defence or a proceeding or part of a proceeding need not be:
(a) hopeless; or
(b) bound to fail;
for it to have no reasonable prospect of success.
(4) This section does not limit any powers that the Federal Circuit Court of Australia has apart from this section.
Importantly, s.17A(3) provides that the proceedings need not be “hopeless” or “bound to fail” for them to have “no reasonable prospect of success”. The section is in the same terms as s.31A of the Federal Court of Australia Act 1976. The operation of the section was discussed in some detail in Spencer v The Commonwealth [2010] HCA 28; (2010) 241 CLR 118; (2010) 269 ALR 233; (2010) 84 ALJR 612; [2010] ALMD 7244.
Hayne, Crennan, Kiefel and Bell JJ noted two aspects of the provisions saying:
[51] First, the central idea about which the provisions pivot is "no reasonable prospect" (emphasis added). The choice of the word "reasonable" is important. If s 31A is to be seen as deriving from r 24.2 of the Civil Procedure Rules 1998 of England and Wales, its provisions underwent an important change in the course of their translation from that jurisdiction to this. The English rule speaks of "no real prospect"; s 31A speaks of "no reasonable prospect". The two phrases convey very different meanings.
[52] Second, effect must be given to the negative admonition in sub-s (3) that a defence, a proceeding, or a part of a proceeding may be found to have no reasonable prospect of successful prosecution even if it cannot be said that it is "hopeless" or "bound to fail". It will be necessary to examine further the notion of "no reasonable prospect". But before undertaking that task, it is important to begin by recognising that the combined effect of sub-ss (2) and (3) is that the enquiry required in this case is whether there is a "reasonable" prospect of prosecuting the proceeding, not an enquiry directed to whether a certain and concluded determination could be made that the proceeding would necessarily fail.
[53] In this respect, s 31A departs radically from the basis upon which earlier forms of provision permitting the entry of summary judgment have been understood and administered. Those earlier provisions were understood as requiring formation of a certain and concluded determination that a proceeding would necessarily fail. That this was the basis of earlier decisions may be illustrated by reference to two decisions of this Court often cited in connection with questions of summary judgment: Dey v Victorian Railways Commissioners[69] and General Steel Industries Inc v Commissioner for Railways (NSW)[70].
…
[56] Because s 31A(3) provides that certainty of failure ("hopeless" or "bound to fail") need not be demonstrated in order to show that a plaintiff has no reasonable prospect of prosecuting an action, it is evident that s 31A is to be understood as requiring a different enquiry from that which had to be made under earlier procedural regimes. It follows, of course, that it is dangerous to seek to elucidate the meaning of the statutory expression "no reasonable prospect of successfully prosecuting the proceeding" by reference to what is said in those earlier cases.
…
[58] How then should the expression "no reasonable prospect" be understood? No paraphrase of the expression can be adopted as a sufficient explanation of its operation, let alone definition of its content. Nor can the expression usefully be understood by the creation of some antinomy intended to capture most or all of the cases in which it cannot be said that there is "no reasonable prospect". The judicial creation of a lexicon of words or phrases intended to capture the operation of a particular statutory phrase like "no reasonable prospect" is to be avoided. Consideration of the difficulties that bedevilled the proviso to common form criminal appeal statutes[82], as a result of judicial glossing of the relevant statutory expression, provides the clearest example of the dangers that attend any such attempt.
[59] In many cases where a plaintiff has no reasonable prospect of prosecuting a proceeding, the proceeding could be described (with or without the addition of intensifying epithets like "clearly", "manifestly" or "obviously") as "frivolous", "untenable", "groundless" or "faulty". But none of those expressions (alone or in combination) should be understood as providing a sufficient chart of the metes and bounds of the power given by s 31A. Nor can the content of the word "reasonable", in the phrase "no reasonable prospect", be sufficiently, let alone completely, illuminated by drawing some contrast with what would be a "frivolous", "untenable", "groundless" or "faulty" claim.
[60] Rather, full weight must be given to the expression as a whole. The Federal Court may exercise power under s 31A if, and only if, satisfied that there is "no reasonable prospect" of success. Of course, it may readily be accepted that the power to dismiss an action summarily is not to be exercised lightly. But the elucidation of what amounts to "no reasonable prospect" can best proceed in the same way as content has been given, through a succession of decided cases, to other generally expressed statutory phrases, such as the phrase "just and equitable" when it is used to identify a ground for winding up a company. At this point in the development of the understanding of the expression and its application, it is sufficient, but important, to emphasise that the evident legislative purpose revealed by the text of the provision will be defeated if its application is read as confined to cases of a kind which fell within earlier, different, procedural regimes.
Finkelstein J in Jefferson Ford Pty Ltd v Ford Motor Company of Australia Limited [2008] FCAFC 60; (2008) 167 FCR 372; (2008) 246 ALR 465; 103 ALD 505; [2008] ATPR 42-231 said of the provision:
[23] In other words, the section requires the judge to conduct what might loosely be described as a preliminary trial and look more closely than he would under an O 14 application to a party’s assertion that there is a real question of law or fact to be decided. Such an assertion is to be examined with a critical eye. The judge is to decide whether the opposing party has evidence of sufficient quality and weight to be able to succeed at trial. There will be cases where the asserted facts appear to be so improbable that there is no point in allowing them to go to trial. There will be others where the opposing party has not been able to show that the asserted facts are likely to be established at a trial. On questions of law, the judge should conduct an inquiry into their merit, not for the purpose of resolving them (though this can be done – see Rosser v Austral Wine and Spirit Co Pty Ltd[1980] VR 313, 320) and also not simply to determine whether the argument is hopeless, but in order to decide whether it is sufficiently strong to warrant a trial. If the judge is satisfied that he (or she) is able to resolve any contested legal issue at a summary hearing and without undue delay, it may be better all around if that be done. If not, then at least the merits must be tested. That will then give s 31A a substantial operation, which is what, it seems to me, was intended.
As I recently referred to in Longmuir & Anor v Konstantopoulos [2014] FCCA 162, a useful summary is set out by Tracey J in Deckers Outdoor Corporation Inc v Farley (No 2) [2009] FCA 256; (2009) 176 FCR 33; [2009] AIPC 92-340 where his Honour said:
[11] Section 31A of the Federal Court Act was introduced to extend “the power of the court to deal with unmeritorious matters by broadening the grounds on which federal courts can summarily dispose of unsustainable cases”: see Jefferson Ford Pty Ltd v Ford Motor Company of Australia Ltd (2008) 167 FCR 372 at 406 [124] (per Gordon J) (quoting from the Second Reading Speech of the Minister on the Migration Litigation Reform Bill 2005 (Cth)). The section empowers the Court to give summary judgement in favour of an applicant if it is satisfied that the respondent “has no reasonable prospect of successfully defending the proceeding or [a] part of the proceeding”: see s 31A(1)(b). A defence may have no reasonable prospect of success notwithstanding that it is not “hopeless” and not “bound to fail”: see s 31A(3).
[12] Plainly, s 31A was, as Lindgren J held in White Industries Aust Ltd v Commissioner of Taxation (2007) 160 FCR 298 at 310 [54], designed “to lower the bar for obtaining summary judgment” from the level that had been fixed by the High Court in Dey v Victorian Railways Commissioners (1949) 78 CLR 62 at 91-2 and General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125at 128-130. Although the standard which must be met by an applicant who seeks summary judgment under the Federal Court Act has been expressed in a variety of different ways, where, as here, an application is made under s 31A, the Court is required to give close attention to the statutory language and to apply that test to the exclusion of all others. As Kenny J said in PZ Cussons (International) Ltd v Rosa Dora Imports Pty Ltd (2007) 74 IPR 372; [2007] FCA 1642 at [13]:
“The key is to address the statutory question. That is, under s 31A, in order to grant summary judgment, I must be satisfied that the respondents have no reasonable prospects of success in defending the infringement claim. As s 31A(3) makes clear, this does not mean that I must be satisfied that their defence is hopeless or bound to fail.”
Section 17A of the Federal Circuit Court Australia Act 1999 applies with respect to family matters: see Maclean & Maclean [2011] FamCAFC 148.
The Husband’s Case
The factual basis for the husband’s application is only set out briefly in his affidavit, although supported by hundreds of pages of annexures. He explains that he commenced placing money into a personal bank account of another person as his investment in “(omitted)”, so he is unable to provide any documents as to the precise terms of the arrangements with respect to “(omitted)” investment. From the annexures, it is clear that he understood it to be some form of (omitted) club, but nothing that has been put before the Court makes clear the precise terms of any contractual arrangement, nor the precise ownership of any interests. At times it is referred to as an “investment”, but at other times referred to as a (omitted) club, the latter description usually when stating that no taxation would be payable.
For the purpose of this judgment, I will refer to it as “the scheme”, in order to make clear that at this point, I have been unable to make findings as to the precise nature of the arrangements involved, nor the precise ownership, if any, of any property or other interests in respect of the scheme.
It appears uncontentious that between June 2009 and December 2010, the husband deposited $130,000 into a bank account of one of the persons involved in the scheme. This occurred prior to the separation of the parties on 9 January 2011. Between April 2011 and April 2013, eight withdrawals were made from the scheme totalling $201,000. The husband swears that deposit and withdrawal of funds was only permitted quarterly.
In short, the scheme had provided real returns to the husband of around 150 per cent of the monies initially deposited into the scheme.
The husband dealt with Mr J, who appeared to have been the “syndicate manager” for the group in which the husband was involved. He received an email from Mr J of 6 April 2013 stating that at the commencement of the second quarter of 2013, the husband had a total of $551,116.30 standing to his account.
In April 2013 the wife had sought contact details for the operator of the scheme, Mr B, so that she could obtain necessary documents to ensure that she complied with her obligations with respect to a request she had made to Centrelink for financial assistance. The husband’s initial response to the wife’s emailed query was that the money from the scheme:
…is not considered income. This does not need to be declared.
The wife pointed out in a responding email that it is considered an asset, no doubt anxious to ensure that she made a full and frank disclosure to Centrelink.
The husband then sent the wife an email describing the bizarre arrangements of the scheme saying:
I have sent you an email regarding the sensitivity of the (omitted) club. It has been specifically expressed that as part of the (omitted) club there is to be no direct contact with Mr B. This is part of the agreement. If you want further detail I can advise you on this. As stated previously, part of the agreement of the (omitted) club is that details are not to be disclosed to others. FYI, There are 50 people in our syndicate managed by Mr J. I am not sure how many syndicates there are but at some stage there was 15+. Mr B will only deal with Syndicate head (Mr J). If anyone goes directly to Mr B the whole group may be thrown out, …
In the following paragraph of the email, the husband offered to withdraw the funds from the scheme and place them in a bank account until the parties settle their matrimonial proceedings. Thereafter, emails were exchanged where the wife reiterates her concern about satisfying Centrelink requirements and the husband reiterates a concern about protecting other people and other people’s investments which he saw as having allowed him “the privilege of being in this club”. However, he reiterates that the total amount would be in his bank account by the end of the quarter.
The husband annexes at annexure L of his affidavit of 4 March 2014, the email correspondence between him and the syndicate leader, Mr J. The husband’s evidence in his affidavit of 4 February 2014 with respect to the scheme, was as follows:
(omitted) investment
11. The last statement I have for our investment in (omitted) was received from our Syndicate Manager Mr J dated 6 April 2013. …
12. On 27 June 2013 being the day of the Court Orders, I contacted Mr J who is the leader of the syndicate in which we were involved in (omitted) investment. I sought a redemption of $150,000 in order to pay out my obligation under the line of credit in the Court Orders. I subsequently had correspondence with Mr J on 4 September 2013 and 13 September 2013. …
13. I was dependent upon using the monies from (omitted) investment to honour my obligations under the Court Orders. On Saturday, 7 December 2013 at 8:00am I learnt for the first time that (omitted) investment had collapsed. On 6 December Mr B who I now verily believe to be responsible for the establishment and operation of (omitted) investment had been in Court and it became apparent that (omitted) investment scheme had collapsed and there was no prospect of recovery of any monies. … I have been advised by Mr J and verily believe I will not recover any of the $551,000 investment and it is “lost”.
It appears from these paragraphs that the husband sought the return of funds from the scheme on 27 June 2013, the day of the property orders. The funds were not forthcoming.
Annexure L to his most recent affidavit contains the responses he received by way of email to explain the failure of the scheme operators to provide the funds. By 27 August, the husband received an email from his syndicate manager purporting to forward an email from Mr B stating:
Hi all
We are in a position to pay out the rest for the withdrawals this week either by funds arriving (even though promised last week to me and by me to everyone else) or as I have done over the weekend requested our funds in our (omitted) bank.
As we are now in front for the quarter I feel a lot better about using the funds in our (omitted) account and therefore ending the club if we go that way with people in front.
I also want to make note it is impossible for me to respond to 50+ emails and similar amount of calls each day. I am not ignoring people or being rude – it is just not possible to get back to everyone and still meet the rest of my daily responsibilities.
Mr B
In September the husband was advised that the scheme had finished and that money was expected shortly. Thereafter, various emails giving vague excuses for the failure to provide the funds were forwarded. By late October Mr B was representing that he had engaged a major law firm to resolve unparticularised difficulties. By late November excuses such as claims of a commercial dispute causing a syndicate’s banker to freeze funds were being provided, although entirely without detail.
Ultimately, on 7 December 2013 the syndicate leader emailed articles from newspapers to the effect that the money had gone missing and advising that he had been unable to contact Mr B and that he was dealing with police, lawyers and the bank.
By December 14 the syndicate manager was asking for emails detailing “honest losses”, by which it seems he meant losses of money placed in the scheme as opposed to the total said to be owing inclusive of winnings or profits. On December 17 he advised that Mr B had been made bankrupt and that the trustee would require details of claims from anyone that was owed money, as would the police fraud squad. By December 2013 it was clear that no money would be forthcoming. Letters from the trustee in bankruptcy arrived in January 2014 estimating creditors from the “(omitted) club” capital losses as being in excess of $75 million.
It appears to me that these emails would be admissible as business records, and as the records of the representations made to scheme members by the relevant group manager. In any event, it appears that they are relevant as evidence of the representations made to the husband when seeking to recover monies he believed he was owed by the scheme.
The annexure to the affidavit containing numerous newspaper articles, of what has now become a cause célèbre in the press, do not appear to me to be admissible as evidence of the truth of their contents nor are they relevant as representations made by any of the relevant people.
It is important to recognise that proving fraud requires careful evidence when the allegations are made against another party to the proceedings. However in a case such as this, where the alleged fraudster is not a party to the proceedings, circumstantial evidence may be all that is realistically available.
The onus is the ‘balance of probabilities’, even where the matter to be proved in civil proceedings involves criminal conduct or fraud: see Neat Holdings Pty Ltd v Karajan Holdings Pty Limited & Ors [1992] HCA 66.
On an objective view of the presently available information, there is a circumstantial case that the scheme was a fraud, at least by the time the husband sought to withdraw funds, in that:
a)the returns were above any realistic returns from investments or (omitted) clubs;
b)the scheme was operated without any paperwork or written agreements;
c)the scheme operator is bankrupt;
d)no realistic explanation has been provided for the loss of an enormous amount of funds;
e)had the (omitted) system simply failed, one would expect that it would be an easier and more palatable solution for Mr B to provide the details of those losses as genuine (omitted) losses, to explain the loss of funds, and demonstrate that the loss was one of the risks that each scheme member must have accepted in placing their money in the scheme.
However, the fact that the husband withdrew more money than he placed in the scheme indicates that the scheme was either genuine at an earlier time or a long and complex Ponzi scheme. It is difficult to determine on the evidence available for the purpose of the summary judgment application which category the scheme falls into. I proceed on the basis that the husband has a reasonable prospect of proving that the scheme was a fraud at the time he entered into the property orders.
The wife’s knowledge and involvement
On the material before me, it appears clear that the wife had neither knowledge of, nor involvement in, the scheme. In the proceedings leading up to the property settlement orders, all of the information relating to the scheme and its value came from the husband and was provided by him to the wife. The wife accepted the husband’s representations about the value of the scheme. There is no evidence that the wife made any independent enquiry into the scheme. There is nothing before me to suggest that the wife failed with respect to her discovery obligations, nor made any representations, nor withheld any information whatsoever that may have led to the husband’s belief as to the value of his entitlements in the scheme.
Not only does it appear that no fault or error could be alleged against the wife, it may even be that the husband could have withdrawn his funds back at the time that the wife exhorted him to do so, prior to the property settlement proceedings (he had withdrawn a large amount of money prior to the property settlement proceedings, as late as April 2013, only two months before the orders). If this scheme was some form of Ponzi scheme, the husband may well have received the payment of his claims from the scheme had he sought withdrawal prior to the property settlement. However, there is no evidence before me with respect to the precise operation of the scheme during that period. The group leader and his records have not been subpoenaed to show what payments, if any, were made to other group members during that period.
It is against this background that I must determine whether or not summary judgment is appropriate.
The Application of s.79A(1)(a)
Section 79A(1)(a) of the Family Law Act provides:
(1) Where, on application by a person affected by an order made by a court under section 79 in propertysettlement proceedings, the court is satisfied that:
(a) there has been a miscarriage of justice by reason of fraud, duress, suppression of evidence (including failure to disclose relevant information), the giving of false evidence or any other circumstance
…
the court may, in its discretion, vary the order or set the order aside and, if it considers appropriate, make another order under section 79 in substitution for the order so set aside.
The precise ambit of the operation of the section has been the source of considerable difficulty since it was enacted. It uses the phrase ‘miscarriage of justice’ which is commonly used with respect to criminal proceedings to refer to a result that is contrary to the justice of an individual case. Similar comments have been made, from time to time, about the operation of the section, for example in Holland & Holland (1982) FLC ¶91-243 Evatt CJ, Ellis SJ and Murray J said (at 77,341):
To succeed in an application under section 79A, the wife must show some circumstance leading to a miscarriage of justice. Agreement to a consent order which may not adequately reflect a party’s entitlement under section 79, does not, of itself, show that there has been a miscarriage of justice. There may be cases where the order consented to is so far outside the ambit of what is just and equitable and the Court may infer that a party has acted under duress, in ignorance or as a result of incompetent advice. This is not such a case.
Dr. Dickey, in his text Family Law, (Lawbook Co, 6th Ed, 2014) cites Holland & Holland (1982) FLC ¶91-243 as authority for the proposition, that s.79A:
Is not limited to vitiating elements in the procedure followed by the court, but extends to any situation ‘which sufficiently indicates that the decree order was obtained contrary to the justice of the case’.
More recently, in Korsky & Bright [2007] FamCA 245 Brown J said:
40. The expression “any other circumstance” encompasses a miscarriage of justice whereby orders are unjustly obtained or obtained contrary to the justice of the individual case.
However, as Dr Dickey points out, the Full Court has since emphasised that ‘the notion of miscarriage of justice in section 79A(1)(a) is essentially concerned with the integrity of the judicial process’, citing In the Marriage of Stuart [1991] 101 FLR 244 at 253 to 254, Public Trustee v Gilbert (1991) 103 FLR 282; (1991) FLC ¶92-211; (1991) 14 Fam LR 573 at 286 and Bigg & Suzi [1998] FLC ¶92-799 at 84,982. Dr. Dickey provides an interesting example of the effects of this rule in a hypothetical in Miscarriage of Justice and Subsequent Circumstances (2010) 84 ALJ 79.
Brown J, in Korsky & Bright also notes this restriction saying:
36. It is well established that the notion of a miscarriage of justice concerns the integrity of the judicial process; the miscarriage must arise out of that process; see Clifton and Stuart(1991) FLC 92-194, Bigg v. Suzi. In Suiker and Suiker(1993) FLC 92-436 at 80,472 the Full Court observed that the expression “judicial process” can refer to a variety of matters and circumstances which had an influence on the outcome of the litigation and that it is neither necessary nor desirable to attempt to define the matters which may amount to a miscarriage of justice by reason of any other circumstance in the relevant sense.
In Gilbert’s case Fogarty Nygh and Wilczek JJ squarely addressed whether the events must occur at or before the making of the order (as was concluded in Molier & Van Wyk (1980) FLC 90-911) saying:
Furthermore, as their Honours pointed out in Molier and Van Wyk the circumstance complained of must have resulted in a miscarriage of justice. That term relates to the judicial process which resulted in the order sought to be set aside. Its integrity cannot be put into question by something that happened after that process was completed. Indeed, it was because of this perceived defect of section 79A(1) as originally enacted: see Family Law in Australia Report on the Joint Select Committee on the Family Law Act 1980, Volume I, paragraph 5.94 that paragraphs (b), (c) and (d) were subsequently inserted. We see no reason, therefore to depart from what was said in Molier and Van Wyk.
An alternative argument, which received the support of the learned Trial Judge, was to the effect that at the time of the making of the consent orders there existed a basic assumption that the husband would remain alive for at least the near future, and that this was an existing fact or circumstance which was falsified by the husband’s death so shortly thereafter. In connection with this argument great stress was laid upon the decision of the House of Lords in Barder v Caluori [1988] AC 20.
The Full Court in Gilbert analysed Barder & Caluori [1988] AC 20; [1987] 2 All ER 440; [1987] 2 WLR 1350; [1988] Fam Law 18 in some detail before concluding:
We have, in any event, some, serious reservations about the notion of fundamental assumptions underlying orders as was adumbrated by Lord Brandon. It would be difficult to draw the line at a death by suicide within a period of twelve months. Indeed, the learned Trial Judge, in this case instanced as a case where basic assumptions of the parties might be said to have been falsified, a situation where a short time after the orders the value of the property, the subject of the order, had “plummeted or fallen to quite significantly low figure or amount.” It would mean that, in any order, there would have to be read a “rebus sic stantibus” clause for a period of twelve months. This would mean, reading into the Australian legislation, something which is simply not there, a power which this Court, as the High Court pointed out in Mallet v Mallet (1984) FLC 91-507; (1984) 156 CLR 605, simply does not possess.
We, therefore, remain of the view that a miscarriage of justice can only occur by reason of a fact or event which occurs before or at the time of the making of the order which it is sought to set aside. For that reason, the learned Trial Judge was in error insofar as he sought to rely on s.79A(1)(a). [emphasis added]
In Bigg v Suzi (1998) FLC ¶92-799 the Full Court (Barblett DCJ, Lindenmayer & Finn JJ) said:
6.41 … It is difficult to imagine any circumstances in which it would be enough to constitute a mischarge of justice, within s79A(1)(a), as explained in the cases to which we have referred, for one party to consent orders to establish only that he or she entered into those orders under a mistaken belief, event about a relevant matter, which was neither induced by nor known to the other party. Certainly, there is nothing in circumstances of this case to lead us to the conclusion that such a mistake on the part of the husband, without more, could amount to such a miscarriage of justice.
It is clear that neither an unforseen event nor a unilateral mistake of fact by the husband as to the value of the scheme would be sufficient to enable him to succeed under s.79A(1) without some procedural failure or some other misconduct by the wife in the proceedings.
Most recently the Full Court of the Family Court in Barker & Barker [2007] FamCA 13; (2007) 36 Fam LR 650 considered a case where the wife settled property proceedings on the basis of a value of a property at $1.65 million. Shortly after the settlement, in which the husband received that property, it was sold for $2.65 million. The Full Court concluded:
122. There will thus be many cases in which an order will be made, by consent or otherwise, based upon an agreed valuation which has been prepared many months earlier. There may be factors in the intervening period which have affected the value so agreed. Unless there is some particular act which impugns the process by which the orders were obtained, the mere effluxion of time and the consequent changes in the market during that period, whether they be upward or downward, will not of themselves create an injustice, nor require either of the parties to make further investigations of value if they choose not to do so.
123. As previously discussed, in order for a claim under s 79A(1) to succeed, the Court must be satisfied that a miscarriage of justice has resulted. It is not sufficient to merely establish the existence of one or more of the stated grounds, such as suppression of evidence. In Livesey v Jenkins (supra), Brandon LJ had this to say about the nexus between non-disclosure and setting an order aside (at 445-6):
I would end with an emphatic word of warning. It is not every failure of frank and full disclosure which would justify a court in setting aside an order of the kind concerned in this appeal. On the contrary, it will only be in cases when the absence of full and frank disclosure has led to the court making, either in contested proceedings or by consent, an order which is substantially different from the order which it would have made if such disclosure had taken place that a case for setting aside can possibly be made good. Parties who apply to set aside orders on the ground of failure to disclose some relatively minor matter or matters, the disclosure of which would not have made any substantial difference to the order which the court would have made or approved, are likely to find their applications being summarily dismissed, with costs against them, or, if they are legally aided, against the legal aid fund.
We agree with this statement.
124. But s 79A is a remedial section designed to avoid a miscarriage of justice. Where there is some intervening factor known to one party, but not the other, this may lead to a result which is unfair and unjust and can be characterised as a flaw in the judicial process by which the orders were made. There may also be circumstances in which the judicial process could be impugned by a sale after orders were made and in the absence of bad faith by either party or suppression of some relevant fact, if it led to a significant miscarriage of justice.
125. However, the wife’s case does not rest solely on the subsequent sale. Her case also rests on a combination of events some of which occurred prior to the orders being made. The first of these was the sale of “AB” at a price consistent with “TD”, which led Mr J to say in his letter of 14 April 2004 that the sale “set a whole new level of values for the district.” Secondly, there is the offer made for “AW” of $2,300,000, which was not disclosed to the wife. The third is the sale of “AW” at $2,650,000 so proximate to the making of the orders.
126 In our view these factors did constitute a miscarriage of justice, as a result of “any other circumstance”, because the value of the net property, including “AW”, when the orders by consent were made did not reflect the real value of “AW” and possibly the value of the other properties. Further, the evidence indicates that the value of “AW” was at least $1,000,000 greater than the figure given to O’Reilly J with the effect that the amount the husband had to pay the wife resulted in her receiving a substantially smaller percentage of the property than that which the parties had submitted was a just and equitable outcome. The trial judge erred in not appreciating the relevance of the offer of $2,300,000 and the sale of “AW”.
The crucial factor in Barker’s case appears to be that the husband had failed to make disclosure to the wife of the offer he had received on the property of $2.3 million. This would have put her on notice that the value assigned to the property by the joint valuer may not have been correct.
In the circumstances of this case, it appears to me that the failure of the husband to show that any part of the wife’s conduct played a part in the alleged miscarriage of justice, and the failure to show that the wife had any knowledge of it, leads to the conclusion that on existing Full Court authority on the operation of s.79A(1) (limiting a “miscarriage of justice” to some form of defect in the judicial process), means that in the context of this case, it is not open to the Court to set aside the orders pursuant to s.79A.
However, the husband’s case before me goes further than an allegation of a unilateral mistake of fact, but rather that he was the victim of a fraud.
The effect of a fraud by a non-party in undermining the integrity of civil proceedings has been the subject of careful examination in recent cases relating to refugee and migration proceedings, where frauds by representatives of applicants have led to decisions being overturned on the basis that this resulted in a fraud upon the Tribunal.
Had the order itself been obtained by fraud, it could be set aside by this Court under r.16.05 of the Federal Circuit Court Rules. This rule reflects the equitable principles applicable to judgments obtained by fraud as discussed in detail by Kirby P (as his Honour then was) in Wentworth v Rogers (No 5) (1986) 6 NSWLR 534. However, in this case, there is no suggestion that the wife obtained the judgment by fraud, nor was even aware of the fraud that was allegedly being perpetrated by a third party upon the husband. If anything, the evidence indicates that her preferred course (that the husband withdraw his money from the scheme) may well have resulted in him avoiding the consequences that he now appears to have suffered. In these circumstances, the case is not within r.16.05 as the wife did not obtain the judgment by any fraud on her part or with her knowledge or even a fraud perpetrated by another for her benefit.
The husband’s argument that the alleged fraud upon him amounts to a fraud upon the Court is an argument dealt with by the High Court in SZFDE v Minister for Immigration and Citizenship [2007] 232 CLR 189; (2007) 232 CLR 189; 96 ALD 510; (2007) 81 ALJR 1401; (2007) 237 ALR 64. In that case, the High Court noted the far reaching and vitiating effect of fraud (at [15] et seq). However, the Court went on to note that fraud constituted by perjury of a witness is not sufficient to set aside a civil judgment, saying:
[16] The vitiating effect of fraud is not universal throughout the law. The equitable doctrine protecting bona fide purchases for value and without notice is an important exception. Further, particular principles, or at least practices, have been developed with respect to collateral attacks in later litigation upon the outcome in earlier litigation where this was alleged to have been vitiated by fraud [26]. It has been said in this Court that, except in very exceptional cases, fraud constituted by perjury by a witness or witnesses acting in concert is not a sufficient ground for setting aside a judgment [27]. The precept engaged here has been identified as that favouring the finality of litigation [28].
The High Court then noted that:
[17] … A rather different trend has appeared in public law, particularly respecting the administration by superior courts of certiorari to supervise the exercise of jurisdiction by inferior courts and tribunals.
After discussing a number of criminal and public law cases, the High Court said:
[22] There is another practical aspect of fraud in public law that may tend in a particular case to set it apart from fraud in relation to civil suits in general. It is that often a victim of it will have no useful remedy except to have the fraudulently affected result set aside and a fresh untainted hearing conducted. Ainsworth v Criminal Justice Commission[42] is an example of the inadequacy of a conventional remedy such as damages. There they would, even if a cause of action arguably giving rise to them had been available, not only have been probably unquantifiable, but also not a useful remedy. The same may apply to some proceedings before administrative tribunals, for example, an application under the Freedom of Information Act 1982 (Cth). In the present case, the only remedy that would be of real utility to the appellants is an order that provides them with the opportunity to press their claims to a protection visa in a fair hearing conducted according to law.
This is not a public law case and therefore the broader remedy discussed in SZFDE is not available. Nor does the reasoning in SZFDE support a broader remedy in this case as damages are an appropriate remedy. The fact that the defendant in any damages claim is insolvent does not alter the logic of the reasoning. That is, as this case only concerns money then a monetary remedy such as damages can place the applicant in an identical position, unlike a protection visa case where monetary damages could never compensate for the loss of a protection visa which may result in a person being returned to a country where they may be killed.
For these reasons I am persuaded that the husband does not have an arguable case pursuant to section s.79A(1)(a).
The application of s.79A(1)(b)
The alternative argument of the husband is that the orders should be set aside on the basis that it is impractical to carry them out. This relies upon s.79A(1)(b), which provides:
(1) Where, on application by a person affected by an order made by a court under section 79 in property settlement proceedings, the court is satisfied that:
…
(b)in the circumstances that have arisen since the order was made it is impracticable for the order to be carried out or impracticable for a part of the order to be carried out; …
In this case the husband says that he cannot comply with the orders due to his financial position. There can be no doubt that it will be very difficult for the wife to enforce the orders, or that it will be impractical for the wife to enforce the orders due to the financial position of the husband. The wife does not seek to have the order set aside and maintains that difficulty in enforcement is not sufficient to demonstrate that an order is ‘impractical’ in the sense that the word is used in the section.
In Cawthorn and Cawthorn [1998] FamCA 37; 144 FLR 255; [1998] FLC 92-805; (1998) 23 Fam LR 86 the Full Court considered the operation of s.79A(1)(b) in a case where the husband was unable to meet his financial obligations under a property settlement order as a result of difficulty in selling a property, and a business partner embezzling money from his accounting practice. Ellis, Lindenmayer and Joske JJ said:
… the concept of impracticability contained in s.79A(1)(b) is quite different from problems of enforcement that may arise due to a party's insolvency. In such a case, the matter may well have to be dealt with pursuant to the provisions of the Bankruptcy Act 1966. This, however, merely reflects the vicissitudes of life and is in harmony with the clean break principle enshrined in the Act. An application for a further settlement of property is not available in circumstances where one party suddenly becomes immensely rich. It should also be noted that the words of Russell J. quoted earlier from Re Badiche Co. Ltd. (supra) should not be regarded as providing the appellant any solace in the circumstances of this case. Financial problems, such as have arisen in respect of the appellant, have never given rise to the successful invocation of the doctrine of frustration.
It was submitted by Counsel for the husband that the trial Judge had found that the concept of impracticability set out in s.79A(1)(b) should arise when something had occurred which was "unforeseen and unpredictable that the parties could not take into account when they reached their agreement" (AB 17). From this it was argued that the material disclosed that the husband did not know at the time that the orders were made that one of his partners was actually engaged in the process of embezzlement. Accordingly, it was submitted he could not predict that the direct results of that embezzlement would render it impractical for him to carry out the agreement.
All business activities however are subject to the vicissitudes of commercial life. Indeed the husband, as an accountant specialising in insolvency, should have been acutely aware of this. Businesses may always be the subject of financial misfortune and it is not necessary, for the purpose of s.79A(1)(b) to be able to predict the precise form or nature of such a misfortune or the manner in which it may arise.
More recently, in Sanger & Sanger [2011] FamCAFC 210; (2011) 254 FLR 275; [2011] FLC 93-484; (2011) 46 Fam LR 275 the Full Court referred to Cawthorn’s case with approval. In Sanger’s case the meaning of ‘frustration’ in the law of contract was also considered. There can be little doubt that if these orders represented a commercial contract it would not have been ‘frustrated’ in the legal sense by the events the husband relies upon; rather the wife would simply be left to pursue her remedies as best she could.
As a result, I am not persuaded that this is a case that arguably falls within the ambit of s.79A(1)(b).
The application of s.79A(1)(c)
Finally, the husband argues that the case falls within the ambit of s.79A(1)(c), which provides:
(1) Where, on application by a person affected by an order made by a court under section 79 in property settlement proceedings, the court is satisfied that:
…
(c) a person has defaulted in carrying out an obligation imposed on the person by the order and, in the circumstances that have arisen as a result of that default, it is just and equitable to vary the order or to set the order aside and make another order in substitution for the order; …
This provision requires consideration of the circumstances that have arisen as a result of the default by the husband. The default by the husband has caused the wife to be deprived of benefits she would have otherwise received under the orders. At present it is only the wife whose position is altered as a result of the default by the husband. The wife makes no complaint and does not seek to set aside the orders. It cannot be the law that a person can fail to comply with an order, and thereby have a basis to set aside the orders, both as a matter of common sense, and on the express wording of the section (which requires that regard be had to the ‘circumstances that have arisen as a result of that default’).
Arguably the most generous interpretation that has been adopted of s.79A(1)(c) is that which appears in the case of In the Marriage of Monticone [1989] FamCA 92; (1990) FLC ¶92-114; (1989) 98 FLR 460; (1989) 13 Fam LR 592. In that case the husband made a number of payments pursuant to orders but had fallen into default. These orders required payments to be made to the wife by a fixed date. By the time that the wife sought to enforce the default provisions (requiring the sale of a property) the husband had made all of the payments (together with interest). In essence, the facts of Monticone’s case are akin to an application for relief from forfeiture: that is, the husband had remedied his default yet the wife was insisting that the default provisions for the sale of the property be enforced.
It is well established that equity would intervene ‘to grant relief against forfeiture for breach of covenant or condition where the primary object of the bargain is to secure a stated result and the provision for forfeiture is added as security for the production of that result’ (McGhee, ‘Snell’s Equity’ (Sweet and Maxwell, London, 31st Ed, 2005) at [11] to [17], as set out in Young et al ‘On Equity’ (Lawbook Co, Sydney, 2009) at [5.970]). It is unsurprising that the statutory discretion under s.79A(1)(c) would be exercised in similar circumstances to those in which equity has traditionally recognised as a basis for granting relief on the basis of unconscionability.
However, just as the equitable principles cannot be used by the courts to reshape a bargain to something that the court thinks is more fair (see Stern v McArthur (1988) 165 CLR 489 and Tanwar Enterprises Pty Ltd v Cauchi (2003) 217 CLR 315), neither can s.79A(1)(c) be so used.
Thus, I find that the husband does not have an arguable case pursuant to section s.79A(1)(c).
Conclusions
In the event that the circumstances were conduct within the meaning of one of the sub-sections of s.79A(1), I am of the view that on the facts as are now alleged by the husband, a substantially different result would be likely to flow, on any view of the case, in proceedings pursuant to s.79 of the Family Law Act if the consent orders were set aside.
However, as I have found that the husband does not have an arguable case with respect to his claims that the circumstances come within the ambit of s.79A(1), I must therefore summarily dismiss the s.79A application of the husband.
Consequential Procedural Considerations
As it is not unlikely that this judgment may be the subject of appeal, given the unusual facts that arise and there is an enforcement application pending, it is appropriate that I turn my mind to the question of case management issues consequent upon this judgment.
I note that an appeal to the Full Court from the consent orders coupled with an application to extend time to appeal and an application to move the Full Court to receive fresh evidence upon the questions of fact pursuant to s.93A of the Family Law Act may also be open to the husband (although in that regard, he would need to carefully consider the factors identified by the High Court in CDJ v VAJ [1998] 197 CLR 172 which would bear upon the question of whether the Full Court would grant leave to the husband to lead further evidence). Whether the Full Court, on an appeal (if leave to appeal is granted out of time) would accept fresh evidence on this point is not a question that I can determine. For present purposes I merely note that this course is technically open to the husband in this case.
If the husband appeals this decision granting the wife summary judgment or intends to apply for leave to appeal the consent orders out of time and to lead fresh evidence, he should consider pursuing both claims at the same time as occurred in Barker & Barker to minimise costs and delay, subject of course, to any directions by the Full Court.
If the husband decides to pursue an appeal (either from these orders, or the original property orders) he should do so within the period for appealing these orders. If, as seems likely, he then seeks a stay of the enforcement pending the appeal, he ought to file and serve any application for a stay immediately after filing any such appeal so that the stay application can be made returnable on the next court date. I therefore direct that the wife’s application for enforcement be listed on the first available date not less than one week after the expiration of the appeal period.
I certify that the preceding seventy-eight (78) paragraphs are a true copy of the reasons for judgment of Judge Riethmuller
Associate:
Date: 23 May 2014
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