Stone and Elliott and Anor - [2014] FCCA 181

FEDERAL CIRCUIT COURT OF AUSTRALIA

STONE & ELLIOTT & ANOR

[2014] FCCA 181

Catchwords:
FAMILY LAW – Determination of preliminary question regarding the priority of debts where funds lent to de facto couple by third party – third party claims priority to payment out of property funds – contest is between Applicant de facto Husband and third party (who is the Mother of the de facto Wife) – no formal agreement regarding loan from third-party – de facto Husband (and de facto Wife) acknowledged debt to third party by history of re-payments – ‘but for’ loan from third party the primary [property] asset of the parties would not have been purchased – consideration of principle qui prior est tempore potior est iure (s/he who is first in time takes precedence) – actions of de facto Husband acknowledging earlier debt/loan to third party constituting estoppel – oral contract between Husband & Wife and third party regarding ‘earlier in time’ loan and its repayment.

Legislation:

Family Law Act 1975, ss.79, 79(2), 90SM(3)

Australia & New Zealand Banking Group Limited v Widin (1990) 26 FCR 21; (1991) 102 ALR 289
Bevan v Bevan (2014) 49 Fam LR 387; (2013) FLC ¶93-545
Biltoft & Biltoft (1995) 126 FLR 385; (1995) FLC ¶92-614; (1995) 19 Fam LR 82
Burns Philp Trustee Co Ltd v Viney [1981] 2 NSWLR 216
Campbell & Kuskey (1998) FLC ¶92-795
Commissioner of Taxation v Worsnop (2009) FLC ¶93-392; (2009) 40 Fam LR 552
Grundt v Great Boulder Pty Gold Mines Ltd (1937) 59 CLR 641

Heid v Reliance Finance Corporation Pty Ltd (1983) 154 CLR 326
Latec Investments Ltd v Hotel Terrigal Pty Ltd (in liq) (1965) 113 CLR 265 National Provincial Bank Ltd v Ainsworth [1965] AC 1175
Plimmer v Mayor of Wellington (1884) 9 App Cas 699
Regent v Millett (1976) 133 CLR 679

A. Dickey, Family Law (Fifth Edition) (Sydney: Lawbook Co., 2007) & (Sixth Edition) (Lawbook Co., 2014)

R.P. Meagher, J.D. Heydon, M.J. Leeming, Meagher, Gummow & Lehane’s Equity: Doctrines & Remedies (Fourth Edition) (Sydney: Butterworths – LexisNexis, 2002)

D. Skapinker, “Equitable interests, mere equities, “personal” equities and “personal equities”, distinctions with a difference,” (1994) 68 ALJ 593

Applicant:

MR STONE

First Respondent:

MS C ELLIOTT

Second Respondent:

MS A ELLIOTT

File Number:

CAC 270 of 2013

Judgment of:

Judge Neville

Hearing date:

10 September 2013

Date of Last Submission:

28 October 2013

Delivered at:

Canberra

Delivered on:

26 February 2014

REPRESENTATION

Solicitors for the Applicant:

Farrar Gesini & Dunn

Solicitors for the First Respondent:

Nicholl & Co

Solicitors for the Second Respondent:

Campbell & Co

THE COURT DECLARES THAT:

As between the Applicant and the Second Respondent, there is a recognisable and ascertainable debt that is owing to the Second Respondent that arises out of funds provided by her to the de facto Husband (“the Husband”) and de facto Wife (“the Wife”) in approximately March 2007 in relation to the purchase a residence in [P] (“the property”);
The amount owing to the…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2014] FCCA 181
Decision Date: 26 February 2014

CaseChat Overview and Summary

This case concerned a dispute between the Applicant de facto Husband and the Second Respondent, who was the de facto Wife's mother, regarding the priority of debts from the net proceeds of sale of a property. The Second Respondent claimed priority for a loan she had provided, which was instrumental in the purchase of the property. The de facto Husband contested this claim, asserting his own unsecured debts.

The primary legal issue before the court was to determine the priority of the Second Respondent's claim for repayment of a loan against other unsecured debts, including those claimed by the de facto Husband. This involved considering whether the Second Respondent had established a legally recognised priority, particularly in light of the absence of a formal loan agreement and the nature of the de facto Husband's and Wife's acknowledgments of the debt.

Judge Neville applied the principle of *qui prior est tempore potior est iure* (he who is first in time takes precedence), finding that the de facto Husband and Wife's acknowledgment of the debt to the Second Respondent, evidenced by a history of repayments and the crucial role of the loan in acquiring the property, created an estoppel. This established an oral contract and an earlier equitable interest in favour of the Second Respondent, giving her loan priority over the de facto Husband's unsecured debts. The court also considered principles relating to the treatment of contingent tax liabilities and the rights of third-party creditors in family law proceedings, noting that a creditor does not gain enhanced rights through intervention in a s 79 application.

The court ordered that the sum of $14,000 be paid to the Second Respondent in priority to all other unsecured debts out of the net proceeds of sale of the property, within 45 days of the order. The Husband was also ordered to pay the Second Respondent's costs of the Application in a Case.

Orders

Orders of the court

1. The sum of $14,000 is to be paid to the Second Respondent in priority to all other unsecured debts (including those claimed by the Husband) out of the net proceeds of sale of the property (after the mortgage and associated costs have been paid). In the absence of agreement in writing between the Husband and the Second Respondent, that sum is to be paid within 45 days of the date of these orders;

2. The Husband pay to the Second Respondent the costs of the Application in a Case, filed 18th July 2013, either as agreed or taxed.

Background

Background to the litigation

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Evidence

Evidence Before The Court

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Decision

Reasons for decision

In relation to tax liabilities, in Campbell & Kuskey the Full Court said (emphasis added):[18]… Suffice to say at this point, that the tenor of his Honour's reasons for judgment clearly was that he intended to recognise any liability which the husband may suffer at any time in the future, as a consequence of the application by the Deputy Commissioner for Taxation of the provisions of s 108 of ITAA to the parties' loan accounts, as a relevant s 75(2) factor. In our opinion, in most cases it would not be appropriate for trial judges to treat a contingent taxation liability in this fashion. As a general rule trial Judges should make a finding, on the balance of probabilities, as to whether or not such a liability exists, and if so in what amount. If it be found that such a liability exists, the Court should take it into account when calculating the net amount available for distribution between the parties, but in an appropriate case discounting the amount of such liability if circumstances warrant, for example, through uncertainty as to the time for payment.[18] Campbell & Kuskey (1998) FLC ¶92-795 at p.84,917. And further, should it be relevant, here, while the Husband asserts that there are certain sums owing to the ATO, there remains quite some uncertainty over other sums he claimed. And to return to Worsnop, the Full Court said, at [78] (emphasis added):While it is well-established that under s 79 the Court may make orders within a s 79 order, for payment by a spouse, or by both spouses, of a debt to a third party, whether that third party has intervened or not, in our view the s 79(2) requirement that an order under the section not be made unless it is just and equitable to do so, relates to the order made pursuant to s 79(1). Altering the interests of the parties to the marriage in the property does not mean that an intervening third party creditor acquires by intervention some rights based on s 79(2) for a just and equitable remedy, that are additional to the creditor’s other rights at law. Also in Worsnop, the Full Court further said, at [80] – [81] (emphasis added):[80] …the creditor who becomes a party does not step up in status to become entitled to greater “justice and equity” than the non-party creditor.[81] This does not mean that the principles of fairness, justice and equity to a creditor ought not be addressed, where there is in prospect a reduction in the property of the debtor spouse, for the purpose of satisfying the s 79 claim of the other spouse, which reduction might adversely effect the prospects of recovery of the creditor, but this position does not arise because of the application of s 79(2). Finally, it is apposite to note some further comments from the decision in Bevan, in addition to those to which I have earlier referred. Thus, at [78], the Court continued [in Bevan] (emphasis added):Nevertheless, there will be cases, of which Stanford may have been one, where the assertion (or lack thereof) of an existing equitable interest in property held by the other party may be of critical importance in deciding whether it would be just and equitable to interfere with the existing legal ownership. And of course it will always be important to determine whether one party has an equitable interest in property owned by a third party.

Ratio Decidendi

Legal Principle Established

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