Trustee for the Bankrupt Estate of N Lasic & Lasic

[2009] FamCAFC 64

FAMILY COURT OF AUSTRALIA

TRUSTEE FOR THE BANKRUPT ESTATE OF N LASIC & LASIC [2009] FamCAFC 64

FAMILY LAW – APPEAL – PROPERTY – Whether trial Judge erred in varying under s 79A of the Family Law Act 1975 (Cth) consent orders made in 1998 – Where husband became bankrupt after making of consent orders under s 79 – Where the Trustee in Bankruptcy was the applicant in s 79A proceedings

FAMILY LAW – APPEAL – PROPERTY – Where Trustee in Bankruptcy appealed against the trial Judge’s orders – Where trial Judge made orders for payment by wife direct to the husband’s creditor and not to the Trustee in Bankruptcy

FAMILY LAW – CROSS-APPEAL – PROPERTY – STANDING OF TRUSTEE – Where wife cross-appealed – Whether the Trustee in Bankruptcy was a ‘person affected’ by s 79 orders – Where s 79A(5) had no application – Where husband made bankrupt prior to 2005 amendments – Consideration of legislation regarding the standing of the Trustee in Bankruptcy – Consideration of the effect of the 2005 amendments –Amendments not applicable in these proceedings

FAMILY LAW – CROSS-APPEAL – PROPERTY – STANDING OF TRUSTEE – Whether the Trustee in Bankruptcy was a ‘person affected’ by the consent orders under s 79 – Review of pre-2005 authorities – Full Court determined the Trustee in Bankruptcy was a ‘person affected’ and therefore entitled to bring proceedings – No merit in this ground of the cross-appeal by the wife

FAMILY LAW – APPEAL – PROPERTY – ORDER FOR PAYMENT TO CREDITOR NOT TO TRUSTEE – Whether trial Judge erred in making an order for payment directly to the husband’s creditor – Consideration of the provisions of the Family Law Act 1975 (Cth) and the Bankruptcy Act 1966 (Cth) – Whether trial Judge relied on Part VIIIAA of the Family Law Act 1975 – Held: Part VIIIAA had no application as the orders were not set aside but varied – Where the scheme of the Bankruptcy Act 1966 determines creditors’ rights – Where from the time of his bankruptcy the husband’s unsecured creditors’ rights were converted into a right to prove in the administration of his bankrupt estate (s 82 Bankruptcy Act) and share rateably with other unsecured creditors in accordance with the priorities contained in s 109 of the Bankruptcy Act – No jurisdiction to make order for payment directly to the husband’s creditor

FAMILY LAW – APPEAL – PROPERTY – CONTRIBUTION – Whether trial Judge in error in his assessment of contribution – Trial Judge used inflation factor to adjust the husband’s entitlements – Use of inflation factor did not adequately reflect the substantial increase in value of at least one property – Trial Judge’s assessment of sum to be paid by wife was outside the reasonable ambit of his discretion – Matter remitted for rehearing

FAMILY LAW – APPEAL – COSTS OF THE APPEAL – Where proceedings as a whole were necessitated by the wife’s conduct in entering into fraudulent consent orders – Where wife asserted on appeal no sum should be paid to the Trustee or the Intervenor –Where intervenor (husband’s creditor) impecunious – Where Trustee in Bankruptcy has already incurred significant costs – Where respondent wife in superior financial position to intervenor – Where appeal successful – Wife ordered to pay the costs of the appellant and the intervenor

FAMILY LAW – CROSS-APPEAL – APPEAL AGAINST TRIAL JUDGE’S COSTS ORDERS – The wife cross-appealed against the costs order made against her by the trial Judge – Material not before the Full Court – To be dealt with by way of written submissions

Bankruptcy Act 1966 (Cth) ss 5, 58(3)(b), 58, 63, 109, 116(2)(g), 121
Bankruptcy & Family Law Legislation Amendment Act 2005 (Cth)
Family Law Act 1975 (Cth) ss 4(1), 75(2), 75(2)(ha), 79(1), 79(2), 79(1C), 79(10), 79A, 79A(5), 79A(10A), 90AA, 90AD(1), 117, 117(2A), Part VIIIAA

Allesch v Maunz (2000) 203 CLR 172; (2000) FLC 93-033
Audet & Audet; Official Trustee in Bankruptcy (1995) FLC 92-607
Abalos v Australian Postal Commission (1990) 171 CLR 167 at 178
Biltoft and Biltoft (1995) FLC 92-614
Chemaisse & Chemaisse; Federal Commissioner of Taxation (1988) FLC 91-915
Clyne v Deputy Commissioner of Taxation (1984) 154 CLR 589
Deputy Commissioner of Taxation v Kilman and Kilman (2002) FLC 93-113
Deputy FederalCommissioner of Taxation (WA) v Spanjich & Spanjich (1988) FLC 91-974
Fraser v Deputy Commissioner of Taxation (1996) 138 ALR 689
Gallo v Dawson (1990) 93 ALR 479
Hill v Haines [2008] Ch 412; [2008] WLR 1250
House v The King (1936) 55 CLR 499
Housing Commission of NSW v Tatmar Pastoral Co Pty Ltd (1983) 3 NSWLR 378
Kennon v Spry (2008) 251 ALR 257
Kohan and Kohan (1993) FLC 92-340
Official Trustee in Bankruptcy v Donovan and Stevens (1995) FLC 92-596
Official Trustee in Bankruptcy v Donovan and Donovan and Stevens (1996) FLC 92-703
Official Trustee in Bankruptcy v Higgins (2000) 183 ALR 459
Official Trustee in Bankruptcy v Mateo (2003) 202 ALR 571
O’Grady v Northern Queensland Co Ltd (1990) 169 CLR 356
Parker and Parker (1983) FLC 91-364
Pettitt v Dunkley (1971) 1 NSWLR 376
Re Newman; Ex Parte Brooke (1876) 3 Ch D 494 (CA)
Simpson and Hamlin (1984) FLC 91‑576
Soulemezis v Dudley (Holdings) Pty Ltd (1987) 10 NSWLR 247
SS Hontestroom v SS Sagaporack [1927] AC 37
Water Board v Moustakas (1988) 180 CLR 491
Williams & Williams [2007] FamCA 313
Workers' Compensation Board of Queensland v Technical Products Pty Ltd (1988) 165 CLR 642
Zdravkovic & Zdravkovic (1982) FLC 91-220

APPELLANT: Trustee for the bankrupt estate of N Lasic

RESPONDENT: Ms Lasic

INTERVENOR: Mr M

FILE NUMBER: PAF 7534 of 1997

APPEAL NUMBER: EA 114 of 2007

DATE DELIVERED: 28 April 2009

PLACE DELIVERED: Sydney

PLACE HEARD: Sydney

JUDGMENT OF: Boland, Thackray & Ryan JJ

HEARING DATE: 4 September 2008, written submissions 8 October 2008

LOWER COURT JURISDICTION: Family Court of Australia

LOWER COURT JUDGMENT DATE: 5 October 2007

LOWER COURT MNC: [2007] FamCA 1188

REPRESENTATION

COUNSEL FOR THE APPELLANT: Mr McClintock SC with Mr Durston

SOLICITOR FOR THE APPELLANT: HWL Ebsworth Lawyers

COUNSEL FOR THE RESPONDENT: Mr Sweet

SOLICITOR FOR THE RESPONDENT: Turner Freeman

COUNSEL FOR THE INTERVENOR: Mr Levy

SOLICITOR FOR THE INTERVENOR: Watts McCray

Orders

1. That the appeal against Orders 1 and 2 of the orders made by the Honourable Justice Coleman on 5 October 2007 is allowed.

2. That the cross-appeal against Orders 1 and 2 of the orders made by the Honourable Justice Coleman on 5 October 2007 is allowed.

3. That the appellant’s application be listed for rehearing as soon as practicable before a Judge in the Parramatta Registry other than Coleman J.

4. That the respondent wife pay the costs of the appellant and the intervener in respect of the appeal as agreed and failing agreement as assessed pursuant to Chapter 19 of the Family Law Rules 2004.

5. That the cross-appellant file and serve any written submissions on which she seeks to rely in respect of the cross-appeal against Orders 1 and 2 of the orders made by the Honourable Justice Coleman on 14 February 2008 within 21 days of the date of these orders by filing such written submissions with the Appeal Registrar, Eastern Appeal Registry and serving copies of the submissions on the first and second respondent to the cross-appeal.

6. That the first and second respondent to the cross-appeal file and serve written submissions, if any, on which they seek to rely within a further 21 days of receipt of the cross-appellant’s submissions in respect of the cross-appeal against Orders 1 and 2 of the orders made by the Honourable Justice Coleman on 14 February 2008.

7. That the cross-appellant file and serve any written submissions in reply on which she seeks to rely within a further 7 days of receipt of the first and second respondent’s submissions.

8. That each submission have endorsed on the cover sheet the date on which a copy of that submission was served on the other party.

IT IS NOTED that publication of this judgment under the pseudonym Trustee for the bankrupt estate of N Lasic & Lasic is approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).

THE FULL COURT OF THE FAMILY COURT OF AUSTRALIA AT SYDNEY

Appeal Number:  EA 114 of 2007
File Number: PAF 7534 of 1997

Trustee for the bankrupt estate of N Lasic

Appellant

And

Ms Lasic

Respondent

And

Mr M
Intervenor

REASONS FOR JUDGMENT

Introduction

1. The trustee for the bankrupt estate of Mr N Lasic (“the trustee”) has appealed against orders made by Coleman J on 5 October 2007 in proceedings instituted by the trustee against Ms Lasic.

2. The proceedings were brought under s 79A of the Family Law Act 1975 (Cth), which we will refer to as “the Act”. We will also refer to the late Mr Lasic as “the husband” and Ms Lasic as “the wife”, although sometimes we will refer to them collectively as “the spouses”.

3. At trial, the trustee sought an order setting aside consent property settlement orders made in 1998 in proceedings between the spouses.  Pursuant to these orders, the husband’s interest in six jointly owned pieces of real estate were transferred to the wife.  The trustee sought an order designed to ensure that these properties revert to their previous ownership (with the effect that the husband’s entitlements would vest in the trustee).  

4. The wife conceded in the proceedings below that an inference was open that the consent orders had been entered into with a view to avoiding liability under a possible damages award against the husband, such that the making of the orders constituted a miscarriage of justice. 

5. The potential damages related to serious injuries sustained by Mr M, who had been shot by the spouses’ elder son with a rifle owned by the husband.  Mr M commenced proceedings in the District Court of New South Wales against both the husband and the wife, as well as their son. 

6. Ultimately only the husband and the son were found liable in negligence and were ordered to pay damages to Mr M.  As a result of his failure to pay the judgment debt, the husband was made bankrupt in June 2000 and Mr W was appointed as the trustee of his estate. 

7. In December 2006, Mr M was made bankrupt on his own petition.  Included in his liabilities, which were said to total nearly $337,000.00, was an amount of $29,000.00 Mr M owed the wife for costs awarded in the District Court proceedings.

8. The husband, who was aged 85 years at the date of the hearing, did not participate in the proceedings before the trial Judge, and shortly after the hearing, but before delivery of reasons for judgment, died.

9. Relying on the concession made by the wife, Coleman J found that the circumstances in which the consent orders had been made constituted a miscarriage of justice.  His Honour determined that the consent orders should be “amended” and on 5 October 2007 he made the following orders:

   1.That within 60 days the [wife] pay the sum of $319 081.38 to [Mr M].

   2.That liberty be reserved to the [trustee] or [Mr M] to apply for orders to enforce Order 1 in the event of the [wife] failing to pay the sum therein ordered together with interest accrued thereon pursuant to the Rules within 90 days of this order.

   …

10. Having received submissions on costs, Coleman J made the following orders on 14 February 2008:

    (1)That the respondent wife pay the costs of and incidental to the proceedings of the trustee of the bankrupt estate of the deceased former husband as and from the date of filing of the trustee’s originating application to this Court on a solicitor/client basis as agreed or assessed under the Family Law Rules 2004 (Cth).

    (2)That for the purpose of the assessment of costs pursuant to Order 1, Rule 19.18 Family Law Rules 2004 (Cth) does not apply.

    (3)That it be certified pursuant to Rule 19.50 Family Law Rules 2004 (Cth) that this matter reasonably required the attendance of Counsel.

11. At the time these orders were made, Mr M was not a party to the proceedings and was still a bankrupt.  The Report to Creditors prepared by the trustee of his bankrupt estate, Insolvency and Trustee Service Australia, had recorded it was not expected that any dividend would be paid to Mr M’s creditors.  The Report made no reference to the damages award (or any interest in the husband’s bankrupt estate) as an asset of Mr M.  In this regard it is noted that by virtue of s 116(2)(g) of the Bankruptcy Act 1965 (Cth) (“the Bankruptcy Act”), any damages recovered by a bankrupt in respect of personal injury are not divisible amongst creditors. 

The appeal and the cross-appeal

1. The primary propositions of senior counsel for the trustee in support of the appeal were that the trial Judge had erred in:

   ·    not setting aside the consent orders, given that they had been obtained by a fraud in which the wife had been complicit;

   ·    ordering a payment directly to Mr M, as any sum payable vested in the husband’s bankrupt estate; and

   ·    his assessment of the wife’s contribution entitlements.

2. The trustee proposed in his “Further Amended Notice of Appeal” that the consent orders should be set aside and new orders made under s 79 dividing the assets of the husband and wife equally (with the husband’s entitlements being received by the trustee). However, in his oral submissions, senior counsel for the trustee conceded that if the appeal were allowed, it may be necessary to remit the matter for re-hearing. (Transcript, 4 September 2008, p 27)

3. By her cross-appeal, which was filed by leave granted at the hearing before us, the wife asserted that the trial Judge had erred in:

   · entertaining the trustee’s application in circumstances where no finding had been made as to whether the trustee was a “person affected” within the meaning of s 79A;

   ·    varying the consent orders and requiring the wife to pay an amount directly to Mr M; and

   ·    ordering the wife to pay the trustee’s costs. 

4. In considering the first of the wife’s propositions, it should be noted that it was common ground that s 79A(5) of the Act did not apply. This provision, which was inserted in the Act by amendments made in 2005, now specifically provides that a bankruptcy trustee is a “person affected” by a property settlement order when one of the parties to a marriage is bankrupt at the time the order was made or subsequently becomes bankrupt.

5. Mr M was joined as a party to the appeal.  He sought that both the appeal and cross-appeal be dismissed. There was no appearance on behalf of the husband’s executor or administrator at the hearing of the appeal. 

6. After we have set out additional background material, reviewed the trial Judge’s reasons, and recorded the grounds of appeal and the cross-appeal,  we propose to:

   · First, examine the question of the status of the trustee to bring the s 79A proceedings (the jurisdictional question raised by the cross-appeal);

   ·    Second, consider whether the trial Judge could order a payment by the wife to Mr M under the Act, and also examine whether s 58 of the Bankruptcy Act precluded the trial Judge making a payment direct to Mr M;

   ·    Third, consider whether his Honour erred in assessing the spouses’ entitlements, both at the time of the consent orders and at the time of the trial;

   ·    Fourth, consider whether his Honour erred in varying the consent orders, rather than setting them aside;

   ·    Fifth, if we find merit in the appeal, or cross-appeal, consider whether we should re-exercise the discretion;

   ·    Sixth, provide reasons for the decision made at the hearing to grant leave to the wife to rely upon her Notice of Cross-appeal;

   ·    Seventh, consider how we will deal with the wife’s challenge to the costs orders made by his Honour, no appeal books having been prepared for the cross-appeal;

   ·    Eighth, determine the competing applications for costs relating to the appeal and the cross-appeal.  

Background

1. The following background material appears in the trial Judge’s reasons, or has been extracted by us from the appeal books.  In the latter case we have usually identified the relevant source.

2. The husband was born in 1921 and the wife in 1938.  They were aged 85 years and 69 years respectively at the date of the trial.  They met in 1966 and were married in October 1968. There were two children of the marriage, M born in 1969 and R born in 1970.

3. The wife asserted that she and the husband separated under the same roof in 1986 (wife’s affidavit filed 23 January 2006) although in their application for consent orders, the husband and wife asserted separation under the one roof from 16 January 1987.  They were divorced on 1 April 1998.

4. In 1967, prior to the marriage, a property at L (“the L land”) was purchased in the spouses’ joint names for a purchase price of $3,000.00.  The wife asserted she found the property and provided the whole of the purchase monies from her pre-cohabitation savings. (Wife’s affidavit filed 23 January 2006, paragraph 22)

5. At the date of the marriage the husband owned a property in an inner-city suburb (“the Sydney property”). The wife also asserted that at the time of the marriage the husband owned property in Croatia (Wife’s affidavit filed 23 January 2006, paragraph 19).

6. The parties purchased a number of properties during their relationship.  The wife asserted the properties were acquired on her initiative and funded solely by her but, as the husband did legal paperwork, had better English, and for tax reasons, the properties were acquired in joint names. (Wife’s affidavit filed 23 January 2006, paragraph 29)

7. In 1969 the wife purchased three units in a country town (“the country-town units”) for $2,000.00.  The wife asserted that she provided the purchase price from her personal savings. (Wife’s affidavit filed 23 January 2006, paragraph 27)

8. The wife asserted that in 1972 she invested her own monies to start a poultry business on leased property at A.  The spouses both applied for and obtained a business loan for the purchase of equipment and stock.  The wife further asserted the husband worked full time for approximately two weeks in the poultry business until he was severely injured in a gas explosion. (Wife’s affidavit filed 23 January 2006, paragraphs 31 & 32)

9. The wife asserted the husband ceased working in 1973 and from 1974 made no contributions to the property of the spouses or the welfare of the family.  The wife further asserted the husband did not receive a pension or government benefits but did receive rental from his Sydney property. (Wife’s affidavit filed 23 January 2006)

10. In 1974 the L land was resumed and compensation of $30,000.00 was paid.  In about July 1977 the spouses purchased a property (“the HP property”) for a purchase price of $36,000.00.  The purchase price was funded with the compensation received for the L land. (Wife’s affidavit filed 23 January 2006)

11. In 1977 the spouses purchased a property at H (“Lot 3C H”) for a purchase price of $42,000.00.  The wife asserted the purchase price was funded from profits of the poultry farm business and her personal savings. (Wife’s affidavit filed 23 January 2006, paragraph 38)

12. In 1980 the spouses purchased a property Z (“the Z property”) for a purchase price of $65,000.00.  The wife initially asserted she paid for the Z property from her personal savings (Wife’s affidavit filed 23 January 2006) but in her oral evidence in chief said she had paid using money provided by her mother.

13. In 1981 the spouses built a new house on a block within Lot 3C H property (“the W Road property”).  The spouses jointly signed construction contracts.  The wife asserted that the funds for the construction of the home were provided from her savings and profits of the poultry farm business. (Wife’s affidavit filed 23 January 2006, paragraph 40)

14. In about 1981 the country-town units were destroyed in a fire.  The wife received approximately $90,000.00 from an insurance claim in relation to the fire and asserted that she subsequently sold the land for $75,000.00. (Wife’s affidavit filed 23 January 2006, paragraph 41, as corrected in her oral evidence in chief)

1. In 1982 the husband’s Sydney property was sold for $206,000.00. (Wife’s affidavit filed 23 January 2006, paragraph 42)

2. In 1983 the wife received $82,000.00 for injuries received in a motor vehicle accident. (Wife’s affidavit filed 23 January 2006, paragraph 49)

3. In 1983 the spouses purchased another property in a country-town (“the second country property”) for a purchase price of $175,000.00.  The wife asserted the purchase was funded from the insurance payout and proceeds of sale of the country-town units and profits from the poultry farm business. (Wife’s affidavit filed 23 January 2006, paragraph 43)

4. In about 1985 the wife received $50,000.00 damages for an injury suffered in another motor vehicle accident.

5. In 1994 the spouses sold the Lot 3C H property (other than the lot comprising the W Road property) for a sale price of $390,000.00.  The wife asserted the spouses each received approximately $190,000.00 from the net proceeds of sale. (Wife’s affidavit filed 23 January 2006, paragraph 44).

6. On 29 March 1994 the spouses’ son shot and seriously injured Mr M whilst he was at the spouses’ home (the H property).

7. In about April 1995 the spouses purchased a property at M (“the M property”) for a purchase price of $175,000.00.  The purchase price was funded from the proceeds of sale of Lot 3C H property. (Wife’s affidavit filed 23 January 2006, para 55)

8. In about December 1995 the spouses purchased another property at H (“the BB property”) for a purchase price of $150,000.00.  The wife asserted the BB property was purchased with money saved from her rental investment income, funds invested in a term deposit and with her compensation received for the two motor vehicle accidents. (Wife’s affidavit sworn 23 January 2006, paragraph 56)

9. In 1996 Mr M commenced proceedings in the District Court seeking damages for injuries caused to him, asserting negligence by the son and the spouses.

10. The spouses filed a joint application for dissolution of marriage on 22 December 1997.  That application recorded that, from 16 January 1987 until December 1997, the spouses lived separately and apart under the one roof.

11. On 2 April 1998 the consent orders were made in the Family Court.  The orders provided for the transfer by the husband of six parcels of real property to the wife.  This was all of the real estate then owned by the parties, namely the W Road property, the BB property, the M property, the Z property, the second country property and the HP property.  The joint affidavit of the spouses sworn in support of the application for consent orders asserted that the real estate was worth $975,000.00 and that the wife had a motor vehicle and furniture with a combined value of $15,000.00. 

12. The husband’s affidavit sworn in support of the application for consent orders included the statement that he elected to proceed with the application “despite advice I will be entitled to a significantly larger share of the matrimonial property”.  The husband also asserted in his affidavit that he was the owner of property in Yugoslavia, and deposed to his intention to return to Yugoslavia.  The Minute of Consent orders signed by the parties also carried a notation “The Court notes that the husband is the sole owner of a property comprising some 20 acres located about 50km from Belgrade, Yugoslavia.”  It was not in dispute before the trial Judge that this notation was incorrect and that the parties’ evidence to the same effect was false.

13. On 26 June 1998 Patten DCJ entered judgment for Mr M against the spouses’ elder son and dismissed the claim against the spouses by entering a verdict for each of them as defendants.

14. On 2 July 1998 Patten DCJ assessed damages payable pursuant to the judgment in the sum of $201,589.07.

15. Mr M appealed to the New South Wales Court of Appeal.  On 22 March 2000, the Court of Appeal upheld the verdict against the son and allowed Mr M’s appeal against the husband.  Mr M did not seek to appeal the verdict against the wife.  Costs orders were made and subsequently taxed.

16. On 30 June 2000 a sequestration order was made in the Federal Court in respect of the husband’s estate.

17. In 2002 the Roads & Traffic Authority (“RTA”) resumed the HP property.  The wife received initial compensation of $900,000.00 (Wife’s affidavit filed 23 January 2006, paragraph 78).  After litigation, pursuant to a settlement with the RTA, the wife received a further payment with the result that the total compensation received for the land was $2,331,932.47. (Wife’s affidavit filed 12 July 2007, paragraph 2)

18. The wife invested $1 million of the funds received from the RTA into a superannuation fund. (Wife’s affidavit of 12 July 2007, paragraph 2(e))

19. On 25 February, and again on 12 April 2002, the wife was examined in the Federal Court of Australia pursuant to s 81 of the Bankruptcy Act.

20. On 20 January 2005, the trustee commenced proceedings against the wife in this Court under s 79A. The trustee’s application was listed for hearing before the trial Judge on 27 March 2006, but on the application of the trustee, the proceedings were adjourned. On that occasion an oral concession was made by counsel acting on behalf of the wife that the consent orders could be set aside, there having been a miscarriage of justice for the purposes of s 79A(1)(a).

21. The proceedings resumed before the trial Judge on 16, 17 and 18 July 2007.  At the commencement of the trial the wife’s net assets were agreed in the sum of $2,548,862.00 and she had superannuation of approximately $1,000,000.00.  Mr M’s entitlement pursuant to the judgment debt totalled $470,914.44 which comprised the judgment debt and interest of $391,991.69, plus costs of $78,922.75.  His liability to the wife for costs was noted at $29,000.00.

22. At the conclusion of the hearing his Honour reserved his reasons for judgment.  Prior to delivery of reasons for judgment, the trial Judge was advised that the husband had died in early August 2007.  On 17 August 2007 the trial Judge published his reasons for judgment (“the first judgment”) but did not take out orders in view of the death of the husband. 

23. After receipt of further submissions, his Honour delivered supplementary reasons for judgment on 5 October 2007 (“the supplementary judgment”) and made the orders the subject of this appeal.

TRIAL JUDGE’S REASONS FOR JUDGMENT

The first judgment

1. The trial Judge commenced his reasons by noting the application of the trustee and summarising the effect of the relief sought, namely that the consent orders should be set aside and the property of the wife divided equally between the trustee and the wife.  His Honour also noted the wife’s opposition to any order setting aside or varying the consent orders. 

2. His Honour recorded that, subject to any “notional add-backs” he might make, the wife’s property had a value of approximately $3.6 million.  Having recorded the submission of counsel for the trustee that the trustee’s claim was worth not less than 25 per cent of the value of the wife’s assets, his Honour noted that the trustee was seeking an amount between $900,000.00 and $1.8 million. 

3. The trial Judge then explained that after he had prepared his reasons for judgment, and was about to deliver judgment, he was provided with advice that the husband had died. 

4. Under the heading “Background” his Honour set out a written concession made on behalf of the wife at the resumed hearing which had become an exhibit before him.  That exhibit was crucial to his Honour’s later determination to vary the orders on the basis that the spouses had engaged in conduct which resulted in a miscarriage of justice in the making of consent orders.  Exhibit “R1” is in the following terms:

   1. that the inference arising from the circumstances of the making of the Consent Orders on the 2^nd April 1998 is that the intent of the Husband and Wife was to avoid possible recovery of any liability that the husband may have had after the said Consent Orders to [Mr M] arising from then current proceedings in the District Court of New South Wales in which the husband and wife were the Second and Third Defendants respectively and;

   2. that as a consequence of the failure of the husband and wife to notify [Mr M] of the proposed Consent Orders and their failure to refer to the then pending District Court of New South Wales proceedings in the Application for Consent Orders there was a failure to disclose relevant information and

   3. that such circumstances are sufficient to enliven the exercise of the courts [sic] discretion pursuant to s79A of the Act. [Concession by the Respondent Wife, Exhibit R1, paragraphs 1 – 3]. (paragraph 6) 

5. His Honour noted the concession was to the same effect, and in substantially the same terms, as an oral concession made by counsel appearing for the wife when the trial was due to commence on 27 March 2006.  His Honour then explained  at paragraph 8:

   The effect of the concession, it is common ground, is that the threshold to relief under s 79A of the Act is conceded by the wife. As is also common ground, the issue for determination in the proceedings is thus whether, in all the circumstances, the Court should now set aside or vary the consent orders of 2 April 1998 pursuant to the section.

6. At paragraphs 10-20 of his reasons for judgment, the trial Judge set out details of the application made to the Court at the time the spouses sought to have the consent orders made.  His Honour concluded his discussion of this topic by noting that the husband derived no benefit from any of the properties the subject of the consent orders.

7. Thereafter, under the heading “The Proceedings in this Court”, the trial Judge set out the background leading to the proceedings, namely the litigation in the New South Wales Court of Appeal, the issuing of a bankruptcy notice and the subsequent sequestration order made on 30 June 2000. His Honour noted that the wife had been extensively examined in the bankruptcy proceedings, a transcript of which was in evidence in the s 79A proceedings.

8. The trial Judge then dealt with aspects of the evidence dealing with issues of contribution by the spouses to their property.  His Honour commenced his discussion noting that the only direct evidence in relation to contribution issues was that of the wife.  His Honour made observations about the lack of evidence, or attempt to obtain any evidence from the husband, and was critical of the failure to adduce any evidence other than a letter from the wife’s solicitors in which it was asserted “the husband was living in a nursing home, suffering from dementia and cognitive impairment, diabetes induced sight impairment and inability to read” (first judgment, paragraph 27).  His Honour then went on to comment on the delay by the trustee in prosecuting the proceedings following the wife’s examination in the bankruptcy which, as a consequence, his Honour explained, left the wife with no reason to anticipate proceedings being brought against her.

9. His Honour thereafter proceeded to discuss the evidence of the wife which he noted “left much to be desired”.  His Honour commented on “a dearth of documentation” to corroborate the wife’s assertions.  His Honour went on to comment on the state of the evidence noting, at paragraph 32 of his reasons, as follows:

   Given that no instructions have apparently ever been taken from the husband or any other person who might have knowledge of the events alleged by the wife in her evidence, counsel for the trustee was limited in cross-examination to testing the reliability and accuracy of the wife’s evidence. Consistent with the ethical constraints imposed by those realities, counsel for the trustee was unable to assert any contrary version of events to those asserted by the wife. Cross-examination of the wife within those practical and ethical constraints failed to reveal an alternative version of events to those asserted by the wife. 

10. His Honour considered the trustee’s submissions in respect of the wife’s evidence explaining at paragraph 34:

    The only direct evidence with respect to contributions is that of the wife. It cannot be said that there is any evidence rebutting or denying the wife’s claims. To the extent that counsel for the trustee appeared to submit that the Court should reject the wife’s evidence or, at the very least, regard the wife’s claims as gross exaggerations, the difficulty the Court has is that even if it rejected the substance of the wife’s claims, notwithstanding the absence of any evidence justifying so doing, the absence of evidence establishing any different version of events would leave the Court unable to make findings with respect to contributions. To resort to presumptions in those circumstances would not appear to be a permissible course to adopt (see Mallett v Mallett (1984) 9 Fam LR 449).

11. The trial Judge’s assessment of the wife’s credibility was set out at paragraphs 46-51 of his reasons.  As his Honour’s ultimate conclusions about the wife’s entitlements were in part based on those findings, and as those conclusions are subject of challenge it is appropriate to set out his Honour’s conclusions in full:

    46.The direct evidence with respect to contributions is that of the wife only. Realistically, the extent to which the wife’s allegations are accepted is thus pivotal to the findings of fact the Court makes. The wife did not impress as a witness. The Court cannot ignore the reality that, albeit in cooperation with the husband, the wife engaged in deceitful conduct in April 1998. In terms of credibility, the wife cannot conveniently walk away from implications of that conduct. This is perhaps the more so given the nature of the potential liability which she and the husband sought to defeat.

    47.As a reading of the transcript of the proceedings in this Court at trial would confirm, the wife’s version of events has been inconsistent and unsatisfactory in a number of material respects. There have been inconsistencies between previous sworn evidence and written and oral evidence in these proceedings, internal inconsistencies in the oral evidence given during cross-examination, conceded material and significant errors in the written material presented to this Court, vagueness and a selective memory, all indicative of a desire to give evidence in the terms perceived to be most helpful at the time such evidence was given.

    48.It is inherently improbable that if, as her affidavit asserts, the husband made no contributions from 1974 at the latest, the wife would have dealt with real estate in the way in which her evidence reveals. The explanation proffered for such dealings in the wife’s affidavit material is unconvincing, and differs materially from what seems to have ultimately been suggested to have been the reason for doing so, as it emerged from her evidence in cross-examination.

    49.Having seen and heard he [sic] wife give evidence, having regard to the inaccuracies in such evidence, and the damage to the wife’s credibility resulting from her cross-examination, the Court does not accept that the wife would have repeatedly placed properties in the joint names of herself and her husband had he failed to contribute to the extent and in the ways which her evidence asserts.

    50.The Court concludes that there is a significant measure of convenient exaggeration in the evidence of the wife. Viewing the wife’s evidence with “suspicion” is warranted.

    51.In reaching its conclusions with respect to the wife’s claims, the Court is mindful of the reality that, as the wife suggested from the witness box, English is not her first language. That suggestion, well into cross-examination, by which time the wife could not have failed to realise the likelihood of the Court regarding her evidence with caution, is to be contrasted with the picture of success and skill in relation to the acquisition, conservation, improvement and realisation of various assets over a long period of time which her affidavit evidence sought to convey. In that context, language was not even hinted at as a limiting or impeding factor. The Court’s adverse findings with respect to the credibility and reliability of the evidence of the wife are not undermined by any lack of understanding of the English language on the part of the wife. 

12. His Honour then turned to consider the assets and liabilities of the spouses.  He recorded that, save for two issues, there was no dispute about the property.  The wife had net assets worth $3,548,826.00, of which $1,000,000.00 was held in a superannuation fund to which the wife had access “without detriment”.

13. The two issues about which there was dispute were notional “add backs” of $195,000.00 and $206,000.00, which the wife asserted the husband had received and retained.  His Honour noted the husband had never made any admissions about these amounts, and that in the documents provided to the Court when obtaining the consent orders, there had been “no hint” that the wife alleged the husband had funds of that magnitude.  He also noted there was no other documentation which shed any “helpful light” on the issue.

14. His Honour recorded the wife had no relevant liabilities but that it had been asserted on behalf of the husband [semble the trustee] in Exhibit “A1” that the husband’s bankrupt estate had debts of $1,055,462.00.  In dealing with this assertion his Honour said at paragraph 54:

    That figure is asserted in reliance upon an agreement between [Mr M] and the trustee. (see Exhibit A1)  The circumstances surrounding the agreement between the creditors of the bankrupt estate (which really means [Mr M] as he is the only creditor of the estate) and the trustee are of concern. Those concerns fall outside the ambit of this Court’s jurisdiction, but remain relevant to the determination of the liabilities of the parties for the purpose of these proceedings.

15. His Honour went on to find that it was not controversial that the husband’s bankrupt estate owed Mr M $391,991.00, inclusive of interest to July 2007, and in addition the husband owed $78,922.00 for legal costs awarded to Mr M.  (His Honour also noted that the wife was entitled to receive $29,000.00 from Mr M in relation to the damages proceedings.)  His Honour recorded that the balance of monies claimed to be owed by the husband’s bankrupt estate totalling in excess of $500,000.00 “consist of a variety of expenses for the trustee and counsel, solicitors, disbursements and ‘25% uplift premium on total fees’ with respect to the trustee and counsel”.

16. His Honour then went on to record that he was not satisfied that the evidence established the husband’s bankrupt estate was, on the balance of probabilities, “indebted to the trustee and others referred to in Exhibit A1 in the sums alleged”.  His Honour explained the basis for this finding, referring to the circumstances in which Mr M signed the agreement in respect of the trustee’s fees and expenses and the absence of any notice to the husband.  His Honour went on to explain at paragraph 57:

    Even if the Court should find the husband’s bankrupt estate is indebted to the trustee and the trustee’s solicitors and counsel, as will be seen, that does not impact upon the determination of these proceedings. If on proper application of s 79A, the consent orders of April 1998 should be varied, the extent to which any such variation meets or fails to meet expenses of that kind is not determinative of the order appropriate to be made under s 79A.

17. Having discussed the wife’s assertions of contributions made during the spouses’ marriage, particularly contributions post 1974, and benefits the wife asserted had been retained by the husband, his Honour found at paragraph 70:

    There is no objective evidence that the husband had approximately $400 000.00 or any sum of similar magnitude in 1998, much less that he has any of such funds at present....

18. His Honour returned to discuss the question of liabilities noting there were potentially two relevant liabilities, the “first and most obvious” being that of the husband to Mr M in respect of the judgment debt, interest and costs and the debt owed by Mr M to the wife.  His Honour then said, at paragraph 73:

    Different views could be taken of [Mr M’s] liability and legal fees claimed by the trustee. How one viewed those would depend essentially on whether or not a nexus between the liabilities and the marital relationship of the husband and wife was demonstrated. The Court is not immediately persuaded that either of the liabilities in question bears a relevant nexus. That conclusion is based essentially on the nature of the husband’s liability to [Mr M] and, as a consequence of his bankruptcy, his trustee in bankruptcy and the lawyers and others who have been thereby engaged. 

1. His Honour went on to record his view that as the shooting incident which gave rise to the husband’s liability to Mr M had been “conclusively determined in the wife’s favour”, this militated against the Court regarding the liability as a “matrimonial” debt.  However, his Honour recognised there was a “countervailing argument”, namely that as a matter of justice and equity, the wife’s actions in conspiring to keep Mr M out of his entitlement for so long should result in the husband’s liability to Mr M being regarded as a matrimonial debt and thus “paid off the top” in the same way that secured or other joint liabilities would be paid. 

2. His Honour noted that the fact that the wife had “by deception had the sole enjoyment of all the matrimonial assets over the period since the 1991 [sic] orders supports such an approach”.  He went on to say at paragraph 76:

   This argument assumes some attraction in relation to [Mr M] who, it is clear, has had no capacity since 2000 to do anything to seek to enforce his debt. To say that [Mr M] was entirely in the hands of the husband’s trustee in bankruptcy in pursuing s 79A relief would be a realistic summary of his position. The Court has some sympathy for [Mr M], both by reference to what the husband and wife colluded to achieve with the 1998 consent orders and by virtue of the preparation and presentation of the s 79A claim and the timeframe within which such activities have occurred. These factors incline the Court to be somewhat unsympathetic to the position of the husband’s trustee and the legal retinue he has retained to pursue the proceedings in this Court.

3. Nevertheless, his Honour said (at paragraph 77) that he did not propose to treat the sum of approximately $450,000.00 owed to Mr M as a joint liability for determining the net assets of the spouses. 

4. His Honour then (referring to the husband’s liabilities including the trustee’s legal costs and expenses) said (at paragraph 77):

   Whilst the Court accepts that the husband is indebted to [Mr M] in the sums appearing in Exhibit A1 (subject to the offset of $29 000.00 which [Mr M] owes the wife) whatever the status of Exhibit A1 may have in the Bankruptcy Court, this Court does not find debts in those amounts proved. As the transcript of the trial would confirm, counsel for the wife left no one in doubt that the claim in relation to those amounts was vigorously contested.

5. His Honour then made comment about the circumstances of the meeting at which Mr M had agreed to “the very generous remuneration package” for the trustee and lawyers retained by him. 

6. His Honour then returned, under the heading “Contributions”, to his discussion of, and findings about, the contributions of the spouses and any appropriate adjustment to be made under s 75(2). His Honour referred to a claim by the wife of accumulated savings of approximately $100,000.00 prior to the commencement of cohabitation and coming to Australia. The trial Judge found the wife’s claim to be inherently improbable but went on to say (paragraph 88):

   Although less than satisfactory, the Court perceives that it has little alternative than to conclude that the wife had savings when she came to this country, but that her evidence in relation to those savings involved a considerable element of exaggeration.… 

7. His Honour then referred to the second capital contribution asserted by the wife noting the wife’s evidence was “unimpressive” (paragraph 89).  His Honour again found that, although the wife’s evidence was probably considerably exaggerated, he was satisfied that in about 1969 the wife acquired significant capital from her mother. 

8. His Honour went on to discuss discrepancies in the wife’s affidavit in these proceedings about her homemaking and parenting contributions, and contrasted that evidence with the evidence given at the bankruptcy examination proceedings where the wife was noted to have asserted that homemaking and parenting of the spouses’ children had been undertaken by her mother.  His Honour concluded “[t]he evidence in relation to home-making and parenting is so scant as to render unqualified reliance upon it unsafe” (paragraph 93).

9. His Honour then chronicled the wife’s evidence about her employment history and went on to discuss the property owned by the husband at the date of marriage, his receipt of proceeds of the sale of the Sydney property and the net proceeds of sale of the property at the Lot 3C H property.  His Honour concluded (paragraph 97):

   [o]n such evidence as there is, one could be somewhat sceptical as to the likelihood of the husband having drawn on funds to this extent and the wife nevertheless continuing to acquire property in co-ownership with him.…

10. His Honour accepted that there was no rational basis for rejecting the wife’s claims that the husband had no employment after 1973 and from that date she was the only active participant in the paid workforce.  However, his Honour went on to consider the wife’s explanation that acquisition of property by the spouses as joint tenants after 1973 was for taxation considerations.  His Honour then recorded, although it was not so intended by the wife, this evidence was the only evidence of an indirect contribution by the husband. 

11. At paragraph 100, his Honour asked himself rhetorically whether it was likely that if the husband had contributed nothing “by way of effort or earnings” and had retained for his own benefit capital of approximately $400,000.00, the wife would have caused the real estate to be acquired in joint names.

12. At paragraph 102 of his reasons the trial Judge recorded his conclusions about the capital of $400,000.00 which the wife asserted the husband had received between 1982 and 1999 and said:

    There is no rational basis for concluding that any of those monies were reflected in or by the assets which existed in 1998. There is no evidence that the husband had passive income of any kind or from any source after 1982. Conversely, there is no evidence of the extent to which the wife was supporting him, or that he was receiving social security payments during that period. Nor is there reliable evidence revealing what funds the wife had available to her over that period. 

13. Having recorded the wife’s assertion of receipt of $132,000.00 by way of compensation for personal injuries, the trial Judge came to his ultimate conclusion that the contributions made by the wife were significantly greater to the current property of the spouses than those of the husband over the first 20 years of the parties’ cohabitation. 

14. His Honour then turned to discuss the third decade of the spouses’ relationship and made findings that there was no evidence the husband made any contribution post 1998 when the consent orders were made.  His Honour then determined the husband’s contribution based entitlement could not exceed 20 per cent of the assets of the spouses at the date of the making of the consent orders, and that such percentage “would be a reasonable but very broad reflection of the effect of the evidence which the Court has accepted” (paragraph 106).

15. Thereafter his Honour went on to consider the amount, if any, of adjustment which would have been warranted under s 75(2) in 1998, recording the wife’s evidence that the husband had sustained major injuries in 1973. He also noted the husband had other health problems, including two heart attacks in 1997. His Honour determined that the husband had no earning capacity in 1998 and that a “not insignificant” s 75 adjustment in favour of the husband would have been appropriate, concluding an adjustment of five per cent would have been a realistic adjustment.

16. Thus his Honour assessed, in broad terms, the husband’s entitlement in 1998 would have been in the order of 25 per cent of the pool of assets then available to the parties.  He concluded “[t]hereafter there is no fact or circumstance which can be relied upon by the trustee to increase the husband’s entitlement by way of contributions” (paragraph 109).

17. Having commented on the lack of evidence about the husband’s circumstances, the trial Judge explained that he was of the view it would be “quite artificial and unfair” to the wife to carry through the husband’s notional 1998 entitlement as a percentage of the present assets (paragraph 114).

18. His Honour determined the appropriate way to calculate the husband’s present-day entitlement was to add an inflation factor based on statistics produced by the Australian Bureau of Statistics. Thus, he concluded, at the date of the hearing, the husband’s entitlement of $250,000.00 in 1998 would produce a present day figure of $319,081.38.

19. At paragraph 117 of his reasons, the trial Judge determined that, prima facie, the 1998 orders should “be varied to provide that such sum be payable by the wife and that such payment should be charged upon the wife’s assets”.  His Honour then turned to the remaining matters he considered relevant.  The trial Judge identified these matters as:

    ·the “unclean hands” argument on behalf of the Trustee;

    ·the provisions of s 79(2) of the Act;

    ·the reality that if the Court made orders that the wife make the payment of $319,081.38 to the husband’s bankrupt estate there would be insufficient funds to enable Mr M and the trustee to be paid – Mr M would receive nothing.

20. His Honour then considered, at paragraph 118, the submissions made on behalf of the trustee, namely that as both the husband and wife colluded in 1998 to defeat Mr M’s ability to recover the judgment debt from the husband, and continued “in that endeavour” the Court should be “influenced” by this conduct.  His Honour noted, at paragraph 119, that although the husband was made bankrupt in 2000, and the wife was examined twice in 2002 pursuant to the terms of the Bankruptcy Act, there was no explanation for the delay in commencing the proceedings until 2005.

21. His Honour concluded his discussion of this issue at paragraph 122:

    The adverse implications of the wife’s 1998 deceit remain, and have been relied upon in ways earlier recorded in these reasons. It can thus be suggested that the wife has not avoided the consequences of her deceitful conduct. 

22. His Honour then commented further on the quantum of the fees claimed by the trustee and again noted his concern about the level of those fees.

23. His Honour rejected the suggestion there was any conduct by Mr M which he should take into account and said, at paragraph 124:

    To allow the husband and wife to in any way benefit vis a vis [Mr M] from their actions, or to penalise [Mr M] for the timeliness and effectiveness of actions taken by professionals over whom he had no control or influence would be unfair.

24. At paragraph 125 his Honour recorded his view that the “unclean hands” argument advanced on behalf of the trustee did not “advance the cause of the trustee in relation to his fees, charges and expenses”.

25. The trial Judge also observed that “if the proposed order is made there would be sufficient funds to substantially, but not entirely satisfy [Mr M’s] entitlements”.   He went on to note a significant component of Mr M’s entitlements related to interest calculated at a rate of 10 per cent per annum, which his Honour observed “considerably exceeds the recorded rates of inflation since 2000 [and the]  prime interest rates prescribed by the Reserve Bank…”.  Having set out a chart showing the rates of inflation and movements in the prime interest rate since 1999, his Honour recorded that “[f]rom this chart an average rate of interest of 5.33 per cent can be deduced”.  He went on to say that “[i]n the circumstances of this case, to preserve the real value of his award by reference to inflationary increases appears the most just means of attempting to protect [Mr M’s] entitlement” (paragraph 125).

26. Having made these references to Mr M’s entitlement, His Honour then went on immediately to say (at paragraph 126):  

    Section 79(2) constrains the Court from making an order unless it is satisfied that it is just and equitable to do so. There are realistically, in the context of this case, two elements of that exercise. The first really relates to the quantum of the proposed order as between the husband and wife. The second, in the circumstances of this case, arises by virtue of [Mr M’s] entitlement…

27. His Honour then recorded that if the proposed order was made, the wife would retain assets of approximately $3.28 million or 91.12 per cent of the asset pool and concluded he was “not persuaded that the proposed division of the wife’s assets is other than just and equitable” (paragraphs 127 and 128).

28. His Honour then discussed, at paragraphs 129-134, the form of the order he proposed to make.  These paragraphs are of such crucial relevance that we propose to repeat most of them in full. 

    129.It remains to consider the form which the order should take. The nature of the orders the Court is able to make are defined by s 79(1) of the Act. It does not seem to be suggested on behalf of the trustee that an order that the wife pay directly to [Mr M] offends s 79(1) of the Act. The Court is satisfied that such an order is comfortably accommodated within the framework of s 79(1) of the Act. This is particularly so when regard is had to the third party creditor provisions of Part VIII.

    130.The question in this case is not whether the Court can make such an order, but rather whether it should. The issue is of significance given that the proposed order is insufficient to satisfy [Mr M’s] entitlement and the trustee’s claims. Moreover, the evidence of the trustee and the statements of the trustee’s counsel suggest that if the proposed order were to be made in favour of the trustee [Mr M] would receive nothing. Such an outcome would, on the Court’s findings, be offensive to notions of justice and equity. …

    131.…

    132.Section 75(2)(ha) of the Act is relevant and provides that the Court must in exercising its discretion under Part VIII of the Act take into account “the effect of any proposed order on the ability of a creditor of a party to recover the creditor's debt, so far as that effect is relevant”. Whatever the status of the trustee under the bankruptcy legislation, the evidence before this Court does not, in the Court’s view, entitle the trustee to be regarded as a “creditor” for the purposes of s 75(2)(ha) although the trustee is probably a “person whose interest would be affected by the making” of an order (see s 79(10)). [Mr M] is undoubtedly a creditor.

    133.If the order were made in the form in which the trustee seeks, there is little doubt that [Mr M’s] ability to recover his debt would be adversely affected. That is a matter of the upmost relevance in the circumstances of this case and one which, in the Court’s view, should be avoided to the fullest permissible extent.

    134.The Court accordingly proposes that the wife be ordered to pay to [Mr M] the sum of $319 081.38 and that the consent orders of April 1998 be amended to so provide. Payment of the said sum should be and remain a charge on the wife’s assets until it has been paid in full.

29. His Honour concluded his reasons by noting that the parties should have an opportunity to make further submissions arising out of the death of the husband. 

The supplementary judgment

1. His Honour noted in his supplementary judgment published in October 2007 that from their written submissions it was clear that the parties were in agreement that the death of the husband did not affect the outcome of the proceedings.  Having dealt with issues that need not concern us, his Honour announced that:

   The order of the Court will accordingly be that the wife pay the sum of $319 081.38 to [Mr M], that the consent orders of April 1998 be accordingly amended and that payment be and remain a charge on the wife’s assets until it has been paid in full.  

2. For the sake of completeness, we should note whilst his Honour said, both in the first judgment and the supplementary judgment, that the consent orders would be “amended”, the formal orders that issued made no reference to the consent orders. 

GROUNDS OF APPEAL AND CROSS-APPEAL

1. The grounds relied upon by the trustee in the Further Amended Notice of Appeal were as follows:

   1.His Honour erred in failing to hold that, as the Respondent wife had entered into the consent orders of 2 April 1998 with the intent of defeating a potential liability, she should be liable for the whole of the costs, fees and expenses that naturally arose from her actions.

   1A.      His Honour erred in failing to provide adequate reasons.

   2.Further and in the alternative, His Honour erred in finding that the division of 91.12% of the assets of the marriage in favour of the Respondent wife was just and equitable.

   3.Further and in the alternative, His Honour erred in failing to give full force and effect to the provisions of section 109 of the Bankruptcy Act.

   4. Further and in the alternative, His Honour erred in granting relief which had not been sought by either party ; was opposed by the Appellant trustee; which His Honour had neither power nor jurisdiction to grant under Sections 79 or 79A of the Family Law Act 1975 or otherwise; and which was forbidden by the Bankruptcy Act and specifically, Section 58 thereof.

   5.Further and in the alternative, His Honour erred in ordering the Respondent wife to pay [Mr M] any sum.

   6.Further and in the alternative, His Honour erred in failing to find that the Respondent wife was a party before the Court with unclean hands. 

2. Senior counsel for the trustee conveniently addressed these grounds of appeal under five topics as follows:

   1.That there was no power to make the order under s 79A, which order provides for a payment by the wife to Mr M, who was not a party to the proceedings.

   2.That the trial Judge failed to give due weight to s 109 of the Bankruptcy Act.

   3.That his Honour failed to take into account the relevant provisions of the Bankruptcy Act, in particular, s 58(3) and s 116 of that Act.

   4.That his Honour should have set aside the consent orders with the effect the spouses retained their legal interests in jointly owned real property on the basis the wife’s evidence was unreliable and contaminated by self interest to retain the entitlements she fraudulently obtained under the consent orders. 

   5.Alternatively, assuming points 1-4 were incorrect, his Honour’s orders should not stand as they were outside a reasonable exercise of discretion and  not just and equitable.

3. It is also convenient at this point for us to set out the grounds relied on in the wife’s cross-appeal.  These were as follows:

   1.His Honour erred in making an order that the Consent Orders made by the Court in April 1998 be amended and ordering that the Wife pay the sum of $319,081.38 to [Mr M] and that payment be and remain a charge on the Wife’s assets until it had been paid in full.

   2.His Honour erred in entertaining the Application by the Appellant Trustee in circumstances where His Honour made no finding as to whether or not the Appellant Trustee was a “person affected by an Order made by the Court under Section 79.”

   3.His Honour erred in failing to consider the Application of Sections 120 or 121 of the Bankruptcy Act 1966.

   4.His Honour erred in ascribing the deceitful conduct of the Cross Appellant Wife for the basis of the costs order. 

4. No appeal book for the cross-appeal was prepared.  It was agreed between the parties that the relevant documents could be provided to us.  However, as an issue was raised by us about reference to offers of settlement, we did not receive the documents.  Accordingly, we propose to defer consideration of ground 4 in the cross-appeal and deal with it by way of written submissions following delivery of these reasons.

5. The primary point of difference between the positions of the trustee and the wife concerns the standing of the trustee to bring proceedings under s 79A. Otherwise, it will be seen there is commonality of issues, save for the challenge to his Honour’s costs order.

1. Mr M’s position is that both the appeal and the cross-appeal should be dismissed.

Whether the trustee had standing to bring s 79A proceedings

1. As the jurisdictional issue raised by the wife in the cross-appeal is pivotal to the fate of the appeal, we propose to consider that issue first.   

2. This issue requires consideration of the legislation in force at the date of the hearing, including the status of amendments made by the Bankruptcy and Family Law Legislation Amendment Act 2005 (Cth), and relevant case law.

3. Before commencing our discussion, we reiterate that the trial was conducted on the basis that it was open to his Honour, relying on the wife’s “concession”, to draw the necessary inference that the making of the consent orders constituted a miscarriage of justice, and those orders could, in the exercise of his discretion, be varied or set aside. 

4. No point was raised at the trial by the wife’s counsel that the trustee did not have the necessary standing to bring the application.  However, there was no dispute before us, notwithstanding the point was not taken before the trial Judge, that the parties could not by consent invest the Court with jurisdiction it did not have (see Water Board v Moustakas (1988) 180 CLR 491).

5. We should also record that during the course of the hearing we brought to the attention of the parties the decision in Audet & Audet; Official Trustee in Bankruptcy (1995) FLC 92-607 (“Audet”). In that case Moss J determined, amongst other matters, that a right of a bankrupt husband to bring s 79A proceedings in respect of earlier consent orders or to defend such proceedings at the suit of the wife did not pass to the Official Trustee in Bankruptcy but remained vested in the husband.

6. At the conclusion of the hearing, we granted leave to senior counsel for the trustee to file submissions concerning the judgment in Audet.  Those submissions were received on 8 October 2008. Subsequently, on 20 November 2008, the wife’s counsel drew our attention to the November 2008 issue of the Australian Law Journal ((2008) 82 ALJ 747) and the reference therein [at 760] to Hill v Haines [2008] Ch 412; [2008] WLR 1250.

The legislation relating to the standing of the Trustee

1. In 2005 significant changes were made to both the Act and the Bankruptcy Act.  The primary vehicle for the changes relevant to these proceedings was the Bankruptcy and Family Law Legislation Amendment Act2005 (Cth), which we will call “the amending Act”. One other potentially relevant amendment was made to the Act by the Family Law Amendment Act2005 (Cth).

2. Paragraph 8 of the Explanatory Memorandum to the amending Act refers to one of the principal purposes of that Act as being to:

   [a]ddress longstanding issues concerning the interaction between bankruptcy and family law which have created uncertainty as to the competing rights of creditors and the non-bankrupt spouse… 

3. The potentially relevant provision of the Family Law Amendment Act 2005 and most of the relevant provisions of the amending Act commenced on 19 September 2005 (by operation of s 2 of both Acts).  The relevant provisions of the amending Act that did not commence on that date commenced on 15 April 2005. 

4. The trustee’s application pursuant to s 79A was filed in March 2005, prior to the amending Acts receiving Royal Assent. Mindful that the husband’s bankruptcy dated from 2000 it is necessary to determine the extent to which the 2005 amendments had any application to these proceedings.

5. Until the 2005 amendments, s 79A relevantly provided:

   (1)Where, on application by a person affected by an order made by a court under section 79 in proceedings with respect to the property of the parties to a marriage or either of them , 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; or

   …

   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. [emphasis added]

6. The amending Act changed s 79A(1) by omitting the words “proceedings with respect to the property of the parties to a marriage or either of them” and inserting in lieu the words “property settlement proceedings”. This was an amendment consequent upon the amendment of the definition of “matrimonial cause” in s 4(1), which now provides a basis for proceedings between a party to a marriage and the bankruptcy trustee with respect to the vested bankruptcy property of a bankrupt spouse. Other provisions of the Act were amended to like effect.

7. The amending Act also inserted s 79A(5) in the Act. This provides as follows:

   (5)      For the purposes of this section, if:

   (a)an order is made by a court under section 79 in proceedings with respect to the property of the parties to a marriage or either of them; and

   (b)either of the following subparagraphs apply to a party to the marriage:

   (i)       when the order was made, the party was a bankrupt;

   (ii)after the order was made, the party became a bankrupt;

   the bankruptcy trustee is taken to be a person whose interests are affected by the order.  [emphasis added]

8. Subject to exceptions that need not concern us, Item 60 of Schedule 1 to the amending Act provides that the amendments to the Act “to the extent to which they relate to bankruptcies or personal insolvency agreements, apply in relation to …bankruptcies for which the date of the bankruptcy is after the commencement of this item; and personal insolvency agreements executed before, at or after the commencement of this item”. 

9. Accordingly, any amendments that do not “relate to bankruptcies or personal insolvency agreements” would apply to these proceedings, notwithstanding that the husband’s bankruptcy occurred many years previously.  (The application of some other provisions of the amending Act was restricted to cases where the proceedings were instituted after the commencement of the legislation, but these provisions are not relevant here.)  

10. The potentially relevant provisions of the Act which were amended or inserted in 2005 are set out below (item numbers, unless otherwise stated, relate to Schedule 1 to the amending Act):

    ·In subsection 4(1) various definitions were amended or inserted, including “matrimonial cause” (see new sub-paragraph (cb)) and “property settlement proceedings” (Items 12 and 14));

    ·Paragraph 75(2)(ha) was inserted (Item 24);

    ·Subsection 79(1) was repealed and a new provision substituted (Item  27);

    ·Subsection 79(8) was amended (Items 44 and 45);

    ·Subsection 79(10) was inserted (Item 1 of Schedule 5 of the amending Act);

    ·Subsection 79(10A) was inserted (Item 139 of the Schedule to the Family Law Amendment Act 2005);

    ·Subsections 79(11), (12), (13) and (17) were inserted (Item 47);

    ·Subsections 79A(1),(1A), 1(B) and 1(C) were amended (Items 48, 49 and 50);

    ·Subsection 79A(5) was inserted (Item 51).

11. As we have previously noted, it was common ground before us that s 79A(5) had no application to these proceedings. This is the subsection which now provides that for the purposes of s 79A, the bankruptcy trustee is a person whose interests are deemed to be affected by an order made in s 79 proceedings with respect to the property of parties to a marriage.

12. In other instances, however, counsel for all parties set out in their submissions sections of the Act as amended by the amending Act, which indicated to us they assumed the sections as quoted were in force at the date of the trial.  No submissions were directed towards the impact of Item 60 of Schedule 1 on the application of those amendments.   As we have said, by virtue of Item 60, the only amendments that could have applied were those that did not relate to bankruptcies occurring after the amending Act or personal insolvency agreements executed after the amending Act.

13. Which of the amendments fall into that category?  In answering this question we consider it appropriate to adopt a wide construction of the words “in relation to” in Item 60.  As McHugh J said in O’Grady v Northern Queensland Co Ltd (1990) 169 CLR 356 at 376:

    The prepositional phrase ‘in relation to’ is indefinite.  But subject to any contrary indication derived from its context or drafting history, it requires no more than a relationship, whether direct or indirect, between two subject matters. 

14. This is consistent with the approach taken to these words by Deane, Dawson and Toohey JJ in Workers' Compensation Board of Queensland v Technical Products Pty Ltd (1988) 165 CLR 642 at 653-654 where their Honours said:

    The phrase [“in relation to”] gathers meaning from the context in which it appears and it is that context which will determine the matters to which it extends.

    (See also the discussion of Kiefel J in Kennon v Spry (2008) 251 ALR 257 at paragraph 257.)

15. It is apparent on the face of all but one of the amendments we have identified as being potentially relevant that they do relate to bankruptcies and hence can have no application in these proceedings. Item 60 does not apply to s 79A(10A), which was introduced by a separate Act, but that subsection has operation only in tandem with s 79(10), which is affected by Item 60.

16. The one exception we have identified is the amendment which caused paragraph 75(2)(ha) to be inserted in the Act. That paragraph forms part of a list of matters in s 75(2) that the Court is required to take into account when exercising its spousal maintenance jurisdiction. However, the Court is also required, by virtue of s 79(4)(e), to consider the matters contained in s 75(2) when determining property settlement proceedings.

17. The new s 75(2)(ha) is in the following terms:

    the effect of any proposed order on the ability of a creditor of a party to recover the creditor’s debt, so far as that effect is relevant. 

18. We did not have the benefit of argument on the sub-paragraph, and although the trial Judge made express reference to s 75(2)(ha) in coming to his decision, no ground of appeal, or cross-appeal is directed to this sub-section. Accordingly, we do not propose to discuss the operation or effect of the sub-section save to observe that s 75(2)(ha) does not expressly refer to bankruptcies. Nor is that provision (unlike many of the other potentially relevant amendments) a necessary or logical consequence of the amendments to the Act which expressly relate to bankruptcies. It is beyond dispute that s 75(2)(ha) has application in cases where each of the spouses is solvent and which have no bankruptcy element.

19. Whether or not s 75(2)(ha) applied, we consider that in endeavouring to arrive at the “just and equitable” outcome mandated by s 79(2), the Court would, in any event, have been required to have regard to the effect of any proposed order on the ability of a creditor of a party to recover the creditor’s debt (see Biltoft and Biltoft (1995) FLC 92-614).

20. Before concluding our discussion of the statutory provisions relevant to the standing of the trustee, we should record that it is not in doubt that the amendments made to the Act in 2003 by the insertion of Part VIIIAA (orders and injunctions binding third parties) were in force at all material times. However, the application of those provisions was limited. It is sufficient to note at this point that Part 2 of Schedule 6 of the Family Law Amendment Act2003 (Cth) provides that after the commencement of that legislation the amendments contained in Part VIIIAA apply to all marriages, but not to marriages in relation to which s 79 orders were in force at the time of commencement of the legislation, unless the order is set aside under s 79A(1)(a), (b), (c) or (d). We will return to discuss the significance of this provision later in these reasons.

21. Finally it follows from our earlier discussion that the provisions of s 4(1) of the Act defining the expression “matrimonial cause” were those in force immediately prior to the amending Act. The portions of the definition potentially relevant to the current proceedings were sub-paragraphs (ca) and (f), which were then in the following terms:

    …

    (ca)  proceedings between the parties to a marriage with respect to the property of the parties to the marriage or either of them, being proceedings:

    (i)  arising out of the marital relationship;

    (ii)  in relation to concurrent, pending or completed proceedings between those parties for principal relief;  or

    (iii)  in relation to the dissolution or annulment of that marriage or the legal separation of the parties to that marriage…

    …

    (f)  any other proceedings (including proceedings with respect to the enforcement of a decree or the service of process) in relation to concurrent, pending or completed proceedings of a kind referred to in any of paragraphs (a) to (eb), including proceedings of such a kind pending at, or completed before, the commencement of this Act.

Case law relevant to the standing of the Trustee

1. Prior to the 2005 amendments, there had been a number of decisions both at first instance and on appeal, which had considered the jurisdiction of the Court to hear an application by a third party to revoke the approval of a Maintenance Agreement, to intervene in property proceedings under s 79, or to set aside or vary a property settlement order under s 79A. Given it was conceded before us that s 79A(5) had no application, we consider that it is necessary that we review some of the pre 2005 authorities.

2. In doing so it is necessary to bear in mind the provisions of the Act discussed in the authorities. In the case of applications made under s 79A(1) it will be noted that the Act refers to an application being made to set aside or vary a property settlement order by “a person affected” by the order.  In the case of applications to revoke approval of maintenance agreements, it should be noted that while s 87(8) provides power to the Court to revoke the approval, it is silent about who is entitled to make such an application.  However, s 87(9) provides that where approval of the agreement had been revoked “the Court may, in proceedings for the revocation of the approval or an application by a person to the agreement or any other interested person, make such order or orders … as it considers just and equitable for the purpose of preserving or adjusting the rights of the parties to the agreement and any other interested person …”  [emphasis added].

3. In Chemaisse & Chemaisse; Federal Commissioner of Taxation (1988) FLC 91-915, the Full Court (Fogarty, Frederico and Nygh JJ) upheld the decision of the trial Judge who had refused to dismiss an application by the Commissioner of Taxation for the revocation of approval of a Maintenance Agreement made between a husband and wife at a time when the husband had a substantial tax debt, and was subject to an injunction restraining him from dealing with his assets. No disclosure of the tax debt was made to the Local Court which approved the Maintenance Agreement. The Full Court noted that the Commissioner asserted a fraud was perpetuated by the husband and wife on the Commissioner, and the Court, in obtaining the approval. The Full Court determined that fraud for the purposes of s 87(8) was not confined to fraud between the parties to the marriage. By analogy, we accept that fraud for the purposes of s 79A(1)(a) is not confined to fraud between the parties to the marriage, but can be a fraud on a third party and/or the Court.

4. The Full Court in Chemaisse rejected the wife’s argument that the right to apply for revocation of approval of a maintenance agreement was limited to the parties to the marriage.  The Court held that whilst s 87(9):

   [c]annot be read as the source of power allowing a third party to apply to set aside an approval, the reference in paragraph (b) of that subsection to ‘an application by a party to an agreement or any other interested person’ supports the contention that in proceedings in relation to the revocation of a maintenance agreement a person other than a party to the agreement may be the applicant.

5. The Full Court also referred to authority supporting the proposition that proceedings falling within the definition of “matrimonial cause” in s 4(1)(f) of the Act may be brought by a third party “provided that the requisite relationship to other proceedings exists”. The Full Court was of the view that a third party wishing to bring such proceedings “must have a special interest in the matter”. The Full Court went on to say [at p 76,640] that “without seeking to define with precision those who may be considered to have a special interest, it is clear that in the present case the Commissioner has such an interest” as he was not only a substantial creditor of the husband but the transaction between the husband and the wife had been effected by the husband in breach of an injunction. It was their Honours’ opinion that whilst the Commissioner may not have had any legal right in relation to the property at the time the agreement was approved, “the right of which he has been deprived is the right to be heard in protection of his potential interest therein”.

6. The Full Court also recorded that the trial Judge had found that even if it had not been open to the Commissioner of Taxation to apply for revocation of the Maintenance Agreement pursuant to s 87(8), the Court had an inherent power to set aside the approval of an agreement when the approval had been obtained by fraud.  The Full Court found that it was unnecessary to determine that question but said they would be “greatly surprised if this Court did not have an inherent power to set aside orders which were obtained in circumstances which amounted to an abuse of the process of this Court such as fraud upon it.”  (See now Allesch v Maunz (2000) 203 CLR 172; (2000) FLC 93-033).

7. In Deputy FederalCommissioner of Taxation (WA) v Spanjich & Spanjich (1988) FLC 91-974 the Full Court (Barblett DCJ, Simpson and Connor JJ) held that the Deputy Commissioner of Taxation could be a “person affected” by a consent order transferring assets from a husband to his wife and children. At the time of the making of the consent order the evidence disclosed the husband had a taxation debt which, as a result of the consent orders, he may not have been able to pay. At trial the only issue agitated was whether there was jurisdiction to make the order sought by the Deputy Commissioner (to set aside the order made under s 79 and to make different orders). The trial Judge determined there was “a matrimonial cause” relying on s 4(1)(f), but dismissed the Deputy Commissioner’s application on the basis the consent orders did not affect the Deputy Commissioner’s rights at law to pursue the husband for the debt.

8. The Full Court, having referred to the dictionary definition of “affected”, and other cases which had considered the word, said (at 77,049):

   In our opinion the “affect” may have relation to something more than strict legal rights and include the practical effect of the order on the recovery of moneys due and owing in the circumstances of this case. If the order has the effect of so reducing the property of the husband that the Deputy Commissioner is thereby unable to recover tax owing then it seems to us that he is a person affected by that order.… 

9. In Official Trustee in Bankruptcy v Donovan and Stevens (1995) FLC 92-596 the Official Trustee appealed the refusal of the trial Judge to adjourn his application brought under s 79A to set aside property orders made on an undefended basis under s 79. The trial Judge had also summarily dismissed the Official Trustee’s application. The s 79 orders were made in circumstances where a receiver had been appointed to the husband’s legal practice for misappropriation of clients’ funds. The husband, who was legally represented and present in Court when the property orders were made, neither consented to nor opposed the making of the orders. The Full Court cited, in support of the principle of the requirements of full disclosure to the Court and relevant third parties, the earlier decisions in Chemaisse and Spanjich.  Without expressing a concluded view the Full Court said [at 81,920]:

   It is sufficient for present purposes to say that the conclusion was open that there was a failure to notify the Law Society of the proceedings in circumstances where there was an obligation to do so and which amounted to a “miscarriage of justice” justifying the setting aside of the orders under s. 79A.

1. Subject to the provisions of the Bankruptcy Act, and notwithstanding that Part VIIIAA had no application, we accept that when his Honour determined to vary the consent orders he could have ordered the wife to pay a creditor of one or both of the parties, provided any affected third party had appropriate notice and the new orders were “just and equitable”.

2. This determination leads us to consider whether Mr M was a creditor of the husband.  Potentially this raises the further question of the date at which the variation of the consent orders had effect.  However, for reasons which will become apparent, it is unnecessary for us to determine whether or not the trial Judge’s order should be perceived as taking effect on the date on which it was made or the date on which the consent orders were made.  (See Parker and Parker (1983) FLC 91-364, Official Trustee in Bankruptcy v Donovan and Donovan and Stevens (1996) FLC 92-703).

3. If the variation had effect from the date of the original consent orders (as does an amendment pursuant to the “slip” rule) then at that time Mr M had no more than an unquantified chose in action against the husband.  He did not have a quantifiable debt recognisable under s 82(1) of the Bankruptcy Act and was therefore not “a creditor” (see Re Newman; Ex Parte Brooke (1876) 3 Ch D 494 (CA)).

4. If the variation took effect on the making of the order by the trial Judge, by that date Mr M had proved in the husband’s bankruptcy.  Having proved in the bankruptcy he could not enforce his judgment – enforcement being precluded by reason of s 58(3)(a) of the Bankruptcy Act.  He could not commence legal proceedings against the husband without leave under s 58(3)(b) of the Bankruptcy Act, and any sum obtained from such proceedings would vest in the trustee (s 58(1)(b) of the Bankruptcy Act).

5. How a bankruptcy affects a creditor is explained in McDonald, Henry & Meek, Australian Bankruptcy Law and Practice, 6^th ed, Thompson Reuters, at 1-3144:

   On bankruptcy all provable debts owing by the debtor are converted from rights of action against the debtor to a right to share in the distribution of the debtor’s estate vested in the trustee; the right is an equitable right in regard to which the creditors, as cestuis que trust, are entitled to have all the assets realised and applied pro rata for them: Clyne v Deputy Commissioner of Taxation (1984) 154 CLR 589; 58 ALJR 398; 55 ALR 143 at 594-595 (CLR); Re Cole; Ex parte Richards (1966) 9 FLR 190 at 191.

6. In Clyne v Deputy Commissioner of Taxation (1984) 154 CLR 589 Gibbs CJ, Murphy, Brennan & Dawson JJ at 594-595 discussed the issue of the debts of a bankrupt at the date of bankruptcy as follows:

   Amounts which were owed by a debtor at the date of the bankruptcy may, notwithstanding his bankruptcy, still be described as debts, and the Act refers to them as such: see, e.g., ss. 58(3), 84(1), 85(1), 86(1), 153(1), 154(1)(b). They are “debts” from which the bankrupt is not released until he is discharged from bankruptcy: s. 153. However, in our opinion, they are no longer debts “still owing” within the meaning of s. 52(1)(c). Although, as was rightly observed in the Federal Court, one dictionary meaning of “owing” is “that is yet to be paid”, the word connotes a sense of obligation to make the payment. The effect of the bankruptcy however is that the debtor is no longer obliged to pay his creditors; indeed he is disabled from doing so. If he offered payment they could not safely accept it; their right is a right of proof against the estate.

7. In other words, from the time of the husband’s bankruptcy the rights of his creditors were regulated in accordance with the provisions of the Bankruptcy Act and the husband’s unsecured creditors’ rights were converted into a right to prove in the administration of his bankrupt estate (s 82 Bankruptcy Act) and share rateably with other unsecured creditors in accordance with the priorities contained in s 109 of the Bankruptcy Act.

8. Thus we are satisfied that at the date of the hearing, [Mr M’s] rights to recovery of the judgment debt were governed by the provisions of s 109 of the Bankruptcy Act.  Having regard to the provisions of the Bankruptcy Act his position could not have been superior to, or different from, a secured creditor who forgoes his security and proves in a bankruptcy or any other creditor who proved in the bankruptcy. Having proved in the bankruptcy he did not retain an independent right to enforce the judgment (subject to any applicable limitation provision) (see s 58(3)(a) of the Bankruptcy Act) nor as we have explained receive payment of the judgment debt.  

9. Given that the matter was not agitated before either his Honour or on the hearing of this appeal, it is unnecessary for us to make comment about the way in which his Honour offset Mr M’s liability for the wife’s taxed costs of the District Court proceedings against the amount the wife would otherwise have been ordered to pay Mr M.  In this regard it will be noted that at the time Coleman J made his orders, the wife had proved her debt in relation to these taxed costs in Mr M’s own bankruptcy and therefore prima facie was not personally entitled to enforce payment of the liability.

Conclusion  

1. We can readily understand the trial Judge’s concern that if the husband’s varied entitlement under the consent orders was paid to the trustee, Mr M would get nothing. Reluctantly, we nevertheless conclude that the order made by the trial Judge for a direct payment by the wife to Mr M was not within his Honour’s power. We consider that the making of such an order may have been within power under s 79 if Mr M had, prior to the husband’s bankruptcy, brought proceedings himself under s 79A as a person affected to vary or set aside the consent orders. But he did not do so. He chose to prove in the husband’s bankruptcy, with the risks of litigation to recover funds from the wife being borne by the trustee.

2. We are therefore satisfied that Ground 5 of the Further Amended Notice of Appeal and Ground 1 of the cross-appeal have merit.  Having reached this conclusion, and having regard to the discussion in Mateo to the effect that in circumstances such as the instant case, an application should be brought by a trustee under s 79A, rather than seeking to set aside a transaction under s 120 or s 121 of the Bankruptcy Act, it is unnecessary we further consider Ground 3 of the cross-appeal.

3. As we conclude any order setting aside or varying the consent orders requires an adjustment of property by payment of a monetary sum or transfer of property by the wife to the trustee, we turn now to consider the grounds of appeal which challenge the trial Judge’s assessment of the spouses’ contribution entitlements, and his determination to vary rather than set aside the consent orders.

Asserted error by the trial judge in his assessment of the spouses’ contribution entitlements

1. We have earlier in these reasons set out in some detail the trial Judge’s reasoning leading to his findings in respect of the spouses’ contributions over the three distinct phases of their relationship.

2. We would summarise the trial Judge’s findings as follows:

   ·the wife did not impress as a witness, that her evidence should be viewed with suspicion and caution;

   ·there was a lack of evidence to support a finding the husband had received funds of approximately $400,000.00;

   ·Mr M owed the wife approximately $29,000.00;

   ·the judgment debt to Mr M was not a joint liability of the spouses but the sole responsibility of the husband and would not be included in determining the spouses’ net assets;

   ·the wife did have some pre‑marriage savings which could be regarded as substantial but not as much as $100,000.00 as she had claimed;

   ·in about 1969 the wife acquired significant capital funds from her mother;

   ·the wife’s evidence in respect of home-making and parenting was unreliable but modestly favoured the wife until 1988;

   ·the husband had the capacity to contribute the $206,000.00 proceeds received on sale of the Sydney property in 1982 but the wife’s evidence allowed an inference to be drawn the husband had lived off such funds between 1982 to 1999;

   ·the wife’s claim the husband had no employment after 1973 should be accepted;

   ·the evidence suggested the husband probably supported himself and disposed of capital of $400,000.00 (including the Sydney proceeds) between 1982 and 1998;

   ·the wife’s assertion she contributed her compensation monies of $132,000.00 should be accepted; and

   ·there was no evidence that the husband made any contribution in the decade prior to the consent orders.

3. As we earlier noted, his Honour determined, based on his contribution findings, that the husband’s entitlement was 20 per cent of the spouses’ assets at the time the consent orders were made, and after an adjustment of 5 per cent for s 75(2) factors, an overall division of assets of 75 per cent to the wife and 25 per cent to the husband was appropriate. His Honour found that the husband had received in the order of $250,000.00 less than he might otherwise have been entitled to receive.

Submissions

1. It was not asserted that any of the individual findings of the trial Judge in respect of contribution were not open to him on the evidence. However, senior counsel for the trustee submitted that the trial Judge’s assessment, which saw the wife retain approximately 91.12 per cent of the asset pool at the date of hearing, constituted appealable error, such assessment being outside the reasonable ambit of his discretion. 

2. The trustee effectively mounted a threefold challenge to his Honour’s decision, namely:

   (i)that the wife’s evidence should have been rejected in its entirety as she was not a witness of credit – thus leaving the Court with nothing other than documentary evidence, which in turn would lead to a finding that the spouses’ entitlements at the time of the consent orders were in accordance with their legal title to the jointly owned properties;

   (ii)the “transformation” of the assessment of contribution to a monetary sum by reference to inflation, and ignoring capital growth, was flawed; and

   (iii)that his Honour failed to give adequate reasons and, in particular, failed to give adequate reasons for adopting an inflation factor to determine the husband’s entitlement.

3. In his closing submissions before the trial Judge, counsel then appearing for the wife accepted that it was open to his Honour to find that up to 1974 the spouses’ contributions could be regarded as equal (Transcript, 18 July 2007 p 138) but taking into account the wife’s contributions from 1974 to 1998 an overall adjustment of the spouses’ assets in the ratio of 70 per cent to the wife and 30 per cent to the husband would be just and equitable.  Counsel for the wife further submitted at trial that the $400,000.00 the husband had received represented his 30 per cent entitlement and that he was entitled to nothing more by the time the consent orders were made.

4. In his written submissions opposing the appeal, counsel for the wife asserted that there had been no error by the trial Judge.  Similar submissions were made by counsel for Mr M.

Discretionary judgments – appellate principles

1. These challenges involve the well known principles which limit appellate interference with discretionary judgments (see House v The King (1936) 55 CLR 499). The challenges also involve the principles relevant to the giving of adequate reasons. These principles are well known and do not require any exposition by us (see Soulemezis v Dudley (Holdings) Pty Ltd (1987) 10 NSWLR 247, Bennett and Bennett (1991) FLC 92-191, Pettitt v Dunkley (1971) 1 NSWLR 376, and Housing Commission of NSW v Tatmar Pastoral Co Pty Ltd (1983) 3 NSWLR 378).

Discussion

1. We turn first to consider the trustee’s submission that the trial Judge should have disregarded entirely the evidence of the wife and set aside the orders.  We reject that submission.

2. The trial Judge was faced with an extraordinarily difficult task.  He was endeavouring to make the findings of fact necessary to determine the respective contributions of the husband and the wife in circumstances where the husband was not present and not represented.  The trustee, who was the only contradictor to the wife’s position, had comparatively scant information which rendered meaningful cross-examination of the wife on key issues that may have assisted his case more difficult than is commonly the situation.  In these circumstances, we consider his Honour did the best he could.  He accepted parts of the wife’s evidence and rejected other parts, for reasons he gave.  

3. As Lord Sumner said in SS Hontestroom v SS Sagaporack [1927] AC 37 at 47 (cited with approval in the High Court in Abalos v Australian Postal Commission (1990) 171 CLR 167 at 178):

   [n]ot to have seen the witnesses puts appellate judges in a permanent position of disadvantage as against the trial judge, and, unless it can be shown that he has failed to use or has palpably misused his advantage, the higher Court ought not to take the responsibility of reversing conclusions so arrived at, merely on the result of their own comparisons and criticisms of the witnesses and of their own view of the probabilities of the case…

4. We turn next to the second and third elements of the challenge to the exercise of discretion, each of which pertain to the way his Honour used an inflation factor to determine the value of the husband’s entitlement.

5. His Honour considered, but rejected, an approach whereby the husband’s notional entitlement to a 25 per cent share of the assets at the time of the consent orders would have been “carried forward” to the time of trial, resulting in the husband’s share of the assets at the time being $887,206.00 (i.e. 25 per cent of the asset pool of $3,548,826.00)   Instead, His Honour concluded that the adjustment of the husband’s notional entitlement by reference to inflation would be appropriate.  This resulted in the husband’s 1998 notional entitlement to a payment of $250,000.00 being transformed into a figure of $319,081.00.

6. His Honour considered that it would be “quite artificial and unfair to the wife” if he were to have simply carried forward the original percentage division.  His reasons for so concluding can be gleaned from paragraph 112 of his reasons where he said:

   The evidence is clear that in the post 1998 period the wife has been solely responsible for the conservation and improvement of the parties’ assets in ways which are largely unchallenged, or ineffectively challenged, on the evidence. The assets are today worth substantially more than the parties represented them to be worth in 1998. The increase in the asset pool cannot properly be regarded as referable solely to inflation or other factors, the wife having actively conserved and improved the parties’ assets over the past decade.

7. His Honour went on to say (at paragraph 114) that notwithstanding the husband had brought about the present state of affairs, it would be unfair to him “to fail to reflect in any award now made the reality that nearly ten years has passed” and the husband had received none of the $250,000.00 to which he was entitled. 

8. Senior counsel for the trustee primarily attacked his Honour’s approach as failing to take account of the enormous capital growth in the properties the wife received pursuant to the consent orders.  We accept there is merit in that submission, particularly when regard is had to the increase in value of the HP property.

9. In considering this issue, and keeping in mind the concession made by counsel for the wife that contributions up until about 1974 should be regarded as equal, the following facts appear of importance:

   ·the jointly owned L land was acquired before 1974;

   ·the L land was resumed in 1974, with the spouses receiving $30,000.00 compensation;

   ·the spouses purchased the HP property in 1977 for $36,000.00, using the funds they had received on the resumption of the L land; 

   ·the husband and wife estimated in the application for consent orders that the HP property was worth $250,000.00;

   ·there was no evidence that the wife improved the HP property in any way after she received it pursuant to the consent orders in 1998;

   ·the HP property was resumed in 2002;

   ·the wife received $2,331,932.00 by way of compensation for the resumption of the HP property, of which $900,000.00 was paid in 2002 and the balance of $1,370,135.00 in around June 2007, (i.e. a few weeks before the commencement of the trial before Coleman J);

   ·the compensation from the HP property was the source of the $1,000,000.00 in superannuation held by the wife at the time of trial. 

10. It will be seen from the above that the funds received from the resumption of the HP property were equivalent in value to almost 65 per cent of the assets available for distribution. 

11. His Honour did not in his judgment make any reference to the HP property and the way in which the compensation received on its resumption represented such a significant proportion of the assets available for distribution.  Although his Honour found that the wife had been “solely responsible for the conservation and improvement of the parties’ assets in ways which are largely unchallenged, or ineffectively challenged”, the wife gave no evidence of any contribution at all to the HP property after the making of the consent orders.  We accept that it could be inferred that the wife was the driver of the litigation which led to the compensation payment being increased significantly, and that her efforts in this regard could reasonably be regarded as a “contribution”.  However, it would also be reasonable to assume that the litigation merely established the true worth of the property at the time.

12. Although we recognise that unless he proposed to set aside the consent orders it was not necessary for his Honour to undertake a full evaluation of the parties’ s 79 entitlements as at the date of trial, we nevertheless consider it was incumbent upon his Honour to give some consideration to how the spectacular increase in value of the HP property should be treated (see Williams & Williams [2007] FamCA 313 (Kay, Coleman & Stevenson JJ)). In our view, his Honour’s methodology of adjusting the husband’s notional entitlement at the time of the consent orders by reference only to an annual average rate of inflation of 5.33 per cent failed to have regard to the reality that the HP property had increased in value at a rate far in excess of the inflation rate, without it seems any contribution being made to the property – other than presumably payment of outgoings and the effort made by the wife in pursuing the compensation claim.

13. We accept that his Honour was faced with a most difficult task.  In our view, however, the approach his Honour adopted resulted in him failing to attempt to determine the extent to which the significant increase in capital growth may on the one hand have reflected contributions made by the wife (and for which she should receive benefit) and on the other hand reflected market forces (for which arguably the husband and wife were both entitled to share the benefit, since the wife, in effect, had the use of the husband’s capital).  

14. His Honour’s approach, with the greatest of respect to him, seems to have proceeded on an assumption that increase in the value of property was reflective of only two things – namely contribution to the property (including conservation and improvement) or inflation; whereas the impact of market forces can commonly be a most significant factor.  Thus in this case, a property that was acquired in 1977 for $36,000.00 had, by 2007, become worth $2.33 million, without there being any evidence of any improvement being made to the property.  

1. Notwithstanding that we recognise the broad nature of the discretion available to the trial Judge, we consider his Honour’s assessment of the husband’s entitlements at the date of the hearing was outside the reasonable ambit of his discretion.

Should the orders have been set aside rather than varied?

1. Section 79A(1) provides the Court with options in the event that the threshold issue is resolved in favour of the applicant. In such circumstances “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 trustee submitted at trial and before us that the consent orders should be set aside.

2. In Simpson and Hamlin (1984) FLC 91‑576 at 79, 659 the Full Court (Emery SJ, Baker and Nygh JJ) said:

   The husband also complained that in making the variation, his Honour did not consider the present financial circumstances of the parties. Indeed, had his Honour set the consent order aside and proceeded to make a fresh order under sec. 79, he would have been obliged to consider all factors which must be considered under sec. 79(4) and, so far as they are relevant, under sec. 75(2). As Nygh J. explained in Parker and Parker (1983) FLC 91-364 at pp. 78,444-78,446; (1983) 9 Fam. L.R. 323 at pp. 328-329, the choice between setting aside and variation depends on the degree of intervention to be made. Where, as here, that intervention consists of a perceived realignment of the distribution of the property of the parties from one-third and two-thirds respectively to an approximately equal division, it is in our view a matter which goes beyond mere variation and would require the formal setting aside of the order and the making of a new order with all the consequences of that under sec. 79.  Only thus can the Court ensure that the new order will be just and equitable between the parties. [emphasis added]

3. We accept in this case, having regard to the time which had elapsed since the making of the consent orders and changes in circumstances pertaining to the real estate, the orders proposed by the trustee presented obvious practical difficulties.  Nevertheless, in our view, in light of the magnitude of the adjustment to the outcome contained in the consent orders, this was a case where the orders should have been set aside rather than merely being varied or, as his Honour said, “amended”. 

4. We would also observe that his Honour did not give any reasons for his decision to “amend” rather than to set the orders aside.  In our view, the trustee would have been entitled to assume that his Honour would set the consent orders aside rather than merely vary them.  We say this in light of the concession made by counsel then appearing for the wife at the hearing on 27 March 2006.  We also take into account the exchanges that occurred between his Honour and counsel at that hearing.  We do not propose to set out the passages from the transcript but some of them that have led us to reach the view we have may be found at A/B 4, 795 line 7, 795 line 44, 796 line 33, 797 line 4, 797 line 18, 798 line 1 and 800 line 1.

5. We therefore conclude that his Honour erred in failing to set aside the orders.  We consider it unnecessary to discuss the type of orders his Honour could then have made in order to recognise the reality that third parties had acquired interests in the real estate in the period since the consent orders were set aside.  It is sufficient to say that we are satisfied appropriate orders could be made to protect their interests.

Re-exercise of the discretion or remission for re-trial

1. At the commencement of these reasons we noted the position adopted by senior counsel for the trustee, namely, in the event that we found appealable error by the trial Judge that the matter would require remission for re-hearing.  No submissions were received by us from counsel for the wife or Mr M suggesting that we should re-exercise the discretion.  Given the lack of relevant findings, including findings in relation to contributions to the HP property, we agree that the only proper course is for the matter to be remitted for retrial before a judge other than the learned trial Judge.

Cross-appeal

1. Although we did not give our reasons at the time, we granted leave at the hearing for the wife to file her Notice of Cross-appeal.  No objection was raised by senior counsel for the trustee to the filing of the cross-appeal.  Counsel for Mr M objected but conceded he had received notice that the wife intended to pursue a cross-appeal and had prepared submissions in answer to those relied on by the wife.  Counsel for Mr M conceded that all issues in dispute could be dealt with at the one hearing and there was no prejudice to Mr M in dealing with the cross-appeal.  We determined, particularly having regard to the concessions made by counsel, that in the interests of justice we should grant the extension of time for the filing of the Notice of Cross-appeal (see Gallo v Dawson (1990) 93 ALR 479).

2. We have in the course of our discussion of the appeal considered the issues raised by the cross-appeal, save for the costs orders made against the wife in favour of the trustee. We have dealt briefly with the wife’s claim that his Honour was in error in determining, on the basis of the concessions made by the wife, that a miscarriage of justice could be inferred by the entering into of the consent orders, and that his Honour could move directly to the second step required under the section, namely, to consider whether in the exercise of his discretion the consent orders should be varied or set aside.  This argument is without merit and can be disposed of shortly.

3. Counsel appearing for the wife on 26 March 2006 made a clear and unequivocal admission that the circumstances of the making of the consent orders were such that those orders should be set aside.  We accordingly find no merit in this ground of the cross-appeal.  

The challenge to the trial judge’s costs orders

1. It is impossible for us, absent provision of relevant material (by reason of lack of an appeal book), to deal with the cross-appeal insofar as that cross-appeal challenges the trial Judge’s costs orders made on 12 February 2008.  We did not have the benefit of the submissions made to the trial Judge or access to any relevant documents, including offers which may have been influential to his Honour’s decision. 

2. We propose therefore to give the parties the opportunity to provide any relevant documents, together with written submissions in relation to the challenge to his Honour’s costs orders.

Costs of the appeal

1. Senior counsel for the trustee sought, in the event that the appeal was allowed, that the wife should pay the trustee’s costs on an indemnity or solicitor/own client basis.  The trustee sought no order for costs against Mr M.

2. Whilst counsel for the wife opposed any order for costs being made against the wife in the event the appeal was dismissed, he simply said “[h]owever, if the appeal is upheld that’s a different situation” (Transcript, 4 September 2009, p 85). Although he made no further submissions relevant to s 117(2A) of the Act he did, however, formally oppose any costs order made in the trustee’s favour being on an indemnity basis.

3. Counsel for Mr M sought, regardless of the outcome of the appeal, that the wife should pay Mr M’s costs. We note these costs included reserved costs of the proceedings before Finn J who made an order joining Mr M as a party to the appeal.  He did not seek a certificate under the Federal Proceedings Costs Act (1981) (Cth) on the basis that any amount received under such certificate would not adequately recompense Mr M for costs incurred in his participation in the appeal.

4. In the circumstances of this case, we are satisfied that the wife should pay both the costs of the trustee and Mr M.  In respect of the latter, we note that the wife continued to seek orders in her Notice of Cross-appeal that the orders made by the trial Judge on 17 August 2007 be vacated.  Thus it is apparent that the wife’s ultimate position adopted in the cross-appeal was that Mr M should not receive anything directly, nor should any sum be paid to the trustee. 

5. Although the position adopted by Mr M was ultimately unsuccessful, we conclude that the position adopted by the wife in her cross-appeal in respect of the orders of 17 October 2007 is a relevant factor to be taken into account by us in the exercise of our discretion under s 117. We also take into account the underlying basis for the application under s 79A leading to this appeal was the entering into the consent orders by the spouses to deprive Mr M of recovery of a potential judgment debt. Furthermore, the wife’s financial circumstances are notably superior to both Mr M’s and the husband’s bankrupt estate.

6. We turn then to consider whether or not the wife should be ordered to pay the trustee’s and Mr M’s costs on an indemnity basis or on the more usual party and party basis.  The principles relating to indemnity costs orders are well known and do not require restatement here.  (See Kohan and Kohan (1993) FLC 92-340.)

7. We have, in the course of our reasons, noted the potential confusion caused by counsel for the trustee appearing to consent to an order in Mr M’s favour but then challenging the order made on appeal.  Taking this into account, we determine there are not circumstances of such an exceptional nature as would justify an order for indemnity costs in favour of the trustee.

8. Insofar as Mr M’s costs are concerned, we find factors which could potentially have supported making an indemnity costs order in Mr M’s favour under s 117(2A)(g) are outweighed by the position adopted on his behalf on the hearing of the appeal. In these circumstances, we do not find it appropriate to make an order for payment of Mr M’s costs of the appeal other than on a party and party basis.

I certify that the preceding two hundred and fifty-three (253) paragraphs are a true copy of the reasons for judgment of the Honourable Full Court 

Associate: 

Date:  28 April 2009