VARGAS & FALLON

[2020] FCCA 1698

FEDERAL CIRCUIT COURT OF AUSTRALIA

VARGAS & FALLON [2020] FCCA 1698

Catchwords:
FAMILY LAW – Property – application pursuant to section 44(6)(a) of the Family Law Act 1975 (Cth) to grant leave to the applicant to apply after the end of the standard application period due to hardship grounds – where parties came to a binding agreement in 2011 which required the respondent to be responsible for any debt in relation to the B Street, Suburb C property and that the applicant is not responsible for any debt to D Insurance or otherwise in respect of that property – where respondent is itinerant and unable to be located – declarations made that parties were in a de facto relationship and that the respondent is responsible for any debt in relation to the B Street, Suburb C property and that the applicant is not responsible for any debt to D Insurance or otherwise in respect of that property – orders made that the applicant be granted leave to apply for orders under section 90SM after the standard application period, that the Respondent be responsible for the entirety of the debt owed to D Insurance and that the Respondent indemnify the applicant from paying the debt or being responsible for the payment of the debt.

Legislation:

Family Law Act 1975 (Cth), ss.4, 44, 90SL, 90SM

Applicant: MR VARGAS

Respondent: MS FALLON

File Number: MLC 4025 of 2019

Judgment of: Judge Burchardt

Hearing date: 18 June 2020

Date of Last Submission: 18 June 2020

Delivered at: Dandenong

Delivered on: 30 June 2020

REPRESENTATION

Counsel for the Applicant: Mr Atkinson

Solicitors for the Applicant: Berger Kordos Lawyers

Counsel for the Respondent: Not applicable

Solicitors for the Respondent: Not applicable

ORDERS

THE COURT DECLARES THAT:

1. Pursuant to section 90RD of the Family Law Act 1975 (Cth), a de facto relationship existed between the parties.

2. The parties came to a binding agreement in 2011 which inter alia required Ms Fallon alone to be responsible for any debt in relation to the property at B Street, Suburb C, and that Mr Vargas is not responsible for any debt to D Insurance, Mortgage Insurance Limited, Australian Credit License No ... (“D Insurance”) or otherwise in respect of that property.

THE COURT ORDERS THAT:

1. Pursuant to Section 44(6)(a) of the Family Law Act 1975 (Cth), the applicant be granted leave to apply for Orders under Section 90SM after the standard application period.

2. The Respondent be responsible for the entirety of the debt owed to D Insurance pursuant to Loan Agreement ... (“the Loan Agreement”), being the sum of $98,747.24 (“the debt”).

3. The Respondent indemnify the applicant from paying the debt or being responsible for the payment of the debt.

4. The applicant be permitted to serve a copy of these Orders on D Insurance and E Ltd.

IT IS NOTED that publication of this judgment under the pseudonym Vargas & Fallon is approved pursuant to s.121(9)(g) of the Family Law Act 1975 (Cth).

FEDERAL CIRCUIT COURT
OF AUSTRALIA
AT DANDENONG

MLC 4025 of 2019

MR VARGAS

Applicant

And

MS FALLON

Respondent

REASONS FOR JUDGMENT

Introductory

1. This is an unusual, and in my experience thus far unique, property application.  The applicant, Mr Vargas, whose litigation guardian Ms F has conduct of the proceeding on his behalf, seeks in essence two forms of relief.  She seeks that there be declaratory and other relief, the net effect of which would be to relieve Mr Vargas from any responsibility for a debt owed to D Insurance, Mortgage Insurance Limited (“D Insurance”), pursuant to a loan agreement.  She also seeks that the respondent Ms Fallon be responsible for that debt.  She further seeks indemnification in respect of an asserted capital gains tax liability in the amount of some $3,700.  In order to understand why the matter has come before the Court in the rather strange way that it has, it is appropriate to set out the history of the proceeding.

The History of the Case

1. On 15 April 2019, Ms F filed an application. She sought leave of the Court on behalf of Mr Vargas for him to file his initiating application and supporting documents out of time, pursuant to section 44(6)(a) of the Family Law Act 1975 (Cth) (“the Act”). She also sought to be appointed as his litigation guardian. Ancillary orders seeking discovery from the respondent were also set out.

2. In support of that application, Mr Kordos, solicitor for the applicant, filed an affidavit in which he supported the application for a litigation guardian.  He also provided an affidavit from Dr G likewise in support.

3. Ms F filed an affidavit on 15 April 2019 deposing as to her long acquaintance with Mr Vargas, and his various difficulties, and asserted a number of matters on what is, plainly, substantially a hearsay basis as to the history of the de facto relationship between the parties.

4. Dr G’s affidavit filed on 15 April 2019 made a number of observations about Mr Vargas’ health.  It is not necessary to rehearse again the matters I discussed with counsel at the trial about that matter.  It is sufficient to say that, whatever doubts I myself might have had as to whether the appointment of a litigation guardian was really appropriate, it is apparent that the respondent expressly took no issue with such appointment, and, as a matter of practical politics, the case has proceeded with Ms F having the conduct of the matter on behalf of Mr Vargas.  She additionally has his power of attorney.

5. Following various difficulties with service, which appear to have been caused by the fact that Ms Fallon moves around a lot, she was served, and filed a response on 25 July 2019.  She sought the dismissal of the application, and in the event that that was not successful, that there be discovery by the applicant.  Ms Fallon’s financial statement filed contemporaneously asserted total property owned by her in the sum of $17,184 and superannuation of $100,000.  That document was sworn on 24 July 2019.  In her affidavit sworn the same day, the respondent made a number of factual assertions, to which it will be necessary to return.

6. Mr Vargas filed a financial statement on 29 August 2019.  Relevantly, he deposed to some $30,000 which was in his possession, which was earmarked, it would seem, for legal costs, and superannuation estimated at $130,000, and liabilities (the D Insurance debt) of $75,000.

7. Ms Fallon filed a further affidavit on 27 July 2019. That merely sought to correct some earlier details in her affidavit.

8. The husband filed in February 2020 an application in a case which I disposed of summarily for reasons I gave at the time.

9. In the meantime, on 13 January 2020, the respondent Ms Fallon’s solicitors filed a notice of withdrawal as lawyer.

10. Ms F filed a trial affidavit on 15 June 2020.

11. The Court had ordered on 6 November 2019 a conciliation conference to take place on 13 March 2020, at which earlier time, of course, the respondent was legally represented.  Ms Fallon did not attend the conciliation conference on 13 March 2020, and I set the matter down for hearing on 18 June 2020 at 10:00am.  I directed that the applicant serve the respondent with a copy of those orders at her email address.

12. On 18 June 2020, Ms Fallon did not appear.  I traversed with counsel the difficulties of trying to contact Ms Fallon, who has lived at a number of widely separated addresses (including Queensland and Western Australia) and elsewhere throughout the currency of the proceedings.  Given that Ms Fallon is so hard to contact and appears to be itinerant, and therefore, given the likelihood that an adjournment would not in fact enable Ms Fallon to attend, I proceeded to hear and determine the matter.

The Admissible Evidence

1. It should be noted that most of the material filed by Ms F is, quite clearly, hearsay on its face, although a number of business records are admissible.  Accordingly, the admissible evidence in this case is essentially that contained within the evidence of Ms Fallon’s own affidavits, which I will treat, in the circumstances, as admissions against interest.  I am all the more inclined to adopt this course given that those affidavits were prepared at times when she was legally represented.

2. From the affidavit filed on 25 July 2019, I know that Ms Fallon was born in 1962, and Mr Vargas in 1967.  I note that the parties commenced cohabitation in 2007, did not marry and had no children.  They separated in May or June of 2011.

3. Ms Fallon deposed that the relationship commenced in 2005 and that they dated for the first two years.  They moved in together in mid-2007.  Ms Fallon’s denials of the assertions made by Ms F on a hearsay basis that the relationship commenced in 2000, at paragraph 11 of her affidavit, are cogent on their face.  I accept that the parties first got together on a relatively casual basis in 2005 and moved in together in 2007.

4. Ms Fallon has deposed that at the commencement of the relationship she owned a property at B Street, Suburb C, (“the B Street, Suburb C property”).  She also owned a further unit at H Street, Suburb J since 2004.  There was some equity in these two properties at the start of the relationship.  Ms Fallon concedes that the applicant did some labour towards renovations in the B Street, Suburb C property in the nature of odd jobs, but nothing more than that.

5. Ms Fallon went on to depose that in 2007 the parties bought a unit at K Street, Suburb L in the Northern Territory (“the K Street, Suburb L property”), and at the same time formed the company M Pty Ltd, of which they were both directors and shareholders.  The company was formed to purchase property.  The company was wound up in 2018.

6. In 2008, the parties purchased a property at N Street, Suburb O, Victoria, and also a property in Town P, Queensland (“the Town P property”).  In 2010, they bought a property at Suburb Q in Brisbane, Queensland.

7. The parties decided to separate in about May/June 2011.  The separation was amicable and lawyers were not involved.   Under a heading The Verbal Agreement in Relation to Property, Ms Fallon deposed as follows:

   27. Around September or October of 2011, which was about 4 or 5 months after we decided to separate, the Applicant met me at Suburb R to discuss the separation.  He said he would like to keep the car and the K Street, Suburb L unit.  The car was a Motor Vehicle 1 purchased in 2008 for about $14000.  As to what the vehicle would have been worth in 2011, it was still in good condition so I would suggest it was worth approximately $10000. In relation to the value of the K Street, Suburb L property at the time, I cannot be sure.  It was sold some 3 years later in 2014 for $320,000. 

   28. We agreed that I would keep the B Street, Suburb C property.  We agreed I would keep the company, which owned the 2 properties at N Street, Suburb O, Victoria, and Suburb Q, Qld and be responsible for the debt.  The debt was approximately $1 400,000.  It was agreed I would refinance the debt into my sole name as soon as I could refinance.

   29. We agreed this was our settlement.  It was understood we’d each be free to do whatever we wanted with the property we each kept.  We did not reduce our agreement to writing or have property orders made by consent.  In hindsight we should have done so.

8. At paragraph 31, Ms Fallon continued:

   31. I refer to paragraph 27 and 28.  The bank foreclosed on the B Street, Suburb C property because it was not rented, I was unemployed and could not meet the mortgage repayments.  The Applicant did not assist with any repayments.  After the property was sold there was a residual debt of $11000 which I have paid solely without contribution from the Applicant.

9. Ms Fallon went on to depose to the sale of the various properties, including, it would seem, forging the applicant’s signature when she sold the Town P property, a matter that at this stage, while deplorable, requires no further consideration.  At paragraph 38, Ms Fallon continued:

   38. At separation, as stated it was agreed I would keep, and be responsible for the debt, for the properties at Town P, N Street, Suburb O, B Street, Suburb C and Suburb Q.  These properties were rented and whenever there was a shortfall on the mortgages I had to pay it.  I also had to pay rates and water, and repairs.  It was in fact me, who experienced financial hardship after separation; particularly in relation to the B Street, Suburb C property which sold leaving a debt of $11 000.

10. At paragraphs 42 to 43, Ms Fallon continued:

    42. At no time after separating, did the Applicant mention anything about going to court.  I understood he was happy with the verbal agreement we had reached.  I believed him when he that the verbal agreement was the end of it all. 

    43. I spoke with the Applicant in approximately May/June 2018 asking him to visit me in Perth to discuss the problem with B Street, Suburb C.  I did not intend to ask him for money, I just wanted to let him know what was happening as I was worried that if he owned assets they could be in jeopardy.

11. At paragraph 45, Ms Fallon continued:

    45. In summary, the verbal agreement reached at separation saw the Applicant ultimately receive property worth about $50 000 or $60 000 (proceeds of sale of the K Street, Suburb L property), a car (best estimate $10 000), plus he has retained his superannuation.  Until 2018 when he signed over his share of the company, in the meantime still being a company director, he received the benefits of his tax returns usually around $15000 per year for the last 7 years.  I know this because this was the refund we received during the relationship.

12. In the affidavit affirmed 27 July 2019, Ms Fallon sought to correct some of the details of the K Street, Suburb L property sale, but this does not take the matter further.

13. In her final affidavit affirmed 4 November 2019, Ms Fallon sought to correct details of her expenditure of funds in the earlier affidavit (a matter I have not traversed, as it is not now relevant).

14. In support of the issue of the capital gains tax liability asserted as being $3,000, Ms F’s trial affidavit at paragraphs 58 to 61 refers to the sale of the N Street, Suburb O property.  The evidence is, in my view, hearsay.  Nonetheless, it is clear that the property was sold at some point, from Ms Fallon’s affidavit.  The affidavit goes on to annex a copy of Mr Vargas’ financial return.  There is then a hearsay assertion:  “As a result of this transfer, I am advised by S Accountants that Mr Vargas now owes the Australian Tax Office $3,723.35.”

The Relevant Provisions of the Act

1. Section 44 of the Act, relevantly, reads:

   44(5) Subject to subsection (6), a party to a de facto relationship may apply for an order under section 90SE, 90SG or 90SM, or a declaration under section 90SL, only if:

   (a) the application is made within the period (the standard application period) of:

   (i) two years after the end of the de facto relationship;  or

   (ii) 12 months after a financial agreement between the parties to the de facto was set aside, or found to be invalid, as the case may be;  or

   (b) both parties to the de facto relationship consent to the application.

   44(6) The court may grant the party leave to apply after the end of the standard application period if the court is satisfied that:

   (a) hardship would be caused to the party or a child if leave were not granted;  or

   (b) (not relevant)

2. Section 90SL, relevantly, provides:

   (1) In proceedings between the parties to a de facto relationship:

   (a) after the breakdown of the de facto relationship;  and

   (b) with respect to existing title or rights in respect of property:

   the court may declare the rights, if any, that a party has in respect of the property.

   (2) If a court makes a declaration under subsection (1), it may make consequential orders to give effect to the declaration, including orders as to the sale or partition and interim or permanent orders as to possession.

   Section 90SM(1), relevantly, provides:

   In property settlement proceedings after the breakdown of a de facto relationship, the court may make such order as it consider appropriate:

   (a) in the case of proceedings with respect to the property of the parties to the de facto relationship or either of them – altering the interests of the parties to the de facto relationship in the property; 

3. By section 4, subsection (1), “property” means:

   (b) in relation to the parties to a de facto relationship or either of them – means property to which those parties are, or that party is, as the case may be, entitled, whether in possession or reversion.

Consideration – the Mortgage Liability Claim

1. The Court has at an earlier stage received into evidence as exhibit A1 correspondence sent to Mr Vargas by D Insurance dated 14 January 2019.  This is plainly admissible as a business record.  It relevantly provides that D Insurance provided lenders’ mortgage insurance to his lender, T Bank, to cover any insufficiency of funds from the sale of the property.  The letter irrelevantly asserts:

   D Insurance has paid the shortfall to your lender.  In return, your lender has assigned to D Insurance all your lender’s right to recover the balance outstanding under the loan agreement owed by you (‘the Debt’).

2. It goes on to require Mr Vargas, who is noted as a joint borrower with Ms Fallon, the sum of $98,747.24, arising out of the sale of the B Street, Suburb C property.

3. From the affidavit of Ms F, it is apparent that on 9 December 2019 D Insurance issued a further letter of demand, and that E Ltd are the debt collectors D Insurance has engaged.  So much is apparent from “-4” to the trial affidavit of Ms F.  Further correspondence was sent by Mr Kordos to E Ltd, which ultimately produced a response, being “-7”, which relevantly asserts to Mr Kordos:

   As discussed, I can confirm that if a court order is received stating that Ms Fallon is to take sole responsibility for the D Insurance shortfall debt, this order will be honoured and your client Mr Vargas’ liability will be removed. 

   Please send through the court order once available, and we will update our records accordingly.

4. As I have stated earlier, this is a very unusual and extraordinary set of circumstances.  It seems clear beyond doubt that in some fashion, not fully disclosed, Mr Vargas became jointly liable for a loan in relation to the B Street, Suburb C property.  Although Ms Fallon has deposed that she has paid out an $11,000 shortfall, the approach from D Insurance through their agents E Ltd makes it quite clear that this may not be so.

5. In circumstances where it is Ms Fallon’s own evidence that the B Street, Suburb C property debt should be hers alone as part of an agreement which is otherwise, it would seem, not in issue between the parties, it is immediately apparent that the Court should, if it is legally possible to do so, take steps to ensure that Ms Fallon alone is responsible for any debt that may in fact have derived from the sale of the B Street, Suburb C property.  If Ms Fallon is correct in her assertions that there is no money owing, there is, of course, no harm done to her.  If she is incorrect, as D Insurance assert, it is plain that, on her own case, it is her debt alone.  This puts the matter shortly, but it deals, in my view, appropriately with what might be described as the underlying merits of the application.

6. There has been an ongoing measure of controversy as to whether or not debt alone constitutes property for the purposes of the Act.

7. Having considered the matter, I do not think it is perhaps necessary for me to endeavour to decide that issue. That is because the Court has power to make declarations of interests in property. This is, of course, done pursuant to section 90SL. Here, there is no question that the de facto relationship has broken down (section 90SL(1)(a)).

8. In my view, the debt asserted by D Insurance to attach to the sale of the B Street, Suburb C property is, in my view, something that can properly be described as being “with respect to existing title or rights in respect of property”.  If the debt exists, it is a debt intimately associated with and deriving from the property itself.  In my view, in making the orders that the applicant seeks, I am declaring the rights inter se of the parties to the property.  In my opinion, it is appropriate for the Court to make a declaration that any debt in respect of the B Street, Suburb C property is not, pursuant to the agreement that the parties entered into, that of Mr Vargas and is one for which Ms Fallon alone should be responsible.

1. If I am wrong as to that, I would be prepared to order pursuant to section 90SM that there be an alteration in the parties’ property holdings by transferring the chose in action that the debt represents to Ms Fallon in any event.

2. Once a declaration is made pursuant to section 90SL, the Court can make any necessary orders to give effect to that declaration, and this grounds the Court’s power to make the order that the applicant seeks in respect of the D Insurance debt.

3. Further, and were it necessary, I would be prepared to make the orders pursuant to section 90AE proposed in the helpful written submissions forwarded, pursuant to leave, by counsel for Mr Vargas. Those submissions satisfy me that I have power to make the orders sought, but it is not necessary given my conclusions in paragraph 37-39 above.

The Capital Gains Tax Matter

1. The draft tax return annexed to Ms F’s trial affidavit does not prove that Mr Vargas owes the Australian Tax Office $3,000.  The tax assessment that has been forwarded to the Court merely shows that Mr Vargas has been assessed to pay income tax of $3,723.25 on an income of $36,316. It does not reveal any capital gain received by Mr Vargas, let alone any consequential capital gains tax.

2. In any event, neither the initiating application, nor Ms F’s affidavits until her trial affidavit gave notice of this aspect of the claim.  Ms Fallon has had no notice of it.  In these circumstances, in my view, it is not appropriate to make any order to seek to force Ms Fallon to indemnify Mr Vargas for any such liability, should it exist.  As counsel for the applicant, in my view, very sensibly, conceded in discussions with the Court, the likely enforceability of such an order would be open to the most significant doubt in any event.

Conclusion

1. For the above reasons, I propose to make a declaration that the parties came to a binding agreement in 2011 which inter alia required Ms Fallon alone to be responsible for any debt in relation to the B Street, Suburb C property and that Mr Vargas is not responsible for any debt to D Insurance or otherwise in respect of that property. I will make ancillary orders to give effect to this declaration.

I certify that the preceding forty-four (44) paragraphs are a true copy of the reasons for judgment of Judge Burchardt

Associate: 

Date: 30 June 2020