X Company and Mathers and Ors

[2012] FamCA 466

FAMILY COURT OF AUSTRALIA

X COMPANY & MATHERS & ORS [2012] FamCA 466

FAMILY LAW – PRACTICE AND PROCEDURE ─ Whether the applicant should be permitted to amend its claim to agitate a fraud ground ─ Where the fraud allegations which emerged from Senior Counsel for the applicant’s Summary Argument are serious and likely to have implications, if proved, which would extend beyond the section 79A proceedings with which the Court was seized ─ Where all counsel took instructions, after the Court made the disclosure it did with respects to knowledge of the solicitor to whom the allegations of fraud as sought to be agitated in the amended claim are made, in relation to the appropriateness or otherwise of the Court as currently constituted hearing and determining the present proceedings ─ Where quite apart from the fact that the Court was not persuaded that, but for the recusal, which must flow from allowing the applicant to amend its claim to raise fraud, the Court was not persuaded that even if, contrary to that conclusion if it be erroneous, it refused the applicant’s leave to amend, that the substance of the problem would not remain ─ Where the interests of justice demand that a judge who has no knowledge of the solicitor to whom the fraud allegations are made, and is totally impartial should hear the case ─ Where the Court granted leave to the applicant to amend its claim to agitate a fraud ground and made a recusal order

Family Law Act 1975 (Cth) ss 79, 79A, 106B
Real Property Act 1900 (NSW)

Aon Risk Services Australia Limited v Australian National University (2009) 239 CLR 175
Ascot Investments Pty Ltd v Harper (1981) 148 CLR 337
Banque Commerciale SA, En Liquidation v Akhil Holdings Ltd (1990) 169 CLR 279
Ensham Resources Pty Limited v AIOI Insurance Company Limited and ORS [2012] FCA 537
Ghazal v Government Insurance Office of New South Wales (1992) 29 NSWLR 336

APPLICANT: X Company

FIRST RESPONDENT: Mr Mathers

SECOND RESPONDENT: Ms Graham

THIRD RESPONDENT: C Pty Ltd

FILE NUMBER: SYC 2405 of 2011

DATE DELIVERED: 6 June 2012

PLACE DELIVERED: Sydney

PLACE HEARD: Sydney

JUDGMENT OF: Coleman J

HEARING DATE: 4, 5 and 6 June 2012

REPRESENTATION

COUNSEL FOR THE APPLICANT: Mr Richardson SC and Mr Beaumont

SOLICITOR FOR THE APPLICANT: Karras Partners Lawyers

COUNSEL FOR THE FIRST RESPONDENT: Mr Hubert

SOLICITOR FOR THE FIRST 

RESPONDENT:

Capon & Hubert Lawyers & Mediators

COUNSEL FOR THE SECOND RESPONDENT: Mr Simpson SC

SOLICITOR FOR THE SECOND RESPONDENT: Pigdon Norgate Family Lawyers

COUNSEL FOR THE THIRD RESPONDENT: Mr Brereton SC and Mr Millar

SOLICITOR FOR THE THIRD RESPONDENT: A Law Firm

Orders

1. That X Company have leave to amend its application filed 24 April 2012 in the terms of the 23-page document filed in Court on 5 June 2012, a copy of which is annexed hereto and marked as Exhibit “Y”.

1. That the application of X Company that Coleman J be disqualified from hearing the trial of the proceedings be granted.

1. That the matter be listed for directions at 10 am on 21 June 2012.

1. That orders be made in accordance with the document headed Minute of Orders dated 4 June 2012, annexed hereto and marked as Exhibit “X”.

1. That orders be made in terms of document headed Proposed Terms – Pending further order, annexed hereto and marked as Exhibit “A”.

1. That orders be made in terms of document headed Minute of Orders dated 6 June 2012, annexed hereto and marked as Exhibit “B”.

1. That the return date of subpoenae addressed to X Company and Mr H and Mr H and Ms H trading as J Company be adjourned to 11:30 am on 21 June 2012.

IT IS NOTED that publication of this judgment by this Court under the pseudonym X Company & Mathers and Ors has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).

FAMILY COURT OF AUSTRALIA AT SYDNEY

FILE NUMBER:  SYC 2405 of 2011

X Company

Applicant

And

Mr Mathers

First Respondent

And

Ms Graham
Second Respondent

And

C Pty Ltd
Third Respondent

EX TEMPORE

REASONS FOR JUDGMENT

1. As the record would show, shortly after the trial of the proceedings before the Court commenced on Monday 4 June 2012, a controversy arose in relation to the causes of action which the applicant was in fact agitating, or seeking to agitate. Events moved from there in a way which will shortly be detailed. Before doing that, however, and hopefully to give some understanding of the proceedings in a way that is as uncontroversial as possible, the following matters might be recorded.

2. The parties to the proceedings are the applicant, X Company, which, subject to any evidence to the contrary emerging, appears to be a third party at arm’s length to the first and second respondents. The first respondent, Mr Mathers, (hereinafter referred to as “the husband”), and the second respondent, Ms Graham, (hereinafter referred to as “the wife”) were previously married to each other.

3. The husband and wife entered into terms of settlement which became orders of the Court by consent on 1 November 2010. In essence, the orders were orders pursuant to section 79 of the Family Law Act 1975 (Cth) (“the Act”), insofar as they are relevant for present purposes. In broad terms, and relevantly for present purposes, the orders provided that the husband transfer to the wife one half of his minority interest in a parcel of land which for convenience can be referred to as “Property T”. The orders were made. The Court understands that the transfers referred to in the orders were executed and were registered.

4. The interest of X Company arises from a deed entered into between itself and the husband on 15 May 2002. That deed gave rise to certain rights as between the husband and X Company. The Court apprehends that the nature of the rights created by the deed is a matter of controversy, or would be a matter of controversy in the proceedings with which the Court is seized. Without endeavouring to second guess matters the proceedings raise issues which are complex, and involve both the determination of disputed issues of fact and questions of law. The issues ultimately involve determining whether, as X Company asserts, the deed of 15 May 2002 created in its favour equitable interests with respect to the husband’s holding at Property T, or whether those interests were more in the nature of rights in personam against the husband.

5. Subsequent to the consent orders the wife entered into arrangements to sell the interest which she acquired pursuant to the consent orders to C Pty Ltd. Subject to any evidence to the contrary which may emerge during the course of a trial, C Pty Ltd also appears to be an arms length third party vis-à-vis the husband and wife, and certainly appears to be so vis-à-vis X Company.

6. The application with which the Court is seized is an application by X Company under section 79A of the Act to set aside the consent orders of 1 November 2010 and, consequent upon doing so, and pursuant to section 106B of the Act, to set aside a series of identified transfers with respect to the property which the Court apprehends was transferred by the husband to the wife pursuant to the consent orders.

7. For its part, in broad terms, X Company has historically in the proceedings asserted that the orders should be set aside as they were made in circumstances constituting a denial of natural justice to X Company. X Company’s case from material previously filed appears to be a combination of submissions in reliance upon section 79(10) of the Act, the decision of the High Court in Ascot Investments Pty Ltd v Harper (1981) 148 CLR 337, and the principles of natural justice arising from the interest, whatever it was, which X Company had either in the Property T land, or in personam against the husband in relation to it.

8. The Court apprehends that C Pty Ltd’s resistance to the application of X Company would at least in part be in reliance upon provisions akin to the Real Property Act 1900 (NSW), if not provisions in identical terms thereto which are broadly described as involving indefeasibility of title, and the doctrine of a third party bona fide purchase of a value without notice.

9. The proceedings were commenced by X Company, and on 24 April 2012, X Company filed an Amended Initiating Application. In that application, paragraph 1, it was pleaded:

   That pursuant to Section 79A(1)(a) of the Act, the adjustive property Order made in these proceedings on 1 November, 2010 as between the first and second respondent, be set aside.

   The consequential relief earlier alluded to pursuant to section 106B was then pleaded, as were a number of other consequential orders.

10. The document introduced by way of amendment, as pleaded in paragraph 5, an alternative claim pursuant to the Court’s accrued equitable jurisdiction, the effect of which was that a declaration was sought that the wife’s interest in the Property T land and any interest transferred by her to C Pty Ltd was subject to X Company’s equitable interest in that land:

    … commensurate with the applicant’s [X Company’s] right to specific performance of the Deed of Agreement dated 15 May 2002 …

11. Consequential orders were also then sought, essentially in the terms of the consequential relief sought pursuant to the purported exercise of jurisdiction under section 79A of the Act. Costs were sought.

12. When the case commenced, Senior Counsel for C Pty Ltd immediately raised with the Court a complaint that for the first time, earlier on Monday 4 June 2012, he was provided with a document prepared by and provided to him by Senior Counsel for X Company, which for convenience can be identified as a document headed “[X Company] v [Mathers] & Ors, Applicant’s Summary of Argument”.

13. In the course of that document, having reiterated the denial of natural justice ground, which has at all material times been asserted, the document asserted that X Company has contractual rights, and a proprietary interest, and then proceeded to identify other matters which were potentially relevant to enlivening the Court’s jurisdiction under section 79A of the Act. At page 6 of the document, the words “Non-disclosure and fraud” appeared, and there followed, under the heading “Fraud or non-Disclosure”, a series of allegations, the effect of which, if proved, would be likely to constitute a ground of fraud.

14. In the course of the outline which followed, and covered a series of pages, reference was made to a number of individuals, one of whom was a Canberra solicitor who shall be referred to in these reasons as Ms Y. The Court, having read the document, immediately raised with Counsel for all the parties, and reiterated, that having subsequent to being appointed in 1991 sat almost full time in Canberra for approximately 5 years, and thereafter part time in Canberra until about 2006, during the course of which the Court heard and determined many cases in which Ms Y either appeared as counsel or, as was the reality in the majority of defended trials, instructed counsel, the Court would have difficulty, in the absence of very clear and incontrovertible evidence, finding that Ms Y would have been a party to a fraud.

15. As is not in doubt, if allowed to be agitated, the fraud allegations which emerge from Senior Counsel for X Company’s Summary Argument are serious and likely to have implications, if proved, which extend beyond the section 79A proceedings with which the Court is currently seized.

16. Not surprisingly, the Court having made the disclosure that it did, all counsel took instructions in relation to the appropriateness or otherwise of the Court as currently constituted hearing and determining the present proceedings. Lest there be any doubt in the mind of persons not qualified in law, the Court raised the concern it did in reliance upon the well known principles, by which the Court is bound, in relation to the perceived impartiality of the trier of fact. It is not a question of a presumption that Ms Y would not have been a party to any inappropriate dealings or any potential presumption of that kind. It is simply that, as Counsel for the parties know and understand, a reasonable observer might, in the circumstances, reasonably perceive something less than the level of impartiality in relation to a serious allegation which is required of the Court.

17. There is nothing unusual about recusal in circumstances such as potentially arise in this case. That suggestion is reinforced by the reality that Senior Counsel for all the parties do not dispute that if X Company is to be permitted to agitate the fraud claim which its Senior Counsel has outlined, there is no question that recusal is appropriate.

18. The question thus becomes, at least superficially, should X Company at this late stage be permitted to amend its claim to agitate a fraud ground. Senior Counsel for C Pty Ltd, whose submissions were, not surprisingly, embraced by Senior Counsel for the wife, vigorously opposed the granting of leave to amend. As the record would reveal, accepting the principles which were submitted by Senior Counsel for C Pty Ltd as emerging from a number of authorities to which he referred, notably, the decisions of the High Court in Banque Commerciale SA, En Liquidation v Akhil Holdings Ltd (1990) 169 CLR 279, and the decision of the New South Wales Court of Appeal in Ghazal v Government Insurance Office of New South Wales (1992) 29 NSWLR 336, the Court accepts that if fraud was to be sought to be alleged, then it needed to be pleaded, and pleaded with some particularity.

19. This occurred, and ultimately yesterday, a draft pleaded application, which is in the nature of a statement of claim, was provided by Senior Counsel for X Company. That document, unsurprisingly, extends to some 23 pages, the greater part of which is referrable to the fraud ground which was thereby sought to be raised.

20. Some matters of background are perhaps appropriate to be recorded at this point before proceeding to determine the critical issue. The first is that until the 23 page document styled “Applicant’s Pleaded and Particularised Case” issued, there was no formal application by X Company seeking to raise a fraud ground for relief under section 79A of the Act, although it must be acknowledged that the claim which had been articulated historically by X Company, and was again on 24 April 2012 as a claim for relief under section 79A(1)(a) of the Act was, as the terms of that section make clear, sufficiently broad to potentially encompass a fraud claim.

21. The Court accepts that the general law is, and has for a long time been, that different considerations apply to the pleading of fraud claims, or grounds based upon fraud, to those which apply with respect to other counts or grounds. In a Court such as this, the general law in this respect has application.

22. As is not in doubt, the origin of the fraud claim which X Company now seeks to agitate is documentation which was discovered, predominantly by C Pty Ltd, but which can perhaps be described as having been discovered by C Pty Ltd and/or the wife as long ago as July of 2011.

23. On or about 29 July 2011, all of the documentation which is sought to be relied upon by X Company if it is permitted to agitate its fraud claim, was discovered to it. Indeed, it could with some justification be suggested that X Company is only able at this stage to seek to agitate a fraud ground in the way in which it does because of the discovery of those documents. Why the documents were discovered is not a matter about which the Court can or should speculate. What can be safely inferred, however, is that they were considered by those who decided to discover them to be of relevance to the proceedings, as the proceedings were then constituted.

24. The events subsequent to the discovery of the documents also should be referred to. On 3 November 2011, the attorneys for X Company wrote to Ms Y’s firm providing particulars of the claim which X Company was seeking to agitate. In that letter, reference was made to a request for particulars of 21 July 2011. The particulars sought, it is common ground, were effectively reproduced or restated in the response of 3 November 2011. The letter went on to say:

    … our client’s contentions are clearly set out in the affidavit of [Mr K] sworn 19 April 2011. …

25. The particulars which were provided reiterated the basis of X Company’s entitlement with respect to the Property T land to be the deed between itself and the husband of 15 May 2002. The question was asked:

    Identify the reasons and circumstance(s) relied on by your client as giving rise to a “miscarriage of justice” within the meaning of section 79A(1)(a) of the Family Law Act 1975?

26. The attorneys for X Company provided a succinct response, which in essence was limited to a natural justice complaint. Neither there nor elsewhere in the four page document was fraud expressly or impliedly raised. That was notwithstanding that, by that time, the discovered documents which are now sought to be relied upon by X Company to found its claim had been discovered, and been able to be inspected for a period of about four months.

27. As noted earlier, on 24 April 2012, X Company filed an amended application which again did not expressly or impliedly raise a claim in reliance upon any alleged fraudulent conduct. On 21 July 2011, the attorneys for X Company had written to Ms Y’s firm, in the course of which, they acknowledged receipt of a transcript of the relevant file notes. It is not in doubt that the transcripts of the relevant file notes were the file notes previously discovered which find themselves in Exhibit KR1 to the affidavit of Mr K, a witness in X Company’s case, sworn on 16 April 2012. The Court has been referred extensively to each of the relevant file notes during the course of debate.

28. Somewhat cryptically, perhaps, it might be thought, the letter of 21 July 2011 referred to the file notes made by Ms Y and made a series of suggestions which, but for the fact that fraud was not then, or for quite some time thereafter raised, no doubt would have had implications for C Pty Ltd and those advising them. The terms of the letter speak for themselves. They are part of the record as Exhibit A1.

29. On 8 May 2012, the attorneys for X Company provided particulars of X Company’s claim to the attorneys for the wife. As Senior Counsel for X Company sensibly readily acknowledged, in circumstances which reveal that it was more good fortune than careful planning on the part of attorneys for X Company, C Pty Ltd became aware of the contents of the letter to the wife’s attorneys of 8 May 2012. This document has been the subject of a number of submissions. The document records, as a question being asked by the attorneys to whom the response was provided: “Does the Applicant allege fraud on the part of the Second Respondent?”  The answer was an unequivocal, “Yes”.

30. Curiously perhaps, in response to the next question, if the answer to which was “Yes”, as it was, “please identify, with precision, the facts and circumstances upon which the applicant relies to establish fraud”, the letter referred back to the letter of particulars of 3 November 2011. Cryptic is perhaps a charitable description of what followed in the paragraphs which ensued, but for the fact that ultimately it was said:

    More particularly, the contention of the Applicant will be that the Wife fully understood, or in the alternative had reason to, and did, suspect, that the purported withdrawal on 29 September 2010 and 30 September 2010 by the Third Respondent of its offer to purchase the property shortly prior to the entry into the Consent Orders, was not a genuine withdrawal of any interest on the part of the Third Respondent, but rather was a sham withdrawal, done at the request of the Wife, in order to purport to excuse her from her duty to disclose the existence of the offer to the Court (and to the Applicant) prior to the entry into the Consent Orders.

1. The balance of the letter is of no particular relevance for present purposes, save to say that in the particulars provided in response to the question which was asked with respect to suppression of evidence, failure to disclose, giving of false evidence, it was confirmed that X Company did intend to make such allegations. As page 3 records, albeit not raising the word “fraud” substantially what was said with respect to the fraud claim was reiterated, and in particular in subparagraph (4) of the particulars, the word “sham” again appeared.

2. That matter will assume some significance in the Court’s ultimate decision with respect to this issue. There was a subsequent telephone directions hearing in relation to the proceedings between some counsel and/or attorneys and the Court from Dubbo subsequent to that letter. Regrettably, and without criticising anyone, nothing was then raised either by the Court or any party in relation to just what claim X Company was hoping to agitate before the Court.

3. The Court turns to the Summary of Argument and the Pleading by which that Summary of Argument would be sought to be formally agitated. Senior Counsel for C Pty Ltd submitted, with some force, and by reference to decisions such as the High Court’s decision in Aon Risk Services Australia Limited v Australian National University (2009) 239 CLR 175, and a decision of Emmett J of the Federal Court of Australia in Ensham Resources Pty Limited v AIOI Insurance Company Limited and ORS [2012] FCA 537, that the Court ought not, in the circumstances as they have been revealed or emerged, allow X Company to amend its claim to raise fraud.

4. As the authorities make clear, there are a number of circumstances/ considerations to which the Court must have regard. The first is, and not necessarily in order of importance, the overarching consideration being the requirement to do justice to all parties. For convenience, the first matter to which reference will be made is the failure to have sought to amend sooner or, having not done so, to provide some acceptable explanation of that failure.

5. Senior Counsel for X Company frankly acknowledged that it was not until 8 May 2012, and then in circumstances where X Company did not cause C Pty Ltd to be directly informed of its intention to do so, X Company first clearly raised the spectre of fraud. If the Court’s decision turned on the issue of delay, and the failure to adequately explain that delay, this issue would probably be fairly readily resolved, and resolved adversely to X Company.

6. The reality is that for approximately 10 months, X Company has had available to it the documentation by reference to which it seeks to agitate and prove a fraud claim. It could be said that the situation is compounded by the provision of particulars in November 2011, which, notwithstanding the availability of what might be described as the ammunition by which X Company would seek to advance its cause, gave no indication of any intention to assert fraud.

7. The November 2011 particulars, with respect to whoever drafted them, did not even hint at the prospect of fraud being raised. Nor did the application filed in April 2012. This is perhaps the more surprising given the terms in which the attorneys for X Company wrote to Ms Y and others on 21 July 2011, as they emerged from Exhibit A1. The 8 May 2012 letter in substance, if not in form, did, for the first time, raise the prospect of fraud being raised by X Company.

8. The matters which, however, in the Court’s view, are more influential and require consideration relate to the consequences of allowing X Company to amend its claim to include a fraud count.

9. As the High Court has made clear in Aon (supra), and as Senior Counsel for C Pty Ltd has reminded the Court, and the Court accepts as clearly it must, it is not simply a matter of determining whether allowing the amendment could, or could not, be addressed in terms of prejudice to other parties by costs orders and the like. With that in mind, the following matters emerge, in the Court’s view, as being significant.

10. The first and most significant matter is that just as it can be said, and has been said forcefully, that X Company has known of the material by reference to which it is now clear it would seek to prove its fraud claim for approximately 10 months, so too have the parties who would seek to resist that claim if it is allowed to be agitated. The situation is somewhat different in those circumstances to a situation such as may have arisen in Aon (supra), and other cases where the amendment of the pleading raises matters in reliance upon evidence essentially within the keeping of the party who seeks to agitate the claim for the first time.

11. As Senior Counsel for X Company recorded during debate yesterday, in the absence of some unforseen development in the course of evidence, if X Company is permitted to agitate a fraud claim it would be in reliance upon the documentation appearing as the exhibit to Mr K’s affidavit sworn 16 April 2012.

12. Senior Counsel for C Pty Ltd, quite properly, recorded that the Court ought not proceed on the basis that, either in the context of a fraud claim if it is allowed to be agitated or otherwise, the documentation previously discovered by C Pty Ltd and/or the wife, and comprising the material by reference to which this issue has been debated, exhibited to Mr K’s affidavit, would uncontroversially pass into evidence. Whether it would or not is not a matter about which the Court needs to or can form a final conclusion, but it can, with some confidence, be suggested that the material is not clearly inadmissible if a fraud claim is agitated.

13. If X Company is permitted to amend is claim subject to the consequences, which are not in doubt, it being permitted to do so, which would result in the trial not proceeding. The Court is not persuaded however that allowing X Company to amend in the way it seeks to would necessarily mean that the trial had to be adjourned. It may be that, contrary to what appears to be the case, that is in terms of the evidentiary foundation of the fraud claim, it may be that as the trial progressed that could change. It is sensibly accepted, that having amended, at this late stage, that is a risk that X Company would have to accept in the event of the amendment, notwithstanding what appears to be the reality at present, resulted in either C Pty Ltd and/or the wife or those advising them needing to take some presently unanticipated  step or steps in the course of resisting the claim

14. The submissions of Senior Counsel for C Pty Ltd articulate in some detail in response to the Court’s proposition that to decline to allow X Company to amend its claim to raise a fraud count would remove any impediment to the trial proceeding. In summary, the position advanced on behalf of C Pty Ltd is that the Court could, with confidence, proceed with the trial if, as has been submitted it should, it does not allow X Company to amend its claim to raise fraud.

15. The Court, several times, in its desire to afford the parties the opportunity to squarely address a concern which it had, suggested that, with great respect to Senior Counsel for C Pty Ltd, it was perhaps unrealistic to anticipate that simply by declining to allow X Company to amend its claim to raise fraud, the issues involving Ms Y or in which Ms Y’s role was relevant would, as it were, go away.

16. On any view of the evidence, it appears to the Court probable that, whether or not X Company is permitted to agitate a fraud claim, the circumstances surrounding the making of the orders and events between C Pty Ltd and the wife or events involving C Pty Ltd and the wife or transactions, communications or the like involving them, in the lead-up to the making of the orders would, in all likelihood, be the subject of considerable agitation.

17. Whether the word “fraud” is, or is not allowed to be raised in the proceedings, the circumstances surrounding the making of the 2010 orders, it seems clear to the Court from what has been advanced, albeit provisionally by way of evidence and the subject of submissions, is almost certain to require findings of fact. Those findings of fact would appear necessarily to extend, to put it crudely, to who said what, who did what, who thought what, in the context of the making of the orders. That, in the Court’s view, would be able to be accommodated within the particulars which have historically been supplied.

18. As is not in doubt, what the Court ultimately concludes about what happened in the lead-up to the making of the orders could assume a number of different shades or complexions, extending from what might be described as highly suspicious to completely innocent. What the Court would ultimately conclude would of course depend upon the evidence being agitated in the traditional way.

19. The Court is not persuaded that even if it refused X Company’s leave to amend, the substance of the problem would not remain. For the foregoing reasons, the Court is disposed to permit X Company to amend its claim in the terms of the document headed “Applicant’s Pleaded and Particularised Case” which might, for convenience, be marked as Exhibit “Y” in the proceedings. As all Senior Counsel in the case accept, the interests of justice demand that a judge who has no knowledge of Ms Y or the other attorney referred to in the file notes, who might, for convenience, be referred to as Ms Z, and is totally impartial should hereinafter hear this case.

I certify that the preceding forty-nine (49) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Coleman delivered on 6 June 2012.

Associate:  

Date: 21.6.12