ZHOU & WEI

[2019] FamCA 194

FAMILY COURT OF AUSTRALIA

ZHOU & WEI [2019] FamCA 194

FAMILY LAW – Interim orders – joinder of the current wife of the husband – she is a necessary party – allegation of appropriation of jointly owned money towards acquisition of a property the registered proprietor of which is the husband’s new wife – joinder order made.

Family Law Rules 2004 rr 6.02, 6.03

Abigail v Lapin [1934] AC 491
Avco Financial Services Ltd v White [1977] VR 561
Butler v Fairclough (1917) 23 CLR 78,
Hankinson v De Vries (2013) 50 Fam LR 79
Wayne v Dillon (2008) 40 Fam LR 543

APPLICANT: Ms Zhou

RESPONDENT: Mr Wei

FILE NUMBER: MLC 140 of 2018

DATE DELIVERED: 2 April 2019

PLACE DELIVERED: Melbourne

PLACE HEARD: Melbourne

JUDGMENT OF: Wilson J

HEARING DATE: 19 March 2019

REPRESENTATION

COUNSEL FOR THE APPLICANT: Dr A Parker

SOLICITOR FOR THE APPLICANT: Tao Jiang Lawyers

COUNSEL FOR THE RESPONDENT: Ms C J Jenkins

SOLICITOR FOR THE RESPONDENT: Thelma Palbas & Associates

Direction

1. On or before 9 April 2019 the parties e‑mail my chambers with orders that give effect to the reasons hereof.

Note: The form of the order is subject to the entry of the order in the court’s records.

IT IS NOTED that publication of this judgment by this court under the pseudonym Zhou & Wei has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).

Note: This copy of the court’s reasons for judgment may be subject to review to remedy minor typographical or grammatical errors (r 17.02A(b) of the Family Law Rules 2004 (Cth)), or to record a variation to the order pursuant to r 17.02 Family Law Rules 2004 (Cth).

FAMILY COURT OF AUSTRALIA AT MELBOURNE

FILE NUMBER: MLC 140 of 2018

Ms Zhou

Applicant

And

Mr Wei

Respondent

REASONS FOR JUDGMENT

introduction

1. The wife has applied for an order for the joinder of her former husband’s current wife and for orders relating to the further encumbering of the wife’s interest in certain property at Suburb F. 

2. Whilst the husband’s current wife does not oppose the proposed joinder, her husband contended instead that such an order is not necessary and therefore should not be made.  The wife says that orders are necessary.  She also said orders must be made to prevent further encumbrances being placed upon the title to the Suburb F property.

Synopsis

1. For the reasons that follow, in my judgment –

   a)an order joining the husband’s current wife should be made; and

   b)no further encumbrances should be placed on the Suburb F property.

Short history

1. This litigation has been on foot since 8 January 2018.  A large amount of affidavit material has already been filed.  Relevant to this current application, the evidence is discrete and may be shortly stated. 

2. The husband and wife met in China then married there in 2001. In 2009 their daughter was born.  They separated in 2015. The wife has had primary care of the daughter since separation.  In 2017 the husband and wife divorced in China and by orders made the same day in a Chinese court the wife had what she termed “sole custody responsibilities” for the daughter.  By orders made in this court on 10 May 2018 sole parental responsibility for the daughter has been with the mother.

3. Upon separating, the wife and daughter remained at the former matrimonial home at Suburb D. 

4. In February 2017, a month after finalisation of the divorce in China, the husband and his then partner, now his wife Ms X, executed a contract as joint purchasers of real property at Suburb F.  The husband and Ms X married in 2017.  They have two children together.  In July 2017 settlement of the husband’s and Ms X’s acquisition of the Suburb F property was effected.  According to the wife, they borrowed $650 000 from Commonwealth Bank to purchase the Suburb F property. The wife affirmed in her affidavit made on 2 December 2018 that Ms X became the sole owner of the Suburb F property.  The wife exhibited a copy of the relevant title.  The wife stated in her affidavit that according to the husband’s financial statement he paid $617 per week in progressive reduction of amounts due to Commonwealth Bank in respect of its mortgage. 

5. On behalf of the husband it was asserted that Ms X’s parents advanced loans in the sum of $701 358 towards the acquisition of the Suburb F property.  The wife stated that the husband advanced a total of $658 153 towards the purchase of the Suburb F property in two tranches, one for $58 153 on 11 April 2017 and the other for $600 000 on 26 June 2017.

6. The wife stated in her affidavit that a number of requests for discovery were still unanswered by the husband. However, the wife stated that in response to a subpoena issued to Ms X’s parents documents were produced one of which was a loan agreement made on 19 June 2017 between the husband and Ms X’s parents recording a loan of AUD $701 358 and RMB 178 750 for the purchase of the Suburb F property.  The wife stated that the husband has not produced a bank statement recording the transfer of funds into an account operated by the husband or Ms X corresponding with that loan between the husband and Ms X’s parents.

7. On 21 September 2018 the husband lodged a caveat on the title to the Suburb F property in which he claimed an interest in land under an implied, resulting or constructive trust.  On the same day, the husband’s solicitors lodged a caveat on the title to the Suburb F property claiming an interest in land as chargee pursuant to an agreement between her and the husband. Whether that agreement created a charge to support an interest in land in the manner canvassed in such authorities as Butler v Fairclough,[1] Abigail v Lapin[2] or Avco Financial Services Ltd v White[3] must await debate and determination at trial.

   [1] (1917) 23 CLR 78.

   [2] [1934] AC 491.

   [3] [1977] VR 561.

8. The wife stated in her affidavit that the husband had hidden substantial assets from the marriage including bank accounts of which the wife said she had no knowledge.  She stated the husband used joint money to acquire the Suburb F property, now registered solely in the name of Ms X.  The wife asserted that the Suburb F property should be included in the matrimonial asset pool and that to date correspondence to Ms X about Ms X’s financial contribution to the Suburb F property had not elicited the necessary information on the matter. 

9. Rule 6.03 of the Family Law Rules addresses the addition of a party to a proceeding. Rule 6.03(3) prescribes in mandatory terms the steps to be followed in an application to add a party. No issue was taken by Ms Jenkins who appeared for the husband nor by Ms X who appeared in person before me that the relevant procedural steps had been anything but regular.

10. The husband opposed the application to add Ms X.  In a 106 paragraph affidavit sworn by the husband on 15 January 2019, he said the deposit money for the acquisition of the Suburb F property was provided by his father‑in‑law, Ms X’s father.  He said that took the form of a loan.  He denied that the wife contributed any funds towards the purchase of the Suburb F property.  He swore that in respect of part of the funds advanced by his father‑in‑law, four persons acted as intermediaries to whom Ms X’s father transferred funds and that the father‑in‑law did so by reason of restrictions on the transfer of funds from China to Australia.  The husband enumerated 14 transactions between 8 March 2017 and 7 June 2017 of which four involved intermediaries.

11. From the foregoing the husband and wife agreed that $650 000 by way of mortgage funds was applied to purchase the Suburb F property.  The husband swore the purchase price was $1 202 500 and that, with costs, the total purchase price was $1 351 358.  Using that arithmetic, if the total funds required, including costs, to purchase the Suburb F property was $1 351 358 and the mortgagee provided $650 000, the balance was $701 358.  The husband swore that was the total provided in the 14 tranches from the husband’s parents‑in‑law.  On that financial analysis the whole the purchase price for the Suburb F property was funded by loans from Ms X’s family and the mortgagee. 

12. When the purchase transaction was subjected to closer examination, the transaction was more complicated than the parties disclosed.  According to the investigations undertaken by the wife as revealed in her affidavit, the husband and Ms X executed a vendor statement as purchasers in February 2017.  According to ordinary conveyancing practice, it is to be expected that payment of a 10 per cent deposit ordinarily accompanies a purchase of real estate at point of execution of the contract note with the balance being paid at settlement.  Neither the husband nor the wife addressed the payment of any deposit. Of the two persons capable of giving that evidence, I expected that the husband would have addressed that aspect of the purchase as he was one of the purchasers and, on the wife’s evidence, he controlled the financial aspects of the husband’s and wife’s monetary affairs.  Further, the wife stated that during the course of their marriage the husband had many accounts of which the wife was unaware.  She also said that during the marriage the husband took cash out of those accounts and she did not know in what way those funds were applied.

13. This was an interlocutory application in which the evidence was in an incomplete state of presentation.  In those circumstances, the wife –

    a)contended that during her marriage to the husband he maintained accounts of which she was unaware, that he frequently took cash out of those accounts and that she did not know in what way the proceeds of those withdrawals were applied;

    b)contended that, on the husband’s evidence, the whole of the purchase price for the acquisition of the Suburb F property was provided in a lump sum amount at settlement made up of loans from Ms X’s family and from the mortgagee; and

    c)invited me to infer that a deposit must have been paid and that such deposit monies came from joint funds. 

14. Conversely, the husband said the wife had not contributed any funds to the Suburb F purchase nor had he used matrimonial funds.  Yet no explanation was given about how the deposit was paid.  Of course, it is possible that under the contract for the acquisition of the Suburb F property the contract proceeded from execution of the contract note in February 2017 directly to settlement in July 2017 and that the entirety of the purchase price was paid at settlement, there being no deposit paid.  That was most unlikely, however.  The husband said nothing of the sort in his affidavit, he being the most likely person to have deposed to that if events had had transpired in that way.

15. At this interlocutory juncture, I am prepared to proceed on the basis that the full and complete facts of the financial circumstances of the acquisition of the Suburb F property are not fully formulated at an evidentiary level and will require testing at trial.  I am also prepared to proceed on the basis that a reasonably arguable basis has been shown for contending that an amount (although I cannot presently say precisely how much) of joint funds is likely to have been paid in the acquisition of the Suburb F property.  The husband is the person best placed to divulge documentation about one or more bank accounts under his control at the relevant time, that is to say, on or about 13 February 2017 from which funds may have been transferred.

16. Naturally, if joint funds were used in the acquisition of the Suburb F property, the wife seeks orders in respect of her interest in that property.  As Ms X is the sole registered proprietor of the Suburb F property, she is a necessary party in this litigation where orders may be made adjusting the legal and beneficial interests in the Suburb F property. 

17. In approaching this application I have considered r 6.02 of the Family Law Rules. In essence, r 6.02(1) provides that a person whose rights may directly be affected by an issue in a case and that party’s participation as a party is necessary for the court to determine all issues in dispute in the case must be included as a party to the case. In Wayne v Dillon,[4] Warnick J held that joinder is a serious step with often significant financial consequences.  In the course of his Honour’s reasons, Warnick J held that word “necessary” means no more than useful or expeditious.  Here, Ms X is a necessary party as she will be adversely affected by a claim made against her title to the Suburb F property if the wife demonstrates that joint funds have been used to acquire the Suburb F property.  The nature of the cause of action by the wife is at least at this point capable of substantiation on a constructive trust basis.  Of course, that will be subject to proof.

    [4](2008) 40 Fam LR 543.

18. A slightly more detailed basis for a joinder order was given by Kent J in Hankinson v De Vries.[5]  There his Honour said the following –

    Rule 6.02 in the Family Law Rules 2004 contains the provision for necessary parties to proceedings. That rule is no more than a reflection of long‑standing law that the person whose rights may be affected should be a party to the proceedings and has a right to be heard, given matters of procedural fairness and natural justice. However, the focus of the rule, as is the focus of the law, is whether a party’s substantive rights would be affected by the relief sought in a proceeding. Rule 6.02 refers to a person whose rights may be affected as well as a person whose participation “as a party” is necessary for the court to determine all issues in dispute in the case.

    [5] (2013) 50 Fam LR 79.

19. In my view, Ms X is a necessary party.  Her substantive rights may be affected by the decision in this case.  She must have a right to be heard.  Her right to be heard is independent of the husband.  It cannot be gainsaid that her arguments at trial will be identical to those of her husband.  For that matter, at the conclusion of the trial in this proceeding, orders may be made requiring the adjustment of the title to the Suburb F property.  Ms X will need to be heard on that. 

20. I make an order joining Ms X under r 6.02.

21. The wife’s second application concerned the husband’s solicitor further encumbering the title to the Suburb F property.  As appears from the foregoing, the husband’s solicitor lodged a caveat on the title to the Suburb F property in respect of an alleged equitable charge. Dr Parker of counsel for the wife contended that the husband’s solicitor has no right to encumber assets which ultimately will end up falling for division in this case.  Dr Parker submitted that the husband’s solicitor’s caveat can only relate to the husband’s interest in the Suburb F property.  Dr Parker did not invite me to make a formal order to that effect.  However, her submissions proceeded on the premise that the wife was content for the caveat lodged by the husband’s solicitor to remain on title so long as it was recognised that the underlying interest to which that caveat related was limited solely to such interest as her husband proved in relation to the Suburb F property. In any event, Dr Parker and Ms Jenkins informed me that in March 2019 a directions hearing in the County Court of Victoria was to be held in which the substantiation of the husband’s solicitor’s caveat would be considered.

22. The debate recorded in the transcript of the hearing on 19 March 2019 in this proceeding revealed that the wife’s counsel openly stated as follows –

    … what it is my client seeks to firm up in the order she seeks today, which is to confirm that it will only be the husband’s ultimate share of the asset pool that is offered as security for these caveats.  If that can be confirmed, my client has no objection to the caveats remaining on title, until further order of this court. …

23. On behalf of the husband, Ms Jenkins of counsel did not make a submission to the contrary.  Ms Jenkins submitted as follows, correctly in my view –

    … my instructor couldn’t enforce legal costs against the wife’s interest in property, even if that’s what she wanted to do.  She has no interest in the wife’s land.  So I don’t know how your Honour can make that order.  The caveat will be dealt with in due course. …

24. In the upshot, it was abundantly plain that the husband’s solicitor as caveator was unable to assert any interest in the wife’s interest in any land owned whether in whole or in part. Ms Jenkins was correct also in submitting that doubt attended my power to order at this interlocutory stage that, by reason of the charging clause said to exist in the retainer between the husband and his solicitor, the solicitor’s caveat was underpinned by a proper claim for fees which in turn went beyond the husband’s interest in the Suburb F property.  It is sufficient for present purposes to have recorded that concession made by Ms Jenkins as quoted above and the outcome sought to be addressed in respect of the husband’s solicitor’s caveat as Dr Parker stated, also quoted above. 

25. In those circumstances I direct that within seven days the parties bring in orders that give effect to these reasons.

I certify that the preceding twenty‑eight (28) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Wilson delivered on 2 April 2019.

Associate:     

Date:              2 April 2019