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Federal Court of Australia - Full Court Decisions |
Last Updated: 28 February 2003
Official Trustee in Bankruptcy v Mateo [2003] FCAFC 26
BANKRUPTCY - Transaction allegedly void against Official Trustee - Transfer of husband's one-half interest in matrimonial home pursuant to consent orders made by Family Court of Australia - Whether s 121 of the Bankruptcy Act has application to a transfer effected by/or pursuant to an order of the Family Court - Whether transferred legal interest has more than a nominal value following the Family Court orders - Discussion of difficulty in relating non-financial matrimonial contributions to market value of a property - Relationship between application under Bankruptcy Act and application to vary or set aside the Family Court order under s 79A of Family Law Act.
Bankruptcy Act 1966 (Cth) ss 120, 121, 139ZQ, 139ZS.
Family Law Act 1975 (Cth) ss 79, 79A.
OFFICIAL TRUSTEE IN BANKRUPTCY v CORAZON BES MATEO, JEREMY MATEO, JENNIFER JOY MATEO and JUSTIN JAMES MATEO
N 310 of 2002
WILCOX, BRANSON and MERKEL JJ
28 FEBRUARY 2003
SYDNEY
IN THE FEDERAL COURT OF AUSTRALIA |
|
NEW SOUTH WALES DISTRICT REGISTRY |
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1. The appeal be dismissed.
2. The matter of costs be reserved.
3. The parties have leave to file submissions concerning any application for costs.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA |
|
NEW SOUTH WALES DISTRICT REGISTRY |
|
BETWEEN: |
OFFICIAL TRUSTEE IN BANKRUPTCY APPELLANT |
AND: |
CORAZON BES MATEO FIRST RESPONDENT JEREMY MATEO SECOND RESPONDENT JENNIFER JOY MATEO JUSTIN JAMES MATEO FOURTH RESPONDENT |
JUDGE: |
WILCOX, BRANSON and MERKEL JJ |
DATE: |
28 FEBRUARY 2003 |
PLACE: |
SYDNEY |
1 This is an appeal against a decision of a judge of the Court (Tamberlin J) in proceedings arising out of the administration of the bankrupt estate of Arturo Mateo ("the bankrupt"): see Mateo v Official Trustee in Bankruptcy [2002] FCA 344. The appeal raises some issues of general importance concerning the interaction of the Bankruptcy Act 1966 (Cth) ("the Act") and the Family Law Act 1975 (Cth).
2 Corazon Bes Mateo, the former wife of the bankrupt, applied to this Court for an order setting aside a notice under s 139ZQ of the Act issued by the Official Receiver for the Bankruptcy District of the State of New South Wales. The Official Trustee in Bankruptcy ("the Official Trustee") filed a cross-claim in which he named as cross-respondents, not only Mrs Mateo, but also the three children of her marriage to the bankrupt: Jeremy Mateo, Jennifer Joy Mateo and Justin James Mateo. The Official Trustee sought a declaration that the notice was valid and orders for the transfer of property, and payment of moneys, to him by the various cross-respondents.
3 Tamberlin J held the notice should be set aside. He granted Mrs Mateo's application and dismissed the cross-claim. The Official Trustee appeals against these orders.
The facts
4 Mr and Mrs Mateo were married in 1972. Their children were born, respectively, in 1974, 1979 and 1982.
5 The matrimonial home, immediately prior to 18 November 1997, was at 3 Coolibah Street, Merrylands West. I will refer to this property as "the home". The home was owned jointly by Mr and Mrs Mateo. On that day, they mortgaged the home to Citibank Limited in order to secure a debt of $178,000.
6 On 10 January 2000 Mr and Mrs Mateo separated. On 18 April 2000 they signed a document entitled "Consent Orders". On 22 June 2000 the Family Court of Australia, by consent, made a series of orders that carried the agreed terms into effect.
7 The substantive orders made by the Family Court may be summarised as follows:
(i) Within 28 days, the husband was to transfer to the wife his interest in the home.
(ii) Upon transfer of the husband's interest, the wife was to be responsible for all outgoings on the home, including mortgage repayments, council and water rates and insurance, and was to indemnify the husband in relation to them.
(iii) The wife was to pay the husband a total sum of $10,000; $3,000 upon signing the "Consent Orders" document and $7,000 upon the husband signing the transfer of the home.
(iv) If the home was sold by the end of the year 2000, the wife was to pay an additional $10,000 to the husband and $80,000 "to the three children of the marriage at the direction of the husband".
(v) If the home was not sold by the end of 2000 (as it was not), the wife was nevertheless to pay the husband an additional $10,000. However, in that eventuality, the wife's obligation to the children was a different one. She had to preserve their "entitlements", pursuant to the previous clause, and divide amongst them, equally, the greater of the sum of $80,000 or one-third of the net proceeds of sale of the home.
(vi) Within 28 days the husband was to transfer to the wife his interest in a Honda car.
(vii) The wife's name was to be removed from a credit card account.
(viii) The wife was to be the owner of all chattels and personal items located in the home.
8 In making the orders, the Family Court noted, pursuant to s 81 of the Family Law Act, that "the parties intend that these Orders as far as practicable finally determine the financial relationship between them and avoid further proceedings between them".
9 On 26 April 2000 Mrs Mateo paid her husband $3,000. She paid a further sum of $3,000 on 10 July 2000. There was evidence before Tamberlin J about other payments, but his Honour was not satisfied about them. The property transfer was registered on or about 10 August 2000.
10 Tamberlin J found the "net amount received by [Mrs Mateo] on the transfer of the husband's interest was approximately $107,000". His Honour did not explain how this sum was calculated.
11 On 19 March 2001 Mrs Mateo contracted to sell the home for $398,000. The sale was settled on 1 May 2001. Mrs Mateo applied some of the proceeds of sale to the purchase of a property at Toongabbie.
12 While the sale of the home was on foot, on 10 April 2001, Mr Mateo presented a debtor's petition. The petition was accepted, with the result that he became bankrupt that day: see s 55 of the Act.
The s 139ZQ notice
13 The s 139ZQ notice was issued by the Official Receiver on 19 June 2001. Section 139ZQ of the Act relevantly provides:
"(1) If a person has received any money or property as a result of a transaction that is void against the trustee of a bankrupt under Division 3, the Official Receiver:(a) if the Official Trustee is the trustee - on the initiative of the Official Receiver; or
(b) if a registered trustee is the trustee - on application by the trustee;
may require the person, by written notice given to the person, to pay to the trustee an amount equal to the money or the value of the property received.
(2) The notice must set out the facts and circumstances because of which the Official Receiver considers that the transaction is void against the trustee.
(3) The notice may:
(a) require the amount to be paid at a time or within a period set out in the notice; or
(b) require the amount to be paid at such times, and in such instalments, as are set out in the notice.
(4) ...
(5) ...
(6) ...
(7) If a person is required by a notice under this section to pay to the trustee the value of any property, the requirement is taken to be complied with if the property is transferred to the trustee.
(8) An amount payable by a person to the trustee under this section is recoverable by the trustee as a debt by action against the person in a court of competent jurisdiction."
14 The effect of a s 139ZQ notice is to create a charge over the affected property in favour of the trustee (s 139ZR). Failure to comply with a notice is an offence (S 139ZT).
15 Section 139ZS provides:
"(1) If the Court, on application by a person to whom a notice has been given under section 139ZQ or by any other interested person, is satisfied that this Subdivision does not apply to the person on the basis of the alleged facts and circumstances set out in the notice, the Court may make an order setting aside the notice.(2) A notice that has been set aside is taken not to have been given."
16 The s 139ZQ notice in the present case was addressed to Mrs Mateo. After reciting that Mrs Mateo had received property from the bankrupt "as a result of a disposition of property under section 120 of the [Act] that is void against the [Official Trustee]", the notice required her to pay to the Official Trustee "an amount of $95,000 being the value of the bankrupt's interest in [the home] ... or to transfer to the Official Trustee a half interest in the property". The notice went on to make a series of factual allegations. They included how the sum of $95,000 had been calculated. It was said that, at the date of the Family Court orders, the property was valued at $390,000; the debt to Citibank Limited was approximately $180,000, leaving an equity of $210,000; the bankrupt's interest was, therefore, worth $105,000. However, Mrs Mateo had paid the bankrupt $10,000, leaving an equity of $95,000 for which no consideration had been paid. It is not clear to me how the sum of $10,000 was calculated.
The proceeding at first instance
17 On 31 July 2001 Mrs Mateo filed an application in this Court seeking an order under s 139ZS(1) of the Act setting aside the notice given by the Official Receiver. As mentioned, the Official Trustee responded with a cross-claim against Mrs Mateo and her three children. He sought a series of declarations, an order against Mrs Mateo for the payment by her of the value of Mr Mateo's interest in the home and an order against each of the three children for payment of any amount of money found to have been paid to them in respect of the Honda motor car or consequentially on the sale of the home.
18 There was evidence before Tamberlin J concerning the breakdown of the marriage between Mr and Mrs Mateo, and also Mr Mateo's financial position at the date of the Family Court orders. His Honour made findings about each of these matters which were not challenged on appeal. They were:
(i) "there was a genuine breakdown of marriage prior to April 2000", the parties having mainly lived apart during the previous two or three years; and
(ii) Mr Mateo was insolvent at the dates of both the consent orders and the transfer of his interests to Mrs Mateo.
The decision of Tamberlin J
19 In the argument before Tamberlin J, the Official Trustee relied, in the alternative, on both s 120 and s 121 of the Act. His Honour dealt with each section separately.
20 Section 120 relevantly provides:
"(1) A transfer of property by a person who later becomes a bankrupt (the transferor) to another person (the transferee) is void against the trustee in the transferor's bankruptcy if:(a) the transfer took place in the period beginning 5 years before the commencement of the bankruptcy and ending on the date of the bankruptcy; and
(b) the transferee gave no consideration for the transfer or gave consideration of less value than the market value of the property.
(2) ...
(3) ...
(4) The trustee must pay to the transferee an amount equal to the value of any consideration that the transferee gave for a transfer that is void against the trustee.
(5) For the purposes of subsections (1) and (4), the following have no value as consideration:
(a) the fact that the transferee is related to the transferor;
(b) if the transferee is the spouse or de facto spouse of the transferor - the transferee making a deed in favour of the transferor;
(c) the transferee's promise to marry, or to become the de facto spouse of, the transferor;
(d) the transferee's love or affection for the transferor.
(6) This section does not affect the rights of a person who acquired property from the transferee in good faith and by giving consideration that was at least as valuable as the market value of the property.
(6) For the purposes of this section:
(a) transfer of property includes a payment of money; and
(b) a person who does something that results in another person becoming the owner of property that did not previously exist is taken to have transferred the property to the other person; and
(c) the market value of property transferred is its market value at the time of the transfer." (Original highlighting)
21 In relation to the s 120 claim, Tamberlin J said:
"19 The primary submission for Ms Mateo is that notwithstanding that the transfer took place in the period commencing five years before the commencement of the bankruptcy, the transferee gave consideration for the transfer which was at least equal to the market value of the property at the time of transfer.20 This submission is based firstly on the premise that as a consequence of the signing of the Consent Orders on 18 April 2000, the making of the application to the Family Court and the making by the Family Court of the Consent Orders in the form originally agreed, the beneficial interest in the property was transferred at the latest by 22 June 2000, to Ms Mateo.
21 It is submitted that since the equitable interest passed on 22 June 2000, there only remained in the husband a legal interest of nominal value and that by the time the `transfer' took place, namely on or about 10 August 2000, the property had only a nominal market value and therefore there was no transfer for a consideration which was less than market value.
22 This submission depends on the selection of the Memorandum of Transfer as the only operative transfer within the meaning of s 120 in isolation from the other elements in the transaction, namely the signing of the Consent Orders and the making of the Consent Orders.
23 In my view, this is an artificial and unsupported approach to the interpretation of the meaning of the expression `transfer' in s 120. The authorities indicate that one must look at the overall transaction which has been implemented rather than to simply isolate one individual component of the transaction as in itself comprising the transfer: see Silvera v Savic [1999] NSWSC 83; (1999) 46 NSWLR 124 at 140.
24 In my view, the `transfer' in this matter consisted of the whole transaction ranging from the signing of the Consent Orders on 18 April 2000 through to the completion of the transfer of the interest on or about 10 August 2000. There is no basis on which to isolate the making of the Consent Orders from the `transfer' which took place and rely only on the formal instrument of transfer. Effectively, the transfer of the equitable interest to the applicant occurred when the orders were made on 22 June 2000.
25 I therefore reject the primary submission made for the applicant.
26 However, I am not satisfied in the present case that the transfer which was effected by the above transaction was for a consideration which was less than the market value of the interest received by the applicant at the time of the transfer.
27 The language used in s 120(1)(b) is that the transferee gave no consideration for the transfer or gave consideration of less value than the market value of the property at the time of the transfer. In this case I am satisfied that consideration was given for the transfer. Further, I am not persuaded that consideration for the transfer was for less than the market value of the property. The burden of proof is on the party seeking to set aside the transaction and this has not been made out: P T Garuda Indonesia Ltd v Grellman (1992) 35 FCR 515 at 527-528.
28 The transfer in this case was carried out pursuant to orders of a superior Australian Federal Court, namely the Family Court and full faith and credit must be given to those orders unless they are set aside. No basis has been established before me to warrant the setting aside of any of these orders and indeed, if any ground had been raised, it might have been more appropriate to transfer the matter to the Family Court for determination of all the questions. No such application was made.
29 The orders made in this case under s 79 of the Family Law Act 1975 (Cth) were made in the exercise of statutory judicial discretion taking into account a broad range of matters, including financial contributions made by the parties to the marriage, together with other pertinent factors prescribed by the Act. The Court is enjoined not to make an order under s 79 unless it is satisfied that in all the circumstances it is just and equitable to make the order.
30 Evidence has been given by Ms Mateo in relation to extensive unremunerated work carried out by her in the home for the material benefit of herself and her husband during the approximate twenty-seven years that she and her husband lived together and the raising of the children. She has also given evidence as to mortgage payments having been met by her and rates having been paid by her over a period of nineteen months, which together amount to $11,037. I accept that these payments were made by her.
31 The Consent Orders of 22 June 2000 require her to make payments of $20,000 to her husband, together with $80,000 to the three children of the marriage at the direction of the husband. Although the $80,000 has not been paid to date by the applicant, there is obligation under the Consent Orders to make the payment. As to the payment of the $20,000 I am not satisfied, on the evidence, that it has been paid, despite the obligation to do so in the Consent Orders. There are other steps required to be taken by the wife in the agreed Family Court orders. This is not a case where Ms Mateo seeks to rely on any of the matters excluded as consideration by s 120(5) of the Act.
32 On the evidence, I am not persuaded that, taking into account the wife's contribution and work in the joint enterprise, comprised by the marriage and bringing up of a family, that the consideration for the transfer of the husband's interest in the property, was of less value than the market value of the interest transferred to her: cf Re Sabri; Ex parte Brien v Sabri (1996) 137 FLR 165 at 181-182. If account is taken of the duration of the marriage and the number of hours which she said she worked in caring for the children and in and around the home over the twenty-seven years of marriage for approximately thirty-five hours per week, I am not satisfied that the consideration given by her was of less value than the market value of the property. Indeed, even allowing a minimal amount per hour for the amount of work carried out by her, the value of the work would far exceed the fair net market value of the interest she received after taking into account the outstanding debts and charges.
33 Accordingly, for the above reasons, I am not satisfied that the transaction resulting from the signing and making of the Consent Orders was a transfer for less than the market value of the property.
34 In relation to the transfer of the Honda Prelude motor vehicle, I am further satisfied on the evidence of Ms Mateo that the vehicle belonged to her. Although it was registered in joint names, I am satisfied that the husband had access to another motor vehicle in connection with his work and that the vehicle in question was treated as solely the property of Ms Mateo."
22 Section 121 of the Act relevantly states:
"(1) A transfer of property by a person who later becomes a bankrupt (the transferor) to another person (the transferee) is void against the trustee in the transferor's bankruptcy if:(a) the property would probably have become part of the transferor's estate or would probably have been available to creditors if the property had not been transferred; and
(b) the transferor's main purpose in making the transfer was:
(i) to prevent the transferred property from becoming divisible among the transferor's creditors; or
(ii) to hinder or delay the process of making property available for division among the transferor's creditors.
(2) The transferor's main purpose in making the transfer is taken to be the purpose described in paragraph (1)(b) if it can reasonably be inferred from all the circumstances that, at the time of the transfer, the transferor was, or was about to become, insolvent.
(3) Subsection (2) does not limit the ways of establishing the transferor's main purpose in making a transfer.
(4) Despite subsection (1), a transfer of property is not void against the trustee if:
(a) the consideration that the transferee gave for the transfer was at least as valuable as the market value of the property; and
(b) the transferee did not know that the transferor's main purpose in making the transfer was the purpose described in paragraph (1)(b); and
(c) the transferee could not reasonably have inferred that, at the time of the transfer, the transferor was, or was about to become, insolvent.
(5) The trustee must pay to the transferee an amount equal to the value of any consideration that the transferee gave for a transfer that is void against the trustee.
(6) For the purposes of subsections (4) and (5), the following have no value as consideration:
(a) the fact that the transferee is related to the transferor;
(b) if the transferee is the spouse or de facto spouse of the transferor - the transferee making a deed in favour of the transferor;
(c) the transferee's promise to marry, or to become the de facto spouse of, the transferor;
(d) the transferee's love or affection for the transferor.
(7) ...
(8) This section does not affect the rights of a person who acquired property from the transferee in good faith and for at least the market value of the property.
(9) For the purposes of this section:
(a) transfer or property includes a payment of money; and
(b) a person who does something that results in another person becoming the owner of property that did not previously exist is taken to have transferred the property to the other person; and
(c) the market value of property transferred is its market value at the time of the transfer." (Original highlighting)
23 Tamberlin J dealt with the s 121 argument in this way:
"35 I accept that the bankrupt was insolvent at the time when the Consent Orders were signed on 18 April 2000 and this continued to be the position during the period up to and including the transfer, but I am not satisfied that the husband's main purpose in making the transfer was to hinder or delay the process of making property available for division among creditors, or to prevent the transfer of property from becoming divisible among creditors. The evidence supports the conclusion that the main purpose of the orders was to resolve outstanding matrimonial issues as to property and I so find.36 I am not satisfied that at the time during which the transfer was effected, that is to say, between 18 April and 10 August 2000, the consideration for the transfer was less than the market value of the property, nor that the transferee knew that the transferor's main purpose was to defeat or delay creditors (if such a purpose had existed), nor that Ms Mateo could reasonably have inferred that her husband was or was about to become insolvent.
37 I note that in the Statement of Affairs, the primary cause of the insolvency is stated by the bankrupt to have been gambling speculation and extravagance in living, together with the domestic discord and relationship breakdown. There is no evidence to the contrary of these assertions.
38 In circumstances where there was, in my view, a genuine breakdown of marriage pursuant to which obligations were entered into and a property arrangement was made by a final order by the Family Court including the resolution of mutual rights and obligations, I am not persuaded that a case has been made out under s 121. In particular, I am not persuaded that the consideration, being the final resolution of all claims between the parties in the Family Court proceedings, did not amount to valuable consideration at least equal to the market value of the interests transferred.
39 This is not a case where any attempt has been made to set aside the orders of the Family Court and they, as indicated earlier, were made pursuant to s 79 which requires the Family Court to take account a broad range of considerations."
24 Tamberlin J made orders allowing the application to set aside the notice and dismissing the Official Trustee's cross-claim. The Official Trustee was ordered to pay the costs of both the application and cross-claim.
The appeal
25 The Official Trustee's notice of appeal challenged his Honour's findings in respect of both the bankrupt's interest in the home and the Honda car. However, the grounds of appeal concerning the car were abandoned at the hearing of the appeal.
26 The respondents to the appeal (Mrs Mateo and the three children) filed a notice of contention concerning Tamberlin J's rejection of their argument "that the market value of the relevant items of property at the time of the transfers was nil".
Appellant's contentions
27 Although the notice of appeal was not so limited, counsel for the appellant, Mr P Taylor SC and Mr P B Walsh, indicated at the hearing of the appeal that the Official Trustee wished to confine himself to s 121 of the Act; reliance was not now placed on s 120.
28 The outline of submissions provided by counsel for the appellant contained a detailed analysis of s 121, with extensive reference to decided cases. Counsel emphasised that Mrs Mateo bore the onus of establishing the elements of the defence provided by subs (4). They said Mrs Mateo had failed to identify the consideration she gave for the transfer of the home or establish its value. As a result of this, Tamberlin J had made no specific finding about these matters. Mrs Mateo had not proved the consideration she gave for the transfer to her of the bankrupt's interest in the home "was at least as valuable as the market value of the property". Counsel criticised the lack of specificity in Tamberlin J's findings about these matters. They noted his Honour's statements that he was "not persuaded ... that the consideration for the transfer ... was of less value than the market value of the interest transferred to her" (para 32 of Tamberlin J's reasons) and was not satisfied that the consideration for the transfer was less than the market value of the property (para 36). They said these statements reversed the onus of proof imposed by s 121(4).
29 Counsel made particular criticism of Tamberlin J's having taken account of Mrs Mateo's "obligation" to pay the children of the marriage $80,000 (or one-third of the net proceeds of sale of the home). They said s 121(4)(a) refers to the value of the consideration, not its cost; value must be determined objectively; it connotes an amount hypothetically realisable by the person receiving the value; but Mrs Mateo's promise provided no value (in that sense) to Mr Mateo.
30 Counsel also criticised the statement of Tamberlin J (para 38) that he was "not persuaded that the consideration, being the final resolution of all claims between the parties in the Family Court proceedings, did not amount to valuable consideration at least equal to the market value of the interests transferred". Counsel said this statement incorrectly characterised the legal effect of the consent orders; orders made under s 79 of the Family Law Act may be set aside in the circumstances contemplated by s 79A. They added the finding also made the "unjustifiable assumption that Mrs Mateo's implied acceptance of the `final resolution' was either (i) unilateral or (ii) should be acknowledged as consideration for the property transfer, rather than as consideration for Mr Mateo's reciprocal acceptance of `final resolution'." They also said there was no evidentiary basis for arriving at any material "value" for the "final resolution". Insofar as the consideration was said to be Mrs Mateo's unremunerated work during the course of the marriage, this was "fundamentally wrong because all the `work' pre-dated the transfer and could not constitute consideration".
Respondents' contentions
31 Counsel for the respondents, Mr P L Brereton SC and Mr D P Ash, repeated the primary argument put to Tamberlin J (rejected by him) that the market value of Mr Mateo's interest in the home at the date of the transfer was nil. They said this flowed from the fact that Mr Mateo was then bound by the order of the Family Court, under which he was required to make the transfer. Counsel submitted that Tamberlin J erred in treating the whole transaction from 18 April to 10 August 2000 as the "transfer" for the purposes of s 121(1). They said an order under s 79 of the Family Law Act is not itself a transfer; rather, it contemplates a subsequent transfer to give effect to the order.
32 Counsel argued the effect of an order for transfer under s 79 is to vest in the specified transferee an equitable estate in the interest ordered to be transferred. They cited Harris v Walker (1969) 14 FLR 167, a decision of McLelland CJ in Eq. of the New South Wales Supreme Court, regarding an order under s 86 of the Matrimonial Causes Act 1959 (Cth). Counsel suggested that a construction of the word "transfer" in the Bankruptcy Act which accords with the meaning of the same word in the Family Law Act, if available, is to be desired. They said it "avoids the anomalous and arbitrary result that spouses who choose the last method [orders under the Family Law Act] may be exposed to an application by a Trustee, notwithstanding that there is no attack on the integrity of the orders made in the Court better suited to determine the integrity".
33 Counsel for the respondents said that, if the word "transfer" is treated as embracing more than the formal transfer of 10 August 2000, the appellant's case "can only be a direct attack on the orders of 22 June 2000". They said:
"His Honour considered that attack and considered that the orders survived the attack. The alternative view is that such attack ought not be permitted."
34 The respondents' counsel dealt with both these alternatives. They said there was "a valuable consideration moving from each of Mr Mateo and Mrs Mateo in that the order settled the disputes between them". Counsel cited an unreported judgment of Needham AJ, of the Supreme Court of New South Wales, Craven v The Official Trustee in Bankruptcy (26 July 1991). The issue in that case was whether the plaintiff was entitled to receive the whole of the proceeds of sale of her former matrimonial home, as contemplated by orders made in the Family Court, notwithstanding her husband's supervening bankruptcy. Needham AJ referred to comments by Beaumont J, in Sonenco v Silvia [1989] FCA 462; (1989) 89 ALR 437 at 444, that a trustee in bankruptcy "takes the property of the bankrupt subject to `equities'" and "the trustee's title to that property is no better than the bankrupt's". Needham AJ went on:
"The orders in the present case did not merely declare that, upon sale, the Plaintiff was to have the proceeds less the encumbrance; they ordered that a sale take place forthwith and that the proceeds of sale, after payment of the mortgage and other liabilities, should go to the Plaintiff. In my opinion, such an order creates an equitable interest in the land which could be enforced just as a contract for sale could be enforced.The submissions of the Defendant would result, if accepted, in a conclusion that the subsequent bankruptcy of the husband in effect would re-vest in him his full interest in the property. I do not think that there is any justification for such a submission. It is not without significance that the High Court, in Mullane v Mullane [1983] HCA 4; (1983) 158 CLR 436, at p 445, said:
`In our opinion, therefore, s. 79 on its proper construction refers only to orders which work on alteration of the legal or equitable interests in the property of the parties or either of them. An interest in property is a right of a proprietary nature, not a mere personal right.'
As I have said, my opinion is that the orders made by the Family Court created in the Plaintiff rights of a proprietary nature."
Needham AJ held the plaintiff was entitled to the whole net proceeds of sale of the property.
35 Counsel put the submission that, in any event, the reasonable inference is that the consideration moving from Mrs Mateo was equal to the market value of the property acquired. They contended this inference arose from the nature of the role of the Family Court in sanctioning a property agreement between spouses. Counsel said:
"(a) First, the legislature demands of the Family Court that it exercise a duty to end financial relations; it shall as far as practicable make such orders as will finally determine the financial relationships between the parties to the marriage and avoid further proceedings between them: s 81.(b) Secondly, the legislature demands that the Court not make an order unless it is satisfied that in all the circumstances it is just and equitable to make an order: s 79(2).
(c) Thirdly, the legislature demands that the Court take into certain matters (including each of the matters referred to by his Honour): s 79(4). The process is substantive.
The parties file documents setting out the orders they seek and supporting affidavit material. Even though the order sought is by consent, the Court is obliged to consider whether it is appropriate to make it, having regard to the circumstances and the statutory criteria for making property orders." (Original emphasis)
36 The alternative argument is that, to the extent Tamberlin J identified the relevant date of transfer as 22 June 2000 (the date of the Family Court order) and then considered the market value, "his Honour was effectively re-adjudicating an issue previously determined between the same parties or their predecessors". Counsel acknowledged that, in one sense, the Family Court orders were not final. But they said s 79A of the Family Law Act, not s 120 or s 121 of the Bankruptcy Act, provides the avenue to challenge them.
37 Counsel for the respondents put submissions asserting the existence of a constructive trust. They also said the case was governed by the rule in Ex parte James; Re Condon (1874) 9 Ch App 609, as to which see the decision of Chisholm J, in the Family Court of Australia, in Re Sabri; Ex parte Brien v Sabri (1996) 137 FLR 165. Counsel said:
"Mrs Mateo by her contributions to the marriage and by her direct contributions to the property enriched the assets of Mr Mateo. She would not have been in a position to lodge a proof of debt to the extent of that enrichment. It would be unfair of the Trustee to rely upon its strict legal rights, particularly as Mrs Mateo was in no way a party to the activities which led to Mr Mateo's bankruptcy, and the rule ought be applied to prevent her contributions being stripped from her."
Importance of the issues
38 The present appeal poses issues of general importance. Those issues, or variants of them, have emerged in many cases and been resolved in various ways. It seems not uncommon for a person to become bankrupt shortly after consenting to orders under s 79 of the Family Law Act. There is an obvious possibility that a person who is already insolvent, or fears future insolvency, will seek such orders, possibly collusively with his or her spouse, primarily in an endeavour to put assets beyond the reach of creditors. Examples of such conduct in relation to the analogous situation of an "alienation of property ... with intent to defraud creditors" are provided by the facts of three cases in the Supreme Court of New South Wales: Silvera v Savic [1999] NSWSC 83; (1999) 46 NSWLR 124, Langdon v Gruber [2001] NSWSC 276 and Green v Schneller [2002] NSWSC 671. On the other hand, if the purposes underlying the Family Law Act are to be achieved, it is necessary to ensure that the genuine property interests of a party to a marriage are safeguarded from the creditors of the other party.
The Family Law Act
39 Part VIII of the Family Law Act is entitled "Property, Spousal Maintenance and Maintenance Agreements". Sections 72 to 77A deal with spousal maintenance. They may be passed over.
40 Section 78 authorises a court exercising jurisdiction under the Family Law Act, in proceedings between the parties to a marriage with respect to existing title or rights in respect of property, to declare the title or rights, if any, that a party has in respect of the property.
41 Section 79(1) empowers such a court to alter the parties' property interests. An order altering property interests is enforceable notwithstanding the death of a party (subs (1A)). It is not to be made unless the court "is satisfied that, in all the circumstances, it is just and equitable to make the order" (subs (2)). Subsection (4) states criteria to be considered by the Court in considering what order (if any) should be made under s 79. The criteria include a party's contributions (both financial and non-financial) to the acquisition, conservation or improvement of any property, a party's contribution to the welfare of the family constituted by the parties and their children (including any contribution made in the capacity of homemaker or parent), the effect of any proposed order on the earning capacity of either party to the marriage, any child support that a party to the marriage has provided, is to provide or might be liable to provide in the future, and the list of personal factors set out in s 75(2) of the Family Law Act as being relevant to the making of a spousal maintenance order.
42 Section 79A(1) sets out the circumstances under which a s 79 order may be varied or set aside. Of these, para (a) is relevant to this case. It reads:
"(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;"
The decided cases
(i) Whether the Court should exercise jurisdiction
43 In Baxter; Ex parte the Official Receiver v Baxter (1986) 10 FCR 398, Northrop J held this Court ought not to give directions to a trustee, pursuant to s 134(4) of the Act, in relation to the taking of proceedings to assert an interest in a bankrupt's former matrimonial home. A husband and wife had entered into a terms contract with the Victorian Housing Commission to purchase the property as joint tenants. The husband became bankrupt, with the result that his equity in the property vested in his trustee. However, no action was taken by the trustee to assert any right to the interest; not even after he received notice of an application by the wife for a declaration under s 78 of the Family Law Act that she was the sole proprietor of the property. The Family Court made that declaration.
44 Counsel for the trustee submitted to Northrop J that the trustee was not bound by the declaration and that, as the husband had no interest in the property when the declaration was made (that interest having passed to the trustee), the Family Court had no jurisdiction or power to make the declaration. Northrop J rejected that submission. He said (at 401-402):
"In my opinion, those contentions should not be accepted. If the Federal Court proceeded to hear and determine the application, of necessity, conflicting orders would be made. The Family Court order may not be binding upon the trustee, but until it is set aside, it is binding upon the wife. Any order of the Federal Court made in the application by the trustee would be binding upon the wife. That illustrates the practical results arising from conflicting judgments. The Federal Court has no jurisdiction or power to set aside the order of the Family Court.Even though the order made by the Family Court on 22 October 1984 may have been beyond the power of that Court to make, and I express no view on that question, nevertheless the order remains in existence. That order could have been set aside on appeal... . Until the order of the Family Court is set aside, it must be given full faith and credit. Otherwise, inconsistent orders of the Family Court and the Federal Court could place the wife as well as the Housing Commission in an impossible position. What court order should the Housing Commission observe when it transferred the land on the completion of the terms contract?
In all the circumstances, the Federal Court should refrain from hearing
and determining the application of the trustee while the order of the Family
Court remains in existence."
45 This decision was applied, in Official Trustee in Bankruptcy v Turner [1999] FCA 129; 94 FCR 512, to a case in which the Family Court order preceded the bankruptcy. O'Loughlin J commented (at para 33) that, unlike the position in Baxter, "there is nothing to suggest, prima facie, that the order was beyond the power of the Family Court. In those circumstances, it seems to me to be inevitable that this Court must give recognition to the Family Court order".
(ii) Transfer to the Family Court
46 Re Sabri, referred to at para 37 above, was a proceeding based on various provisions of the Bankruptcy Act, including ss 120 and 121. It was instituted in this Court. However, Davies J acceded to an application, under s 35A of the Act, for its transfer to the Family Court: see Re Sabri; Ex parte Sabri v Brien (1995) 60 FCR 131. Davies J did not express any doubt about this Court's jurisdiction to determine the proceeding. But he was concerned about the possibility of conflict (or, at least, the appearance of conflict) between an existing Family Court order and any order that might be made in the proceeding then before him.
47 In Official Trustee in Bankruptcy v Higgins [2000] FCA 1850, 109 FCR 1, Tamberlin J followed Sabri. Pursuant to consent orders, made under s 79 of the Family Law Act by the Manly Local Court, Mr Higgins transferred to his wife his interest in their matrimonial home. He then became bankrupt. The Official Trustee sought orders against the wife, pursuant to ss 120 and 121 of the Act. The motion before Tamberlin J raised the question whether the Federal Court had power to order a transfer of the interest taken by the wife, under the consent orders, without those orders having been set aside by the Local Court. No party made application for transfer of the proceeding pursuant to s 35A of the Act.
48 Nonetheless, Tamberlin J ordered transfer to the Family Court. In para 22 of his reasons, his Honour said:
"In my view, the position in the present case is that the Federal Court has both the power and jurisdiction to make an order under s 121 in a case such as this. In this respect I do not agree with the remarks of Northrop J in Baxter's case. However, as a matter of discretion, for the reasons given by Davies J in Re Sabri; Ex parte Sabri v Brien it is desirable in this case not to do so where there the Family Court has power to both set aside or vary the order under s 79A and to exercise jurisdiction under the Act. Such a course will avoid the appearance of conflicting orders between the two courts."
(iii) The position in the Family Court
49 The proceeding transferred by Tamberlin J was heard in the Family Court by Moore J: see Official Trustee in Bankruptcy v Higgins (2 September 2002). Her Honour noted there was no application before the Family Court under s 79A of the Family Law Act; the only application was the transferred application under ss 120 and 121 of the Bankruptcy Act. Therefore, she said (at para 42):
"... the Trustee's recovery of the property transferred depends entirely on whether he can bring his claim within the provisions of the Bankruptcy Act and the Family Law Act has no place in that save for the prospect of a transfer being pursuant to a maintenance order or a maintenance agreement as defined by it according to s 5 of the Bankruptcy Act." (Original highlighting)
50 However, Moore J saw no problem about that. At paras 55-56 she said:
"The transfer of property pursuant to s 79 orders is not exempt from the provisions of the Bankruptcy Act. If the circumstances mean that a transfer under such an order is later caught by the voidable transactions provisions of the Bankruptcy Act, then it follows that the transfer is void against the Trustee in bankruptcy. A declaration to that effect is available from the Court exercising bankruptcy jurisdiction and that Court has the power given in s 30 to make such consequential orders as it considers necessary to give effect to the Act, including an order for a further transfer. This does not give rise of itself to any inconsistency of orders. The order made under s 79 of the Family Law Act is subject to the ordinary operation of bankruptcy law and the property dealt with in the order must be that of the parties and not that vested by law in another. I can find no obligation on the Trustee to seek to set the s 79 orders aside by bringing an application under s 79A of the Family Law Act - either to eliminate any perceived inconsistency or to relieve the non-bankrupt spouse from obligations undertaken there. If relief is needed, the non-bankrupt spouse has the remedy available. Not only is there nothing specifically requiring the earlier order to be set aside in either Act, but there is nothing in a reading of either from which it should be inferred that would be a necessary step in the recovery of property for distribution to the bankrupt's creditors.In this case, the concession was made that the transfer was caught by ss 120 and 121. Finding as I do no obligation on the Trustee to have the consent order set aside before the Trustee is entitled to the relief provided there, the declaration and consequential order to give effect to it should be made."
51 Moore J made a declaration that the husband's transfer of his interest in the property to his wife was void against the Official Trustee and ordered the wife to transfer that interest to the Official Trustee.
52 Even in relation to an application made to it under the Family Law Act, the Family Court has an obligation to take into account interests of strangers to the marriage. In Ascot Investments Pty Ltd v Harper [1981] HCA 1; (1981) 148 CLR 337 at 354, Gibbs J (with whom Stephen, Aickin and Wilson JJ agreed) said:
"The authorities to which I have referred establish that in some circumstances the Family Court has power to make an order or injunction which is directed to a third party or which will indirectly affect the position of a third party. They do not establish that any such order may be made if its effect will be to deprive a third party of an existing right or to impose on a third party a duty which the party would not otherwise be liable to perform. The general words of ss. 80 and 114 must be understood in the context of the Act, which confers jurisdiction on the Family Court in matrimonial causes and associated matters, and in that context it would be unreasonable to impute to the Parliament an intention to give power to the Family Court to extinguish the rights, and enlarge the obligations, of third parties, in the absence of clear and unambiguous words. It can safely be assumed that the Parliament intended that the powers of the Family Court should be wide enough to prevent either of the parties to a marriage from evading his or her obligations to the other party, but it does not follow that the Parliament intended that the legitimate interests of third parties should be subordinated to the interests of a party to a marriage, or that the Family Court should be able to make orders that would operate to the detriment of third parties. There is nothing in the words of the sections that suggests that the Family Court is intended to have power to defeat or prejudice the rights, or nullify the powers, of third parties, or to require them to perform duties which they were not previously liable to perform."
53 The Family Court takes seriously the statements of principle made in Ascot Investments. In Biltoft v Biltoft [1995] FamCA 45; (1995) FLC 92-614 at 82,128 the Full Court of the Family Court said:
"There is no requirement that the rights of an unsecured creditor or a claim by a third party must be considered and dealt with prior to the Court making an order under s.79, nor is there a rule of priority as between a creditor claimant and a spouse. Those rights, however, cannot be ignored. They must be recognised, taking into account and balanced against the rights of the spouse....
There is an obligation on both parties to disclose any significant creditors or any significant claim against either of them by a third party. If, as a result of the order of the Court in the property proceedings, the ability of a creditor or claimant to recover his or her debt or claim is likely to be affected, notice of the Family Court proceedings must be given to that creditor or claimant. He/she may then intervene in the Family Court proceedings and either seek a stay of those proceedings or some appropriate order which recognises his/her rights."
54 It appears from the judgment of Moore J in Higgins that the form prescribed for applications under s 79 of the Family Law Act requires details of an applicant's property, liabilities and financial resources, verified by affidavit. Her Honour said (at para 19) that it is "usual, as part of the first step of determining the value of assets to be distributed, to deduct the amount owing under unsecured liabilities". This apparently extends to contingent liabilities, although her Honour noted authorities to the effect that "it might be proper not to take into account unsecured debts ... where the alleged liability is vague or uncertain or it is unlikely to be enforced or has been unreasonably incurred".
55 Section 92 of the Family Law Act empowers a court to allow "any person" to intervene in any proceeding, other than a proceeding for principal relief. Having regard to that provision, it may safely be assumed that, in an appropriate case, the Family Court will allow intervention by a trustee of a party to the marriage.
56 Section 79A(1) of the Family Law Act enables a court exercising jurisdiction under the Family Law Act to vary or set aside a s 79 order "on application by a person affected by" that order. These words have been held to be wide enough to include the trustee of the bankrupt estate of a party affected by the s 79 order: see Official Trustee in Bankruptcy v Donovan (1995) 20 Fam LR 802 at 816.
Conclusions
57 Craven provides support for the view, advanced by counsel for the respondents, that the effect of a transfer order under s 79 of the Family Law Act is to vest in the beneficiary of the order an equitable estate in the property interest that is the subject of the order. If that is so, what remains, after the order, in the hands of the person who is bound to effect the transfer is a bare legal interest, the market value of which must be nil. It would follow that a transfer giving effect to such an order could never be void against the trustee of the transferor's bankrupt estate; the market value of the property (nil) would never be greater than the consideration given for the transfer (also nil).
58 This way of looking at the matter is consistent with the view of McLelland CJ in Eq., in Harris v Walker, admittedly in relation to an earlier statutory provision. It may be regarded as inconsistent with the decision of Moore J in Higgins. It will be recalled she saw no problem about granting relief under s 120 or s 121 of the Act, notwithstanding the s 79 order of the Local Court remained in place. However, it was conceded in that case that the transfer was caught by ss 120 and 121; so there was no need for her Honour to consider whether the wife had a defence to the application under s 121(4)(a).
59 A more significant matter is that the view mentioned in para 57 is also inconsistent with the approach of Tamberlin J in this case, in which the application of s 120 or s 121 was in issue. It will be recalled his Honour rejected the argument, advanced by counsel for the present respondents, that the interest taken by his clients had a merely nominal value. He thought it was artificial to "isolate one individual component of the transaction as in itself comprising the transfer", rather than to "look at the overall transaction which has been implemented". He found support for this approach in Silvera v Savic. That case concerned s 37A of the Conveyancing Act 1919 (NSW) which made voidable "every alienation of property ... with intent to defraud creditors". At para 78, Hodgson CJ in Eq said:
"In my opinion, the `alienation' in this case was the whole process of obtaining the Local Court order and the consequent transfer; and it is that whole alienation which is made voidable by s 37A."
60 Hodgson CJ in Eq went on to say: "if one step in that alienation is the fraudulent obtaining of a Local Court order, then s 37A itself purports to give power to set that step aside". However, he held it was not necessary to take that course. He apparently thought it would be open to the Court simply to order a re-transfer, but the report of the case does not indicate whether this was done.
61 I do not wish to cast doubt upon the correctness of the view expressed in Silvera v Savic and subsequent New South Wales cases, but I see difficulty in applying that view to s 121 of the Bankruptcy Act. Section 37A of the Conveyancing Act uses the broad term "alienation", whereas s 121 is concerned with a "transfer of property". This term is not defined by the Act, other than by the statement in s 121(9)(a) (and s 120(7)(a)) that it includes a payment of money. It seems to direct attention to the particular transaction, commonly a document, that changes title to the relevant property. However, it is important to note that the transaction will not necessarily affect the legal title to the property. That is clear from the passage in Mullane, quoted by Needham AJ in Craven, in which Mason ACJ, Wilson, Brennan, Deane and Dawson JJ said s 79 referred to "orders which work an alteration of the legal or equitable interests in the property of the parties". If the effect of a s 79 order requiring a party to a marriage to transfer an interest in real estate to the other party is to cause the designated transferor to become a bare trustee of the relevant legal interest, that is because the order has vested an equitable interest in the proposed transferee.
62 On this analysis, in the present case there were two vesting events; but only the second of them was a "transfer of property by a person who later becomes a bankrupt". The first event took place on 22 June 2000, when the Family Court made orders requiring, amongst other things, Mr Mateo to transfer to his wife all his right, title and interest in the home. The effect of that order was to vest in Mrs Mateo an equitable interest in the one-half legal estate that continued to be held by Mr Mateo, but which, thereafter, had only a nominal market value. The second event was the transfer of the legal estate that was effected by the registration of a transfer document on or about 10 August 2000.
63 In analysing the matter in this way, I do not overlook the fact that, before 22 June 2000, Mr Mateo had signed a document, called "Consent Orders", which provided for the transfer of his interest in the home to his wife. However, whatever contractual force it may immediately have had, the form of the document indicates the parties intended it would affect their interests in the various items of property only when its terms were embodied in orders made by the Family Court.
64 It may be thought that, in a practical sense, my analysis yields a result that does not differ greatly from the result reached by Tamberlin J, in treating the "transfer" as "the whole transaction ranging from the signing of the Consent Orders on 18 April 2000 through to the completion of the transfer of the interest on or about 10 August 2000". Although that may be so, the analysis has the advantage of pointing up the critical importance of the Family Court order. It was that order which transferred the value of Mr Mateo's interest in the home to his wife. It follows that any useful application under s 121 would need to assert that the Family Court order is void against the trustee in the transferor's bankruptcy. However, I do not see how it is possible to conclude that a court order constitutes a "transfer of property by a person who later becomes a bankrupt". Also, any such assertion would raise potential issues under s 121(4), including whether "the consideration that the transferee gave for the transfer was at least as valuable as the market value of the property". How is that matter to be assessed, having regard to the criteria for the making of a s 79 order? Those criteria include non-financial contributions, both to the acquisition, conservation or improvement of property and to the welfare of the parties' family.
65 The problems inherent in such an assessment are illustrated by Tamberlin J's reasons in this case. First, it is not really possible to relate the value of non-financial contributions to the market value of a property interest. Recognising this, Tamberlin J did not attempt to assign a money value to Mrs Mateo's contributions. He simply made a value judgment that the benefits taken by Mrs Mateo under the consent orders were not disproportionate to the contribution she had made to the parties' fortune and family welfare. That may well have been so; but the question under s 121(4)(a) was whether the "consideration" given by Mrs Mateo "for the transfer" (that is, in exchange for the transfer) was as "valuable" (worth as much money) as the property.
66 The second problem is that, the marriage having come to an end, any contributions must lie in the past. Generally speaking, past consideration is no consideration: see The Law of Contract, Cheshire and Fifoot, 4th Australian edition, at para 211; The Law of Contract, Greig and Davis at 81-88. The only significant exception to that rule arises where there is an earlier promise to pay (express or implied). It is difficult to apply that exception to matrimonial contributions, unless, perhaps, there is a valid prenuptial agreement to that effect. There was no evidence of an earlier promise in the present case.
67 It is no answer to these difficulties to argue, as do counsel for the respondents, that the consideration for Mr Mateo's consent to the Family Court orders was Mrs Mateo's consent. In terms of contract law, that may be true. But the issue under s 121(4)(a) is not whether any consideration was given by the transferee for the transfer of property by the (now) bankrupt, but whether that consideration "was at least as valuable as the market value of the property". That brings the Court back to the problems I have mentioned.
68 Tamberlin J's reasoning in relation to the s 121(4)(a) issue (although stated in reference to s 120) was set out in para 32 of his reasons. The paragraph reads like reasons for judgment in a disputed application for an order under s 79 of the Family Law Act; except, importantly, that it did not commence with a determination as to the value of the net assets of Mr Mateo, after deducting his liabilities. As I have said, his Honour made a value judgment that the benefits taken by Mrs Mateo under the consent orders were not disproportionate to the contribution she had made to the parties' fortune and family welfare. That exercise involved his Honour second-guessing the Family Court's judgment about the same matter. Although the orders were made with the consent of both Mr and Mrs Mateo, the Family Court, itself, had to address the issue of their fairness. As already noted, s 79(2) of the Family Law Act instructs the Family Court "not to make an order under this section unless it is satisfied that, in all the circumstances, it is just and equitable to make an order". For the reasons explained by Davies J in Sabri, and adopted by Tamberlin J in Higgins, it was inappropriate for this Court to put itself in the position of second-guessing the Family Court's assessment of what was just and equitable, as between Mr and Mrs Mateo; or even of seeming to do this. It was particularly unfortunate for the Court to do this on a basis (disregard of a party's debts) that would not have found favour in the Family Court.
69 It seems to me the Official Trustee's resort to s 121 of the Act was misconceived. Transfer by this Court to the Family Court of an application under s 120 or s 121 of the Act will have the advantage of avoiding one court being in the position, or apparent position, of second-guessing another. However, there remains the fundamental problem that the critical divesting event is the Family Court's order under s 79 of the Family Law Act, and that event lies outside the reach of s 120 or s 121.
70 Where the Official Receiver desires, effectively, to recover benefits taken by the non-bankrupt spouse under s 79 orders, the appropriate course will ordinarily be for him to make an application under s 79A of the Family Law Act to vary or set aside those orders. For such an application to be successful, it will be necessary for the Official Trustee to satisfy the Family Court that "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 other circumstance". However, it would not ordinarily be difficult for the Official Trustee to do this. Having regard to the practice described by Moore J, it seems likely it will be found, on investigation, that there has been a miscarriage of justice by reason (at least) of failure to disclose relevant information, in relation to any s 79 order that provides for the transfer of significant assets by a person who was then insolvent, or facing a serious and well-defined claim.
Disposition
71 It will be apparent that I respectfully disagree with the course taken by Tamberlin J. I do not think it was appropriate to deal with the s 121 application by seeking to put a value on Mrs Mateo's past contributions to the parties' property interests and the welfare of their family. And I see force in the Official Trustee's criticisms of his Honour's treatment of the "obligation" incurred by Mrs Mateo towards the three children of the marriage. The consent orders made in the Family Court required her to pay to them a total sum of $80,000, if the home was sold by the end of 2000, or the greater of that sum and one-third of the net value (in the result probably something like $130,000) if it was sold at a later date. Although s 79(1) permits an order, under that section, to be for the benefit of a child of the marriage, it is not easy to fit the obligation incurred by Mrs Mateo into the notion that the purpose of the consent orders was to make an adjustment of the parties' property interests that fairly reflects Mrs Mateo's contribution to the parties' property interests and the welfare of the family. Mr Mateo was then insolvent and the amount of the obligation undertaken was roughly the same as the assumed value of his interest in the home. Although I accept the finding of Tamberlin J that there was a genuine breakdown of marriage prior to April 2000, there is room for the suspicion that the parties preferred the husband's equity in the home to find its way to the children rather than his creditors. This suspicion may be unfounded, but it warrants investigation. There was no such investigation when the consent orders were made; apparently, the Family Court was not informed of Mr Mateo's insolvency. There was no such investigation before Tamberlin J; because of the approach taken by his Honour, it was not thought relevant to his task. It seems the only way in which such an investigation might take place would be pursuant to an application to the Family Court under s 79A of the Family Law Act.
72 During discussion at the hearing of the appeal, Mr Taylor contended that, if we held Tamberlin J had erred, we ought to set aside his Honour's order dismissing the s 121 application and transfer the matter to the Family Court for determination.
73 For the reasons I have indicated, I am of the opinion that his Honour erred in relation to the application of s 121(4)(a). However, I do not think he ought to have transferred the matter to the Family Court. Nobody asked him to do this. The Official Trustee was prepared to litigate the matter on the basis that the only relevant "transfer of property" was the memorandum of transfer of 10 August 2000, for which Mrs Mateo gave no consideration. It was only after members of this Court pointed out the problems surrounding that approach that counsel raised the matter of transfer to the Family Court.
74 More fundamentally, there seems to be no utility in transferring to the Family Court the claim under s 121 constituted by the Official Trustee's cross-claim. This claim is structured by reference to the benefits taken by Mrs Mateo, and her children, under the consent order made by the Family Court on 22 June 2000. However, as I have suggested, such a claim is misconceived. If the Family Court is to deal, on their merits, with the issues mentioned to us, it will be necessary for it to have, before it, an application by the Official Trustee pursuant to s 79A of the Family Law Act. If that application is successful, it is likely that the Family Court will make new and different orders under s 79 of the Family Law Act, presumably leaving greater assets in Mr Mateo's hands, as between himself and his wife and children, than under the earlier order. Those assets would be property divisible among creditors, by virtue of s 116 of the Bankruptcy Act.
75 In the result, the appropriate order of the Court is that the appeal be dismissed. However, having regard to the fact that my reasons are very different from those of Tamberlin J, and reflect a view of the case more favourable to the Official Trustee than that of his Honour, I would reserve the question of costs.
I certify that the preceding seventy-five (75) numbered paragraphs are a true copy of the Reasons for Judgment herein of Justice Wilcox. |
Associate:
Dated: 28 February 2003
IN THE FEDERAL COURT OF AUSTRALIA |
|
NEW SOUTH WALES DISTRICT REGISTRY |
N 310 of 2002 |
BETWEEN: |
OFFICIAL TRUSTEE IN BANKRUPTCY APPELLANT |
AND: |
CORAZON BES MATEO FIRST RESPONDENT JEREMY MATEO SECOND RESPONDENT JENNIFER JOY MATEO THIRD RESPONDENT JUSTIN JAMES MATEO FOURTH RESPONDENT |
JUDGE: |
WILCOX, BRANSON and MERKEL JJ |
DATE: |
28 FEBRUARY 2003 |
PLACE: |
SYDNEY |
BRANSON J
INTRODUCTION
76 I have had the advantage of reading in draft the reasons for judgment of Wilcox J. I gratefully adopt his Honour's summary of the background to this appeal.
77 The issue to be determined on this appeal is, in my view, one of statutory construction. It is necessary to determine from a consideration of the terms of s 121 of the Bankruptcy Act 1966 (Cth) (`the Bankruptcy Act') read in the context of that Act, and from a consideration of the terms of ss 79 and 79A of the Family Law Act 1975 (Cth) (`the Family Law Act') read in the context of that Act, the intended scope of the respective sections and the manner, if any, of their interaction.
STATUTORY PROVISIONS
78 Section 79 of the Family Law Act empowers a court exercising jurisdiction under the section to make an order altering the interests of the parties to a marriage in property. The section relevantly provides:
`79(1) In proceedings with respect to the property of the parties to a marriage or either of them, the court may make such order as it considers appropriate altering the interests of the parties in the property, including an order for a settlement of property in substitution for any interest in the property and including an order requiring either or both of the parties to make, for the benefit of either or both of the parties or a child of the marriage, such settlement or transfer of property as the court determines....
(2) The court shall not make an order under this section unless it is satisfied that, in all the circumstances, it is just and equitable to make the order.
(4) In considering what order (if any) should be made under this section in proceedings with respect to any property of the parties to a marriage or either of them, the court shall take into account:
(a) the financial contribution made directly or indirectly by or on behalf of a party to the marriage or a child of the marriage to the acquisition, conservation or improvement of any of the property of the parties to the marriage or either of them, or otherwise in relation to any of that last-mentioned property, whether or not that last-mentioned property has, since the making of the contribution, ceased to be the property of the parties to the marriage or either of them;
(b) the contribution (other than a financial contribution) made directly or indirectly by or on behalf of a party to the marriage or a child of the marriage to the acquisition, conservation or improvement of any of the property of the parties to the marriage or either of them, or otherwise in relation to any of that last-mentioned property, whether or not that last-mentioned property has, since the making of the contribution, ceased to be the property of the parties to the marriage or either of them;
(c) the contribution made by a party to the marriage to the welfare of the family constituted by the parties to the marriage and any children of the marriage, including any contribution made in the capacity of homemaker or parent;
(d) the effect of any proposed order upon the earning capacity of either party to the marriage;
(e) the matters referred to in subsection 75(2) so far as they are relevant;
(f) any other order made under this Act affecting a party to the marriage or a child of the marriage; and
(g) any child support under the Child Support (Assessment) Act 1989 that a party to the marriage has provided, is to provide, or might be liable to provide in the future, for a child of the marriage.
(5) Without limiting the power of any court to grant an adjournment in proceedings under this Act, where, in proceedings with respect to the property of the parties to a marriage or either of them, a court is of the opinion:
(a) that there is likely to be a significant change in the financial circumstances of the parties to the marriage or either of them and that, having regard to the time when that change is likely to take place, it is reasonable to adjourn the proceedings; and
(b) that an order that the court could make with respect to the property of the parties to the marriage or either of them if that significant change in financial circumstances occurs is more likely to do justice as between the parties to the marriage than an order that the court could make immediately with respect to the property of the parties to the marriage or either of them;
the court may, if so requested by either party to the marriage, adjourn the proceedings until such time, before the expiration of a period specified by the court, as that party to the marriage applies for the proceedings to be determined, but nothing in this subsection requires the court to adjourn any proceedings in any particular circumstances.
...'
79 Section 79A of the Family Law Act provides for the setting aside of an order made under s 79 of the Act. Section 79A, amongst other things, provides:
`79A(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
(b) in the circumstances that have arisen since the order was made it is impracticable for the order to be carried out or impracticable for a part of the order to be carried out; or
(c) a person has defaulted in carrying out an obligation imposed on the person by the order and, in the circumstances that have arisen as a result of that default, it is just and equitable to vary the order or to set the order aside and make another order in substitution for the order; or
(d) in the circumstances that have arisen since the making of the order, being circumstances of an exceptional nature relating to the care, welfare and development of a child of the marriage, the child or, where the applicant has caring responsibility for the child (as defined in subsection (1AA)), the applicant, will suffer hardship if the court does not vary the order or set the order aside and make another order in substitution for the order; or
(e) a proceeds of crime order has been made covering property of the parties to the marriage or either of them, or a proceeds of crime order has been made against a party to the marriage;
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.
...
(2) In the exercise of its powers under subsection (1), ... a court shall have regard to the interests of, and shall make any order proper for the protection of, a bona fide purchaser or other person interested.'
80 Section 92 of the Family Law Act is concerned with intervention in proceedings under the Family Law Act. The section relevantly provides:
`92(1) In proceedings other than proceedings for principal relief, any person may apply for leave to intervene in the proceedings, and the court may make an order entitling that person to intervene in the proceedings....
(2) An order under this section may be made upon such conditions as the court considers appropriate.
(3) Where a person intervenes in any proceedings by leave of the court the person shall, unless the court otherwise orders, be deemed to be a party to the proceedings with all the rights, duties and liabilities of a party.'
81 Section 121 of the Bankruptcy Act, which was inserted into the Act in its present form in 1996, is concerned to avoid transfers of property made with an intention to defeat creditors. The section relevantly provides:
`121(1) A transfer of property by a person who later becomes a bankrupt (the transferor) to another person (the transferee) is void against the trustee in the transferor's bankruptcy if:(a) the property would probably have become part of the transferor's estate or would probably have been available to creditors if the property had not been transferred; and
(b) the transferor's main purpose in making the transfer was:
(i) to prevent the transferred property from becoming divisible among the transferor's creditors; or
(ii) to hinder or delay the process of making property available for division among the transferor's creditors.
(2) The transferor's main purpose in making the transfer is taken to be the purpose described in paragraph (1)(b) if it can reasonably be inferred from all the circumstances that, at the time of the transfer, the transferor was, or was about to become, insolvent.
(3) Subsection (2) does not limit the ways of establishing the transferor's main purpose in making a transfer.
(4) Despite subsection (1), a transfer of property is not void against the trustee if:
(a) the consideration that the transferee gave for the transfer was at least as valuable as the market value of the property; and
(b) the transferee did not know that the transferor's main purpose in making the transfer was the purpose described in paragraph (1)(b); and
(c) the transferee could not reasonably have inferred that, at the time of the transfer, the transferor was, or was about to become, insolvent.
(5) The trustee must pay to the transferee an amount equal to the value of any consideration that the transferee gave for a transfer that is void against the trustee.
(6) For the purposes of subsections (4) and (5), the following have no value as consideration:
(a) the fact that the transferee is related to the transferor;
(b) if the transferee is the spouse or de facto spouse of the transferor -- the transferee making a deed in favour of the transferor;
(c) the transferee's promise to marry, or to become the de facto spouse of, the transferor;
(d) the transferee's love or affection for the transferor.
...
(9) For the purposes of this section:
(a) transfer or [sic] property includes a payment of money; and
(b) a person who does something that results in another person becoming the owner of property that did not previously exist is taken to have transferred the property to the other person; and
(c) the market value of property transferred is its market value at the time of the transfer.'
82 Section 139ZQ of the Bankruptcy Act relevantly provides:
`139ZQ(1) If a person has received any money or property as a result of a transaction that is void against the trustee of a bankrupt under Division 3, the Official Receiver:(a) if the Official Trustee is the trustee -- on the initiative of the Official Receiver; or
(b) if a registered trustee is the trustee -- on application by the trustee;
may require the person, by written notice given to the person, to pay to the trustee an amount equal to the money or the value of the property received.
(2) The notice must set out the facts and circumstances because of which the Official Receiver considers that the transaction is void against the trustee.
...
(7) If a person is required by a notice under this section to pay to the trustee the value of any property, the requirement is taken to be complied with if the property is transferred to the trustee.
(8) An amount payable by a person to the trustee under this section is recoverable by the trustee as a debt by action against the person in a court of competent jurisdiction.'
The power of the Court to set aside a notice given under s 139ZQ derives from s 139ZS which provides:
`139ZS(1) If the Court, on application by a person to whom a notice has been given under section 139ZQ or by any other interested person, is satisfied that this Subdivision does not apply to the person on the basis of the alleged facts and circumstances set out in the notice, the Court may make an order setting aside the notice.(2) A notice that has been set aside is taken not to have been given.'
ORDER OF THE FAMILY COURT
83 The order of the Family Court with which this appeal is concerned was made by consent. It includes the following terms:
`BY CONSENT THE COURT ORDERS THE FOLLOWING:1. ORDER that within twenty-eight (28) days from the date of these orders the husband shall transfer to the wife all his rights, titles and interests in the matrimonial home known and situate at 3 Coolibah Street, Merrylands West, in the State of New South Wales, being the whole of the land comprised in Folio Identifier 14/806113.
2. ORDER that the husband shall not do any act matter or deed whereby a caveat charge or other encumbrance is or maybe registered on the said matrimonial home from the date hereof.
3. ORDER that upon the transfer to the wife of the husband's rights title and interests in the abovenamed matrimonial home the wife shall be responsible for all outgoings on the matrimonial home including mortgage repayments, council and water rates, insurance, and the wife shall indemnify and keep indemnified the husband in respect of any claims for loss damages or any other claims otherwise arising in respect of the said matrimonial home.
4. ORDER that upon the signing of this document, the wife shall pay the husband the sum of THREE THOUSAND ($3,000.00) DOLLARS.
5. ORDER that upon the husband signing of the Transfer document as indicated in paragraph "1" hereof, the wife shall pay the husband the sum of SEVEN THOUSAND ($7,000.00) DOLLARS.
6. ORDER that upon the sale of the matrimonial home at the end of this calendar year (i.e. 31 December 2000), the wife shall pay the husband an additional amount of $90,000.00 to be paid as follows:
$10,000.00 to the husband; and
$80,000.00 to be paid to the three children of the marriage at the direction of the husband.
7. ORDER that SHOULD the matrimonial home not be sold by the end of this financial year [sic], i.e. 31 December 2000, the wife shall pay the husband the sum of TEN THOUSAND ($10,000.00) DOLLARS as referred to in paragraph "6" hereof, not later than 31 December 2000.
In this regard the wife shall preserve the entitlements of the three children of the marriage pursuant to paragraph "6" above, and shall pay to the children equally such amount, being $80,000.00 or amount equal to one-third of the net value (being the sale price less any mortgage, commission, and legal costs and disbursements related to the sale) of the matrimonial home at the date of sale, whichever is the greater amount.
...
14. In the event that the husband or the wife refuses and/or neglects to execute any documents or do anything required of them in relation to these orders then pursuant to Section 84 of the Family Law Act:- The Registrar of the Family Court of Australia at Sydney is hereby appointed to execute all deeds and documents in the name of the party in default and do all acts and things necessary to give validity and operation to the said order and:
15. The Court notes that pursuant to Section 81 of the Family Law Act 1975 the parties intend that these Orders as far as practicable finally determine the financial relationship between them and avoid further proceedings between them.'
CONSIDERATION
84 Jurisdiction under ss 79 and 79A of the Family Law Act may be exercised by courts other than the Family Court of Australia (see s 39 of the Family Law Act and s 4 of the Jurisdiction of Courts (Cross-vesting) Act 1987 (Cth)). However, for present purposes it is convenient to refer to a court exercising jurisdiction under ss 79 and 79A of the Family Law Act as `the Family Court'.
85 Section 79 of the Family Law Act is not concerned to give the Family Court power to declare the title or rights that a party to a marriage has in respect of property. The Family Court derives that power from s 78 of the Family Law Act. Section 79 empowers the Family Court to alter the interests of the parties to a marriage in property.
86 The power of the Family Court to alter the interests of the parties in property is a wide one and extends to the making of orders requiring a party to a marriage to make, for the benefit of either or both of the parties or a child of the marriage, such settlement or transfer of property as the court determines.
87 The factors which the Family Court may take into account in considering what order, if any, should be made under s 79 are extensive. They include the financial or other contribution made directly or indirectly by or on behalf of a party to a marriage or a child of the marriage to the acquisition, conservation or improvement of any of the property of the parties to the marriage or either of them. The factors also include the contribution made by a party to the marriage to the welfare of the family including any contribution made in the capacity of homemaker or parent. Additionally, the factors include the matters referred to in s 75(2) of the Family Law Act as matters to be taken into consideration in relation to spousal maintenance so far as they are relevant. These matters include the age, health, financial resources and support responsibilities of the respective parties to the marriage and also the need to protect a party `who wishes to continue that party's role as a parent'.
88 The Family Court can grant an adjournment in proceedings under s 79 where there is likely to be a significant change in the financial circumstances of the parties to a marriage or either of them. There seems to be no reason to doubt that bankruptcy, or even insolvency, would constitute a significant change in financial circumstances within the meaning of the section.
89 Importantly, the Family Court may not make an order under s 79 of the Family Law Act unless it is satisfied that, in all the circumstances, it is just and equitable to make the order. As Gibbs CJ observed in Mallet v Mallet [1984] HCA 21; (1984) 156 CLR 605 at 609:
`... It is necessary for the court, in each case, after having had regard to the matters which the Act requires it to consider, to do what is just and equitable in all the circumstances of the particular case.'
In the same case, Mason J at 625 said:
`... The section contemplates that an order will not be made unless the court is satisfied that it is just and equitable to make the order (s 79(2)), after taking into account the factors mentioned in (a) to (e) of s 79(4). The requirement that the court "shall take into account" these factors imposes a duty on the court to evaluate them. ...'
See also Deane J at 639 and Dawson J at 647.
90 The extent to which the Family Law Act gives the Family Court power to make orders adversely affecting third parties was considered by the High Court in Ascot Investments Proprietary Limited v Harper [1981] HCA 1; (1981) 148 CLR 337 (`Ascot Investments'). By majority (Barwick CJ, Gibbs, Stephen, Mason, Aickin and Wilson JJ, Murphy J dissenting) the High Court held that the Family Court had no power to direct a company or its directors to register a transfer of shares from one party to a marriage to the other where the memorandum and articles of association of the company empowered the directors to decline to register a transfer of shares and the shareholder party did not control the company. Barwick CJ at 342 said:
`It may at once be conceded that the Family Court may make orders which are appropriate to render effective orders made by it within its jurisdiction. Such enforcing orders must, of course, do no more than is necessary and appropriate for the enforcement of the substantive order or orders. They cannot directly affect the rights of third parties. But it is no objection to such an enforcing order that it binds or operates upon a stranger to the Family Court proceedings or that compliance with it may indirectly or consequentially effect substantive rights of the stranger. ...'
91 Gibbs J, with whom Stephen, Aickin and Wilson JJ agreed, at 354 observed:
`...It can safely be assumed that the Parliament intended that the powers of the Family Court should be wide enough to prevent either of the parties to a marriage from evading his or her obligations to the other party, but it does not follow that the Parliament intended that the legitimate interests of third parties should be subordinated to the interests of a party to a marriage, or that the Family Court should be able to make orders that would operate to the detriment of third parties. There is nothing in the words of the sections [i.e. s 80 which confers general powers on the court concerning property and spousal maintenance and s 114 which empowers the court to grant injunctions] that suggests that the Family Court is intended to have power to defeat or prejudice the rights, or nullify the powers, of third parties, or to require them to perform duties which they were not previously liable to perform. It is one thing to order a party to a marriage to do whatever is within his power to comply with an order of the court, even if what he does may have some effect on the position of third parties, but it is quite another to order third parties to do what they are not legally bound to do. If the sections had been intended to prejudice the interests of third parties in this way, it would have been necessary to consider their constitutional validity.'
92 Having regard to the reference made by Gibbs J to the possibility of an order of the Family Court having `some effect on the position of third parties', it would seem that his Honour's earlier reference to `orders that would operate to the detriment of third parties' should be understood in the light of the words which immediately follow them. That is, the type of `detriment' to which his Honour was referring would seem to be the defeating or prejudicing of rights, the nullification of powers or the creation of fresh legal obligations. Read this way, there would seem to be no conflict between the approach adopted by Gibbs J and that adopted by Barwick CJ in the passages set out above.
93 In my view, Ascot Investments is authority for the proposition that the Family Court has the power to make an order which reflects the obligations of the parties to a marriage, the one to the other and to the children of the marriage, notwithstanding that such order may affect the position of a third party (eg, by reducing the property available to unsecured creditors should a sequestration order be later made against the estate of one of the parties to the marriage). This is not to say that, in making an order under s 79 of the Family Law Act, the Family Court may disregard the interests of third party creditors. Indeed, in an ordinary case, the Family Court may be expected to be astute to prevent the claims of an unsecured creditor from being defeated by a s 79 order. However, it seems to me that the Family Court has the power, having considered both the legitimate interests of an unsecured creditor of one of the parties to the marriage and the legitimate interests of the other party to the marriage, whose interests may incorporate or reflect the interests of a child of the marriage, to make an order the indirect or consequential effect of which will be to reduce the assets to which the unsecured creditor may look should its debt not otherwise be satisfied.
94 This seems to be the approach in fact adopted by the Family Court. The Full Court of the Family Court (Nicholson CJ, Ellis and Buckley JJ) in In the Marriage of Biltoft (1995) 19 Fam LR 82 at 91-92 observed:
`A general practice has developed over the years that, in relation to applications pursuant to the provisions of s 79, the Court ascertains the value of the property of the parties to a marriage by deducting from the value of their assets the value of their total liabilities. In the case of encumbered assets, the value thereof is ascertained by deducting the amount of the secured liability from the gross value of the asset. See, Ascot Investments Pty Limited v. Harper [1981] HCA 1; (1981) 148 CLR 337 where Gibbs J (as he then was) pointed out at page 355 that the Court "must take the property of a party to a marriage as it finds it. The Family Court cannot ignore the interests of third parties in the property, nor the existence of conditions or covenants that limit the rights of the party who owns it." Where the assets are not encumbered and moneys are owed by the parties or one of them to unsecured creditors, the court ascertains the value of their property by deducting from the value of their assets the value of their total liabilities, including the unsecured liabilities. See In the marriage of Prince, General Credits Australia Limited (Intervenor); A-G for the State of Queensland (Intervening); A-G for the Commonwealth of Australia (Intervening) (1984) 9 Fam LR 481; [1984] FLC 91-501, Evatt CJ at Fam LR 486; FLC 79,076 said:"... the outcome of the wife's application will depend upon findings made by the Court as to the parties' assets and liabilities, their contributions and their respective financial resources, means and needs. It would be necessary for the Court to determine so far as is possible the value of the property held by each party. In accordance with the usual practice this would be done by deducting the value of outstanding mortgages, debts, and other liabilities (eg Albany (1980) 6 Fam LR 461 at 466; [1980] FLC 90-905 at 75,717). The court may have to determine, as between the parties, the existence of a particular liability (Af Petersens (1981) 7 Fam LR 402; [1981] FLC 91-095).
The assessment of debts and liabilities is not necessarily arrived at by a strictly mathematical or accountancy approach in all cases. While some liabilities are charges upon the property which can be accurately assessed at a certain date, others are at large, or have not been precisely determined, eg tax liabilities: Kelly (1981) 7 Fam LR 762 at 767; [1981] FLC 91-108 at 76,801. In some cases the amount of the liability can only be estimated generally: Albany (supra at Fam LR 466; FLC 75,717. The Court can make an allowance for a particular liability if appropriate to do so. In some cases there are sufficient uncertainties as to the alleged liability to lead the Court to disregard it entirely or partly (eg a loan from a parent of the party not likely to be enforced; Af Petersens, supra; Quirk (1983) unreported). In other cases, the Court may take the view that because of the circumstances surrounding the incurring of the liability it ought in justice and equity to be wholly or partly disregarded in determining the appropriate order to make under s 79 as between the parties to the marriage. Such a result could be reached where a spouse had incurred a liability in deliberate or reckless disregard of the other party's potential entitlement under s 79: Kimber (1981) 7 Fam LR 483; [1981] FLC 91-085; Kowaliw [1981] FLC 91-092; Antmann (1980) 6 Fam LR 560; [1980] FLC 90-908; Af Petersens, supra. Complex issues can arise in regard to liabilities to third parties: see eg Pockran and Crewes (1983) 8 Fam LR 893; [1983] FLC 91-311.
Of course, the Court cannot ignore the fact that there is or may be a liability; the effect is simply that it does not consider that the other spouse should be called upon to in effect "contribute" to the liability by having that spouse's fair share in the parties' property reduced by virtue of its existence. The effect may be that the party who has incurred the liability will be left to meet it out of whatever funds remain to that party after satisfying the property order made under s 79; Af Petersens, supra."'
95 Further, the Full Court of the Family Court in In the Marriage of Biltoft at 94 referred with apparent approval to the following passage from Semmens v Commonwealth [1990] FamCA 9; (1989) 13 Fam LR 715:
`Whilst we think it inappropriate, in the absence of Rules of Court to this effect, to require notices to be given to third parties in all such circumstances, it must be recognised that the failure to do so in particular cases can severely impinge upon the "legitimate interests of third parties" and may almost inevitably in many cases constitute a "miscarriage of justice" within s 79A. Consequently, in our view, where in a proceeding under ss 79, 86 or 87 it appears to either of the parties that there are interests of third parties which might be adversely affected by the orders which are being sought or the terms of the agreement, justice and common sense dictate that those third parties be given notice. Similarly, where the Court becomes apprised of that circumstance in the course of hearing such a proceeding, that procedure would also commend itself. Failure to do so in a particular case may adversely affect the interests of a third party and, in the long run, may open up the orders which have been made or the agreement which has been approved or registered to challenge ss 79A and 87(8) or otherwise.'
96 The complexities identified by the Full Court of the Family Court in In the Marriage of Biltoft are not avoided by the parties seeking a consent order under s 79 of the Family Law Act. As Brennan J pointed out in Harris v Caladine [1991] HCA 9; (1991) 172 CLR 84 at 104, the Court must consider `the propriety of the provisions with respect to financial matters' and `[t]he making of a consent order in a s 79(1) matter is not automatic'.
97 Moreover, s 79A of the Family Law Act authorises the variation or setting aside of an order under s 79 on the application of `a person affected by the order'. The Family Court has a discretion to vary or set aside the order if it is satisfied that 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'. The expression `a person affected by the order' has a wide meaning in this context. In Deputy Commissioner of Taxation (WA) v Spanjich (1988) 88 ATC 4985 the Full Court of the Family Court (Barblett DCJ, Simpson and Connor JJ) at [18] observed:
`The real question is whether if the effect of the order is to prevent the Deputy Commissioner from recovering tax due and owing is he thereby a person affected. 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 monies due and owing in the circumstances of this case. ...'
Similarly, the expressions `suppression of evidence' and `any other circumstance' have been widely interpreted and extend to a party to a marriage failing to disclose his or her true financial circumstances (Pelerman v Pelerman [2000] Fam CA 881; 26 Fam LR 505).
98 Thus, even where an order under s 79 is made by consent, it is open to the Family Court to vary or set aside the order where it is satisfied that there was a miscarriage of justice which affected a third party creditor because full and frank disclosure of all relevant facts and circumstances was not made to the court when it approved the consent order. As mentioned above, relevant circumstances include the significant financial liabilities and obligations to third parties of each of the parties to the marriage.
99 In summary, even where the parties to a marriage seek an order by consent in the Family Court under s 79 altering their interests in property, the court has a duty to satisfy itself that the order sought is just and equitable in all of the circumstances. The relevant circumstances include the liabilities, including the unsecured liabilities, of each of the parties to the marriage. A failure to give notice to a significant unsecured creditor of either of the parties to the marriage of the application for the order would be likely to constitute a ground for an application under s 79A to vary or set aside any order made. A disregard by the court of the proper interests of an unsecured creditor who appeared on an application under s 79 would be likely to constitute a ground of appeal against any order made. For these reasons it would be wrong to see s 79 of the Family Law Act as providing a means whereby the parties to a marriage, or either one of them, can defraud their creditors or the creditors of either of them.
100 It is crucial, in my view, to bear in mind the nature and extent of the powers vested in the Family Court by ss 79 and 79A in giving consideration to whether s 121 of the Bankruptcy Act, on its proper construction, is intended to reach to a transfer of property effected by, or made in compliance with, an order of the Family Court made under to s 79 of the Family Law Act. It seems to me that a number of factors suggest against s 121 being intended to have such an operation.
101 First, an order under s 79 cannot defeat the interests of a secured creditor as to do so would deprive a third party of an existing right, namely the right to look to his or her security in the event of non-payment (see [90] above). However, nothing in the Family Law Act, or indeed the Bankruptcy Act, suggests that in determining what is `just and equitable' within the meaning of s 79(2) of the Family Law Act the Family Court must as a matter of law prefer (as opposed to weigh in the balance) the interests of an unsecured creditor of one of the parties to the marriage to the interests of the other party and any children of the marriage. It is, in my view, unlikely that the legislature intended s 121 of the Bankruptcy Act to render void an order, or perhaps more likely, part of an order, of the Family Court calculated by the Family Court to achieve a proper balance between the competing interests of the parties to a marriage, the children (if any) of the marriage and third party creditors.
102 Secondly, s 79 of the Family Law Act authorises the making of an order `altering the interests of the parties in ... property.' That is, the section is concerned to empower the Family Court directly to alter the interests of the parties to a marriage in property, not merely to make an order requiring the parties or one of them to take steps which will result in their property interests being altered. An alteration of the interests of the parties to a marriage in property by court order does not, in my view, constitute `[a] transfer of property by a person ... to another person' within the meaning of s 121(1) of the Bankruptcy Act (Kizon v Palmer (1997) 72 FCR 409 at 430-431 per Lindgren J with whom Jenkinson and Kiefel JJ agreed). Turning to the actual order made by the Family Court in this case (see [83] above), it seems to me that it is probably implicit in the terms of the order that the interests of the parties to the marriage in their matrimonial home were altered by operation of the order. That is, that the order itself vested in the wife all of the husband's beneficial interest in the matrimonial home (see Harris v Walker (1969) 14 FLR 167). On this view of the order, the transfer which paragraph 1 of the order required the husband to effect was necessary only to perfect the wife's interest by the transfer to her of the husband's legal interest in the matrimonial home. The transfer of the husband's beneficial interest in the matrimonial home to the wife was not on this view "[a] transfer of property by a person who later becomes a bankrupt..." within the meaning of s 121(1) of the Bankruptcy Act; it was a transfer of property by court order.
103 Even if the Family Court order is not so construed, in my view, the order necessarily destroyed the value of the husband's interest in the property. The order gave the wife an entitlement to have the whole of the husband's interest in the property transferred to her within twenty-eight days and, if necessary, the right to call on the Registrar of the Family Court to execute all necessary documents. For this reason the husband's remaining interest in the property was merely formal. The order restrained the husband in the meantime from charging or encumbering the title to the property (par 2 of the order). Although no argument was addressed to this Court in this regard, it would seem that the order vested in the wife an interest in the property sufficient to support the registration of a caveat on the title to the matrimonial home (In the Marriage of Pertsoulis (1979) 4 Fam LR 613; In the Marriage of Bourke (1993) 16 Fam LR 779). In these circumstances, at no time after the making of the Family Court order could it be said, in my view, that any interest in the matrimonial home `would probably have become part of the [husband's] estate or would probably have been available to creditors if the property had not been transferred' within the meaning of s 121(1)(a) of the Bankruptcy Act.
104 The above analysis, in my view, reveals that both the nature of the power given to the Family Court by ss 79 and 79A of the Family Law Act and the language of s 121 of the Bankruptcy Act are inconsistent with a legislative intention that s 121 should have any operation in respect of an order made under s 79 of the Family Law Act including in respect of a transfer made pursuant to such an order. Rather, as it seems to me, the legislature intended that any failure by an order under s 79 of the Family Law Act properly to respect the interests of third party creditors should be addressed by an appeal to the Full Family Court or, in an appropriate case, by an application under s 79A of the Family Law Act to vary or set aside the order.
105 The learned primary judge proceeded on the basis that it was necessary to look at the `overall transaction', of which the Family Court order was only part and that it was illegitimate to `isolate one individual component of the transaction as in itself comprising the transfer'. His Honour concluded that the relevant `transfer' for the purposes of the Bankruptcy Act:
`... consisted of the whole transaction ranging from the signing of the Consent Orders on 18 April 2000 through to the completion of the transfer of the interest on or about 10 April 2000.'
106 In my respectful view, the approach adopted by his Honour pays insufficient regard to the fact that s 121 of the Bankruptcy Act is concerned only with `[a] transfer of property by a person who later becomes a bankrupt'. The very real discretion vested in the Family Court by s 79 of the Family Law Act, together with the obligation imposed on the Family Court by s 79(2) of the Family Law Act means, in my view, that the whole transaction from the signing of the consent orders to the completion of the transfer of the husband's interest in the matrimonial home to the wife cannot be regarded as having been effected by the husband. While it is unlikely that an identical order would have been made by the Family Court without the parties consent, the order made must be presumed to have been made because the Family Court was satisfied that `in all the circumstances, it [was] just and equitable to make the order' (s 79(2)). That is, the order was made by the Family Court, not by the husband, notwithstanding that the consent of the parties, it may be assumed, was a significant factor leading to the Family Court's satisfaction.
107 At least one other difficulty, in my view, attends a construction of s 121 of the Bankruptcy Act which equates a transfer by or pursuant to a court order under s 79 of the Family Law Act as `a transfer of property by a person ... to another person' within the meaning of the section. Section 121(2) effectively deems the transferor's main purpose to be the purpose described in s 121(1) `if it can reasonably be inferred ... that, at the time of the transfer, the transferor was, or was about to become, insolvent.' Thus, were such a construction to be adopted, in any case in which it can reasonably be inferred that a party to a marriage was, or was about to become, insolvent as at the date of an order made under s 79 of the Family Law Act, all provisions of the order which altered the property interests of that party in favour of the other party would be rendered void against a trustee in bankruptcy by s 121(1) of the Bankruptcy Act - but, it would seem, no provisions operating in the opposite direction would be rendered void. As a consequence the total impact of the order could end up being quite different from that intended by the Family Court. One can readily envisage, for example, an order under s 70 which vested the matrimonial home in the wife for the benefit of herself and the children of the marriage but transferred to the husband all of the wife's interest in, say, a jointly held share portfolio. Should it prove to be the case that the husband was insolvent at the time of the order, the above construction of s 121 could lead to the result that the unsecured creditors of the husband would gain access to both the matrimonial home and the share portfolio in which the wife previously had an interest while the wife and the children of the marriage could be left destitute. Such an impact is not likely to be one which the Family Court would, or could, have been satisfied was just and equitable as required by s 79(2).
108 The legislature cannot, as it seems to me, have intended that this difficulty would be addressed by s 121(5) of the Bankruptcy Act which requires a trustee in bankruptcy to pay to the transferee `an amount equal to the value of any consideration that the transferee gave for a transfer that is void against the trustee.' The complexity of the factors to which the Family Court must have regard before making an order, even a consent order, under s 79(1) of the Family Law Act renders the notion of the identification of the value of the `consideration' given by a party to a marriage for any aspect of that order unrealistic. Moreover, as Wilcox J has pointed out, it is likely that the term `consideration' is used in s 121(5) of the Bankruptcy Act in the common law contractual sense with the result that any `past consideration' is to be disregarded.
109 The learned primary judge did not give consideration to the issues of construction considered above. It would appear that they were not argued before him. This may be because of the earlier consideration given by his Honour to the relevant statutory provision in Official Trustee in Bankruptcy v Higgins [2000] FCA 1850; 109 FCR 1 (`Higgins' case').
110 In Higgins' case the Local Court of New South Wales had made, by consent, an order under s 79 of the Family Law Act. The husband's trustee in bankruptcy subsequently sought a declaration in the Federal Court that a transfer of property by the husband to the wife was void as against the trustee. The reasons for judgment of Tamberlin J reveal at [3] that the parties requested his Honour to proceed on the basis that the bankrupt had transferred his interest in the property to the wife in circumstances that were caught by ss 120(1) and 121(1) of the Bankruptcy Act. In the circumstances it is probably not surprising that his Honour concluded at [22] that:
`... the position in the present case is that the Federal Court has both the power and jurisdiction to make an order under s 121 in a case such as this.'
Nonetheless, of his own motion, his Honour transferred the proceeding to the Family Court under s 35A of the Bankruptcy Act. Having regard to the above history of Higgins' case, it is similarly not surprising that when that proceeding came before the Family Court, Moore J proceeded to make orders under s 121 of the Bankruptcy Act. No application was made to her Honour under s 79A of the Family Law Act. Her Honour did, however, in the course of her careful judgment, at [38] observe:
`As I see it, if the right of the Trustee to recover property from voidable transactions, as provided in ss 120 and 121, were to depend on the vicissitudes of an application of the facts not just to those provisions themselves (together with other relevant provisions of the Bankruptcy Act) but also to the provisions of s 79A of the Family Law Act, one might reasonably expect to find an exemption provided in either statute. Neither says anything of the kind. The absence of any specific provision to that effect leads to the inference that s 79A was not intended to operate as an exception to the application of ss 120 or 121.'
111 It seems to me, with respect, that, even if the issues of construction discussed above are put to one side, it might equally be said that had the legislature intended that an order, which might be that of a superior court, necessarily calculated to achieve a just and equitable balancing of the interests of the parties to the marriage and the legitimate interests of third parties, should be rendered, either wholly or in part, void against a trustee in bankruptcy of one of the parties by the mere operation of s 121 of the Bankruptcy Act, one might reasonably expect to find an express statement of that intention. This is not just because of the respect that ought properly to be accorded to an order of a superior court. It ought not to be overlooked that the only power given to the Federal Court to set aside a notice given under s139ZQ of the Bankruptcy Act is a power dependent upon satisfaction that relevant provisions of that Act do not apply to the person to whom the notice was given. The Federal Court is not given a power to set aside or vary the effect of the notice to achieve a just and equitable outcome between the interests of the unsecured creditors of the bankrupt and the person to whom the notice was given, including any child of the marriage dependent on that person. If the legislature should decide that the rights of an unsecured creditor should necessarily prevail over the interests of not only the non-debtor party to the marriage but also any child of the marriage it may enact legislation that so provides. However it would, it seems to me, need to do so in unambiguous language (cf Johnson v Director-General of Social Welfare (Vic) [1976] HCA 19; (1976) 135 CLR 92).
112 This Court's attention was drawn during the hearing of this appeal to a number of decision of the Supreme Court of New South Wales concerning the interrelationship of s 37A of the Conveyancing Act 1919 (NSW) (`the Conveyancing Act') on the one hand and s 79 of the Family Law Act or s 14 of the Property (Relationships) Act 1984 (NSW) on the other hand, previously known as the De Facto Relationships Act 1984 (NSW). As Wilcox J has pointed out, the terms of s 37A of the Conveyancing Act are significantly different from the terms of s 121 of the Bankruptcy Act. As, in my view, this appeal can be determined simply by giving consideration to the proper construction of ss 79 and 79A of the Family Law Act and s 121 of the Bankruptcy Act, it is unnecessary for these decisions to be subjected to examination on this appeal.
113 Similarly, in my view, decisions concerning s 121 of the Bankruptcy Act as in force before the coming into force of the Bankruptcy Legislation Amendment Act 1996 (Cth) are of limited assistance on the question of construction here raised.
CONCLUSION
114 Although I have adopted a different approach to that adopted by Tamberlin J, in my view, the order his Honour made setting aside the notice issued by the Official Trustee was the appropriate order in the circumstances of this case. The first respondent did not, in my view, receive any money or property as a result of a `transaction' that is void against the trustee of a bankrupt (see s 139ZQ of the Bankruptcy Act). Section 121 of the Bankruptcy Act, upon which the applicant relied, had no application to the first respondent on the bases of the alleged facts and circumstances set out in the notice given to her by the Official Receiver (s 139ZS of the Bankruptcy Act). The remedy, if any, available to the appellant in the circumstances is, I consider, to make an application to the Family Court under s 79A of the Family Court Act.
115 I would dismiss the appeal and allow the parties to file written submissions on the question of costs.
I certify that the preceding forty (40) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Branson. |
Associate:
Dated: 28 February 2003
IN THE FEDERAL COURT OF AUSTRALIA |
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NEW SOUTH WALES DISTRICT REGISTRY |
N 310 OF 2002 |
BETWEEN: |
OFFICIAL TRUSTEE IN BANKRUPTCY APPELLANT |
AND: |
CORAZON BES MATEO FIRST RESPONDENT JEREMY MATEO SECOND RESPONDENT JENNIFER JOY MATEO THIRD RESPONDENT JUSTIN JAMES MATEO FOURTH RESPONDENT |
JUDGES: |
WILCOX, BRANSON AND MERKEL JJ |
DATE: |
28 FEBRUARY 2003 |
PLACE: |
SYDNEY |
MERKEL J:
116 The background to this appeal and the relevant facts, statutory provisions and contentions are set out in the judgments of Wilcox J and of Branson J. The question arising on the appeal is whether a transfer of property between parties to a marriage pursuant to an order of the Family Court made under s 79 of the Family Law Act 1975 (Cth) ("the Family Law Act") becomes void in the event that:
* the transferor later becomes a bankrupt; and
* the transfer is an undervalued transaction under s 120 of the Bankruptcy Act 1966 (Cth) ("the Bankruptcy Act") or a transfer to defeat creditors under s 121 of the Bankruptcy Act.
117 If that question is answered in the negative then the appellant ("the Official Receiver") is not entitled to issue a notice under s 139ZQ of the Bankruptcy Act requiring payment of an amount of money or the value of property received as a result of a transfer of property made pursuant to s 79 of the Family Law Act. The reason for the non-applicability of s 139ZQ is that the transfer will not satisfy the precondition for such a notice, being that the transfer is void against the trustee in bankruptcy under, inter alia, ss 120 or 121 of the Bankruptcy Act.
118 The first respondent ("the bankrupt's wife") married Arturo Mateo ("the bankrupt") in 1972. The second, third and fourth respondents are children of the marriage. The break-down of the marriage between the bankrupt and his wife resulted in their separation on 10 January 2000. On 18 April 2000 they signed a document entitled "Consent Orders". The orders were subsequently made by the Family Court on 22 June 2000. At the date on which the orders were made the bankrupt was insolvent but not bankrupt. Pursuant to the orders the bankrupt was required to transfer to his wife within 28 days his right, title and interest in the matrimonial home at 3 Coolabah Street, Marylands West, in the State of New South Wales. Under the orders:
* the bankrupt's wife was required to pay to the bankrupt $3,000 upon the signing of the orders and $7,000 upon the signing of the transfer of the home;
* provision was made for a further $10,000 to be paid to the bankrupt and for at least $80,000 to be paid to the three children of the marriage after the sale of the home;
* the Family Court "noted" that pursuant to s 81 of the Family Court Act the parties intended that the orders "as far as practicable finally determine the financial relationship between them and avoid further proceedings between them" and stated that the orders did not include any orders for maintenance.
119 The consent orders dealt with certain other matters but they are not relevant to the issues arising on the appeal.
120 When the consent orders were filed with the Family Court they were accompanied by an application for consent orders in accordance with Form 12A: see O 14 r 2 of the Family Court Rules 1984 (Cth) ("the Family Court Rules"). Order 14 r 6 of the Family Court Rules provides for consent orders to be made in Chambers by a Registrar, Judge, Judicial Registrar or Magistrate.
121 The Form 12A application for consent orders filed by the bankrupt and his wife required each of them to state details of their property and liabilities and describe the effect of the orders they were seeking by setting out their "proposal for the distribution of property, resources and liabilities". The bankrupt's statements in the Form 12A application were to the effect that the total value of his property was $192,020 and the total value of his liabilities was $82,000 leaving a "Total net property" of $110,020. The bankrupt disclosed that the effect of the orders sought would be to decrease his net assets to $27,000. The value of the matrimonial home, which was subject to a mortgage of $111,000, was stated to be $350,000. The bankrupt and his wife included one-half of the value of the home in their respective statements of the property owned by them and one-half of the amount of the mortgage as part of their respective liabilities.
122 In accordance with O 14 r 3 of the Family Court Rules the bankrupt and his wife were each required to swear an affidavit in the form set out in Form 12A. The affidavit sworn by the bankrupt stated that the matters set out in the Form 12A application that were within his personal knowledge were true and all other matters were true to the best of his knowledge, information and belief.
123 On 10 August 2000 the transfer of the property by the bankrupt to his wife was registered. On 19 March 2001 the bankrupt's wife sold the matrimonial home for $398,000. On 10 April 2001, prior to the settlement of the sale, the bankruptcy of the bankrupt commenced pursuant to s 55 of the Bankruptcy Act.
124 Under ss 120 and 121 of the Bankruptcy Act a transfer of property is only void against the trustee in bankruptcy where there has been a:
"transfer of property by a person who later becomes a bankrupt (the transferor) to another person (the transferee)"
125 A further precondition to the operation of s 120 is that the transferee "gave no consideration for the transfer or gave consideration of less value than the market value of the property" (s 120(1)(b)). A transfer of property that would otherwise fall within s 121(1) is not void against the trustee in bankruptcy if the consideration that the transferee gave for the transfer "was at least as valuable as the market value of the property" (s 121(4)(a)).
126 Section 79 of the Family Law Act empowers the Family Court to make "such order as it considers appropriate altering the interests" of the parties to a marriage in property owned by them. Sections 79(2) and (4) expressly require that an order not be made unless the Court is satisfied that it is just and equitable to make the order after taking into account the factors mentioned in s 79(4): see Mallet v Mallet [1984] HCA 21; (1984) 156 CLR 605 at 608, 625 and 647. The question of statutory construction arising on the appeal is whether an alteration of the interest in property owned by a person, who later becomes a bankrupt, by a consent order made under s 79 of the Family Law Act is a "transfer of property by a person ... to another person" within the meaning of those words in ss 120 and 121 of the Bankruptcy Act.
127 At the outset it is appropriate to identify certain features of an order under s 79 of the Family Law Act. First, the order is a final order, subject to the limited jurisdiction to set aside or vary such an order by appeal or under s 79A of the Family Law Act: see Mullane v Mullane [1983] HCA 4; (1983) 158 CLR 436 ("Mullane") at 442-443. The order may also be set aside on the ground of jurisdictional error in an application for prerogative relief under s 75(v) of the Constitution.
128 Second, a court order settling property between husband and wife, including a requirement that there be a transfer of one party's interest to the other, has generally been regarded as vesting in the transferee an equitable estate or interest in the property pending the transfer of the legal estate or interest: see Harris v Walker (1968) 14 FLR 167 at 176.
129 In Mullane the Court stated at 445:
"s.79 on its proper construction refers only to orders which work an alteration of the legal or equitable interests in the property of the parties or either of them. An interest in property is a right of a proprietary nature, not a mere personal right"
130 In Craven v Official Trustee in Bankruptcy (unreported, Supreme Court of New South Wales, Needham AJ, No 2712 of 1991, 26 July 1991) Needham AJ, in reliance on Mullane, concluded that an order altering property interests under s 79 "creates an equitable interest in the land which could be enforced just as a contract of sale could be enforced".
131 Third, the fact that a consent order might be made under s 79 does not have the consequence that the transfer of the equitable estate or interest is pursuant to the agreement between the parties giving rise to the consent, rather than pursuant to the Court order. As was observed by Lord Diplock in de Lasala v de Lasala [1980] AC 546 ("de Lasala") at 560:
"Financial arrangements that are agreed upon between the parties for the purpose of receiving the approval and being made the subject of a consent order by the court, once they have been made the subject of the court order no longer depend upon the agreement of the parties as the source from which their legal effect is derived. Their legal effect is derived from the court order"
132 In Harris v Caladine [1991] HCA 9; (1991) 172 CLR 84 Brennan J at 104, citing de Lasala, observed that a consent order, though made in accordance with the party's contract, takes effect as an order of the court and is enforceable as such, rather than as a contract to be sued on in a separate action. Dawson J (at 124) also referred to de Lasala and stated that in the case of an application under s 79, even if there is a consent amounting to a contract, that is not enough of itself to entitle the parties to an order because the "requirements of the section must be satisfied". Dawson J stated that "it is the order itself which is of legal significance".
133 It follows from the foregoing that when the Family Court makes an order by consent under s 79(1) of the Family Law Act altering the interests in property of the parties to a marriage the alteration, and the consequential vesting of the equitable estate or interest in the property in the transferee, take effect by reason of the Court order and not by reason of the consent of the parties, even if that consent amounts to a contract between them.
134 The consent orders made by the Family Court on 22 June 2000 altered the interests in the matrimonial home of the bankrupt and his wife by transferring the equitable estate and interest of the bankrupt in the matrimonial home to his wife. The transfer of that estate and interest was brought about by the order of the Family Court, rather than by a transfer of the estate or interest by the bankrupt. For the purposes of ss 120 and 121 of the Bankruptcy Act the transfer of the equitable estate and interest in the matrimonial home was "by the consent orders made on 22 June 2000" and not "by the bankrupt". Accordingly, there has not been a "transfer of property by a person who later becomes a bankrupt".
135 It may have been arguable that the transfer of property pursuant to a court order is a transfer by a court and that the court is "a person". Section 22(1)(a) of the Acts Interpretation Act 1901 (Cth) provides that, unless the contrary intention appears, "person" includes a body politic or corporate as well as an individual. However, as was explained by Lindgren J (with whom Jenkinson and Kiefel JJ agreed) in Kizon v Palmer (1997) 142 ALR 488 at 505-506 authority favours the view that the word "person" does not encompass a reference to a "court". In any event, in the context of ss 120 and 121 of the Bankruptcy Act, it is clear that the transferor must be an individual who may become a bankrupt. It must follow that a transfer of property by a court is not a transfer by a person.
136 Accordingly, an alteration of a property interest by reason of an order of the Family Court, whether made by consent or otherwise under s 79 of the Family Law Act, which transfers an equitable estate or interest in the property to a party to the marriage is not "a transfer of property by a person who later becomes a bankrupt" to another person for the purposes of ss 120 and 121 of the Bankruptcy Act.
137 Of course, the subsequent execution of a transfer in accordance with the court order by the bankrupt to his wife of the bare legal estate held by him in the matrimonial home is a transfer, made pursuant to the consent orders, by the bankrupt of the legal estate and interest in the matrimonial home to another person for the purposes of ss 120 and 121. However, that transfer has little, if any, relevance for a number of reasons. First, as the consent orders resulted in the legal estate and interest being held by the bankrupt and the equitable estate and interest being held by his wife, that was all that was necessary "to establish the relation of trustee and cestui que trust" between the bankrupt and his wife (see Hardoon v Belilios [1901] AC 118 at 123). Because trust property does not form part of the property of the bankrupt which is divisible among creditors (see s 116(2)(a) of the Bankruptcy Act), the legal estate and interest, as trust property, fall outside the scheme of the Bankruptcy Act and there is no occasion for the Official Receiver to make the trust property the subject of a notice under s 139ZQ. Second, as the value of the legal estate and interest is nil there would be no point in the Official Receiver making that estate or interest the subject of a notice under s 139ZQ. Third, as the value of the legal estate and interest is nil and some consideration was in fact paid by the bankrupt's wife the requirement of no, or inadequate, consideration being paid has the result that the consideration requirements in s 120(1)(b) were not satisfied. Also, the equal value of the consideration given and received (ie, nil) results in the precondition for exclusion from s 121(4)(a) being satisfied.
138 For the above reasons the separate transfers of the legal and equitable estate and interest in the matrimonial home to the bankrupt's wife were not void under ss 120 or 121 of the Bankruptcy Act and, as a result, the bankrupt's wife was entitled to have an order made by the primary judge under s 130ZS of the Bankruptcy Act setting aside the notice given by the Official Receiver pursuant to s 130ZQ of the Bankruptcy Act.
139 The contention of the Official Receiver that ss 120 and 121 operate to render void a transfer of property made by an order of the Family Court under s 79 of the Family Law Act might raise a question of the usurpation of judicial power. Section 21(2) of the Family Law Act declares the Family Court to be a superior court of record. An order of the Family Court made under s 79 whether by consent or not or by a Registrar or a Judge, is a final judicial order of the Family Court. In general, judicial orders of superior courts of record are valid until they are set aside on appeal, even if they are made in excess of jurisdiction: see Cameron v Cole [1944] HCA 5; (1944) 68 CLR 571 at 590 and 606; Wilde v Australian Trade Equipment Co Proprietary Limited [1981] HCA 13; (1981) 145 CLR 590 at 602; DMW v CGW [1982] HCA 73; (1982) 151 CLR 491 at 504-505; Ousley v The Queen [1997] HCA 49; (1997) 192 CLR 69 at 107 and 129-130; and Re Macks; Ex parte Saint [2000] HCA 62; (2000) 204 CLR 158 at 235-236 and 274-275. Thus the consent orders, not having been set aside or varied on appeal under s 79A or under s 75(v) of the Constitution, stand as valid and operative. Yet the operation of ss 120 and 121 contended for by the Official Receiver would have the effect of rendering nugatory or nullifying the transfer of an interest in property effected by a valid and final order of a superior court of record.
140 If the legislature enacted legislation that directly interfered with or nullified an order of a superior court of record that could constitute an usurpation of judicial power: see for example Liyanage v The Queen [1965] UKPC 1; [1967] 1 AC 259 at 289-290; Plaut v Spendthrift Farm Inc (1995) 131 L Ed 2d 328 at 355 per Scalia J (joined by Rehnquist CJ, O'Connor, Kennedy, Souter and Thomas JJ); The Queen v Humby; Ex parte Rooney [1973] HCA 63; (1973) 129 CLR 231 at 249; Re Macks; Ex parte Saint [2000] HCA 62; (2000) 204 CLR 158 at 179 and 266 and Nicholas v The Queen [1998] HCA 9; (1998) 193 CLR 173 at 255-256. I doubt that that has occurred in the present case. Sections 120 and 121 are laws of general application and, plainly, were not intended to operate in a manner that interfered with the exercise of judicial power. Further, the operation of the sections was preconditioned on a subsequent event, namely the transferor's bankruptcy. It is unlikely that an interference of that kind would constitute usurpation of judicial power. However, as I have concluded that ss 120 and 121 do not have the operation contended for by the Official Receiver it is unnecessary to further pursue this issue.
141 In Official Trustee in Bankruptcy v Higgins (unreported, Family Court of Australia, Moore J, SY2465 of 2001, 2 September 2002) ("Higgins") Moore J concluded that ss 120 and 121 of the Bankruptcy Act can have the effect of setting aside orders made by the Family Court under s 79 of the Family Law Act. Her Honour expressed her conclusions at [55]-[56]:
"The transfer of property pursuant to s 79 orders is not exempt from the provisions of the Bankruptcy Act. If the circumstances mean that a transfer under such an order is later caught by the voidable transactions provisions of the Bankruptcy Act, then it follows that the transfer is void against the Trustee in bankruptcy. A declaration to that effect is available from the Court exercising bankruptcy jurisdiction and that Court has the power given in s 30 to make such consequential orders as it considers necessary to give effect to the Act, including an order for a further transfer. This does not give rise of itself to any inconsistency of orders. The order made under s 79 of the Family Law Act is subject to the ordinary operation of bankruptcy law and the property dealt with in the order must be that of the parties and not that vested by law in another. I can find no obligation on the Trustee to seek to set the s 79 orders aside by bringing an application under s 79A of the Family Law Act - either to eliminate any perceived inconsistency or to relieve the non-bankrupt spouse from obligations undertaken there. If relief is needed, the non-bankrupt spouse has the remedy available. Not only is there nothing specifically requiring the earlier order to be set aside in either Act, but there is nothing in a reading of either from which it should be inferred that would be a necessary step in the recovery of property for distribution to the bankrupt's creditors.In this case, the concession was made that the transfer was caught by ss 120 and 121. Finding as I do no obligation on the Trustee to have the consent order set aside before the Trustee is entitled to the relief provided there, the declaration and consequential order to give effect to it should be made."
142 The concession made before her Honour that the transfer of property under s 79 "was caught by ss 120 and 121" resulted in her Honour not having to confront the critical question considered in these reasons, being whether such a transfer was "caught" by those statutory provisions. If I had concluded that a transfer of property under an order made pursuant to s 79 of the Family Law Act fell within the express preconditions for the operation of ss 120 and 121 then there may have been much to be said in favour of her Honour's reasoning. However, a quite different result must follow once the conclusion is reached that a transfer under s 79 does not fall within the terms of ss 120 and 121 of the Bankruptcy Act.
143 The conclusion that s 79 orders do not fall within the terms of ss 120 and 121 of the Bankruptcy Act makes it even more imperative that the judges and judicial officers exercising the power to make consent orders under s 79 are aware of the potential for such orders to operate to the detriment of arms length creditors. The Family Court decisions discussed by Moore J in Higgins at [19]-[23] (which include Biltoft v Biltoft (1995) 19 Fam LR 82), demonstrate that, in principle, the Family Court does ascertain the property available for distribution between the parties on the basis of deducting from the value of each party's assets the value of their liabilities. However, as the facts in Higgins and the present case demonstrate, in the usual course the consent order procedure followed for s 79 orders may not involve any real factual investigation as to the interests that might be detrimentally affected by the orders. While the giving of notice to creditors whose interests may be affected by such orders is an appropriate step (see Higgins at [23] and the cases there cited) the fact that such notice might be given does not absolve the Family Court from its duty to ensure that its orders do not operate unjustly or inequitably.
144 As was made clear in Ascot Investments Proprietary Limited v Harper [1981] HCA 1; (1981) 148 CLR 337 at 342 and 354-355 ("Ascot Investments") the Family Court, in exercising its jurisdiction and power in relation to the property interests of the parties to a marriage, is not to ignore the interests of third parties. I agree with the observation of Branson J at [93] that Ascot Investments is authority for the proposition that the Family Court has the power to make an order which affects the obligations of the parties to a marriage, the one to the other and to the children of the marriage, notwithstanding that such an order may affect the position of the third party (eg by reducing the property available to unsecured creditors should a sequestration order be later made against the estate of one of the parties to the marriage). However, it does not follow that, ordinarily, it would be a proper exercise of the power for the Family Court to make orders under s 79 altering property interests if, on the material before the court, the orders would result in the transferor having insufficient assets to discharge his or her liabilities to arms length creditors. There must be a real issue as to whether such orders are just and equitable if their inevitable consequence would be to defeat the claims of those creditors. That issue, however, is a matter for the Family Court.
145 In that regard, in Ascot Investments when Gibbs J stated at 355 that in a s 79 application "the Family Court must take the property of a party to the marriage as it finds it", his Honour appears to have been referring to the qualitative, rather than quantative, aspects of the property in question. However, it is consistent with the general principles enunciated by his Honour, and also with the "just and equitable" requirement in s 79, for the Family Court when exercising its power to alter property interests under s 79 to have regard to the net value of the property available to be shared.
146 In the present case, the Family Court was not accurately informed by the bankrupt of the extent of his liabilities as the Form 12A application did not disclose that the bankrupt was insolvent or that the alteration in property interests would result in the bankrupt being unable to pay his creditors. Thus, the Official Receiver would appear to be in a strong position to apply to the Family Court under s 79A(1)(a) of the Family Law Act for a variation of the orders. While the issue of whether the Official Receiver is a "person affected" by the s 79 orders does not appear to have been finally determined in the Family Court (see Higgins at [32]-[37]) it would be an anomalous outcome if the Official Receiver was not a person affected, given the conclusion reached on this appeal that if the Official Receiver wishes to set aside or vary s 79 orders that may have been consented to by the bankrupt to defeat his creditors, she needs to do so by an application under s 79A.
147 For the above reasons I have concluded that the Official Receiver was in error in giving written notice under s 139ZQ(1) because the transfer of the bankrupt's interest in the matrimonial home was not void against the trustee in bankruptcy pursuant to ss 120 and 121 of the Bankruptcy Act. Accordingly, but for reasons quite different to those given by the primary judge, his Honour was correct in ordering that the notice given by the Official Receiver under s 139ZQ be set aside under s 139ZS. As a consequence the appeal is to be dismissed.
148 I agree that the parties should be afforded an opportunity to put written submissions to the Court on the questions of costs.
I certify that the preceding thirty-three (33) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Merkel. |
Associate:
Dated: 28 February 2003
Counsel for the Appellant: |
P Taylor SC with PB Walsh |
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Solicitor for the Appellant: |
Sally Nash & Co |
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Counsel for the Respondents: |
PL Brereton SC with DP Ash |
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Solicitor for the Respondents: |
Belen Oag, Solicitors |
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Date of Hearing: |
28 August 2002 |
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