Our advice is accurate and up to date. We pride ourselves in being at the forefront of changes in family law.
Forte Family Lawyers is a leading family law firm. Its partners, Jacky Campbell and Wendy Kayler-Thomson, are Accredited Specialists in Family Law and are recognised as leaders in the family law profession in Australia. Bronwyn Drummond, who is also an experienced and well-regarded Accredited Specialist in Family Law, has worked as a Family Dispute Resolution Practitioner and brings a valuable perspective to clients. Our team of lawyers provide expert guidance and high quality services.
Forte Family Lawyers is a leading family law firm. Its partners, Jacky Campbell and Wendy Kayler-Thomson, are Accredited Specialists in Family Law and are recognised as leaders in the family law profession in Australia. Bronwyn Drummond, who is also an experienced and well-regarded Accredited Specialist in Family Law, has worked as a Family Dispute Resolution Practitioner and brings a valuable perspective to clients. Our team of lawyers provide expert guidance and high quality services.
We give strategic advice and representation, drawing upon our extensive experience and knowledge. We provide pragmatic solutions and personalised service and care.
We are mindful of the emotional issues often involved in family and relationship breakdown. We aim to help you reach a negotiated out-of-court settlement. But if court proceedings are necessary, you will be expertly assisted to achieve the best outcome possible.
Forte Family Lawyers is experienced in all aspects of family and relationship law.
Reaching agreement on appropriate arrangements for the care of children after separation is a priority for separating parents.
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Most separated couples need a property and financial settlement following the breakdown of their relationship.
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Prenuptial and other Financial Agreements provide a couple with the comfort of knowing how their assets will be divided.
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Divorce is only one aspect of family law. It is the process of finalising a marriage and is quite separate from sorting out future parenting arrangements and dividing up property.
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Family violence can affect the outcome of parenting disputes, and sometimes financial settlements. Victorian laws offer protection where there has been family violence.
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Child support and spousal maintenance can be important aspects of a financial settlement. We give advice and options as to the best approach and outcome.
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In most cases the law that applies to same sex relationships about parenting and financial issues is the same as the law that applies to heterosexual couples. There are, however, complex laws in relation to parenting.
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We live in a world where people are more likely to move overseas for work and study, or invest overseas, than they did in the past. As a result, separating couples need advice about their rights and entitlements under both Australian and overseas laws.
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Some of the complex asset structures that we regularly deal with include family and unit trusts, companies, partnerships, joint ventures, businesses, property developments, self managed superannuation funds, share options and overseas trusts and assets.
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Separation and bankruptcy often coincide, or one may follow the other. We act for trustees in bankruptcy and the spouse of a bankrupt or potential bankrupt.
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Superannuation is treated as part of the property pool. Superannuation can be complex, particularly defined benefits and self-managed superannuation.
To learn more, click here
There are many ways to resolve family law disputes. The options include negotiation, mediation, family dispute resolution, arbitration and litigation.
To learn more, click here
Sometimes third parties become involved in the family law dispute between a separating couple. A person or a company might be owed money by the couple. Third parties might become involved in the dispute about a property settlement or about the future care of a child.
To learn more, click here
Reaching agreement on appropriate arrangements for the care of children after separation is a priority for separating parents.
We are not just experts in family law, we are also up-to-date on the latest research about children and how to minimise the impact of separation on them. We regularly act for grandparents and other people involved with the children.
We give advice on practical solutions, tailored to each family’s needs.
Most separated couples need a property and financial settlement following the breakdown of their relationship. That settlement will set out the division of their assets, liabilities and superannuation. It is important for that settlement to be legally documented.
The law about property and financial settlements is complex, and the outcome in every case will be dependent on the history of that couples’ relationship. We are experts in providing accurate and up to date advice to our clients about their property settlement entitlements. Wherever possible, we are able to achieve a negotiated outcome, that avoids the need for court action.
Prenuptial and other Financial Agreements provide a couple with the comfort of knowing how their assets will be divided if they later separate. Financial Agreements can be particularly useful where one or both spouses/partners want to protect assets for their children from a former relationship, or if one of them already has accumulated wealth.
Prenuptial and other Financial Agreements will only be binding if certain strict requirements are met. The law about these Agreements is complex. We are experts at carefully drafting and advising on Financial Agreements to ensure that they meet all legal requirements.
We recognise that negotiating Prenuptial Agreements requires sensitivity. We approach this process with care, respecting our client’s ongoing relationship with their partner.
Divorce is only one aspect of family law. It is the process of finalising a marriage and is quite separate from sorting out future parenting arrangements and dividing up property.
We encourage you to apply for your own divorce, as this is an area where lawyers are not generally required. We will advise you if there are particular traps in your case.
Family violence can affect the outcome of parenting disputes, and sometimes financial settlements. Victorian laws offer protection where there has been family violence.
We are experienced in dealing with family violence and allegations of family violence.
We represent clients in State Magistrates’ Courts where intervention orders are sought. We also provide sensitive and practical advice regarding parenting and property disputes in the Family Law Courts where family violence is an issue.
Child support and spousal maintenance can be important aspects of a financial settlement. We give advice and options as to the best approach and outcome, including drafting and advising on child support agreements.
Child support is usually resolved outside the court system. We will discuss child support with you to ensure that the correct amount is being paid, given your overall circumstances. We can assist clients to prepare for applications that will be decided upon by the Department of Human Services – Child Support.
We also advise clients about whether they can make a successful claim for spousal maintenance, or how to defend a claim made against them. We regularly draft Financial Agreements in relation to protection from future spousal maintenance claims.
In most cases the law that applies to same sex relationships about parenting and financial issues is the same as the law that applies to heterosexual couples. There are, however, complex laws in relation to parenting, including who is a legal parent, the rights of social parents and who is liable to pay child support.
We often act for clients in same sex relationships. Forte Family Lawyers has a long history of supporting the recognition of equality of rights for same sex couples. Happily, most of the complexities for same sex couples navigating the family law system have been removed.
Because of our particular speciality in assisted reproductive laws, we can provide expert advice about the complexities of parentage law and how it applies to same sex couples.
We live in a world where people are more likely to move overseas for work and study, or invest overseas, than they did in the past. As a result, separating couples need advice about their rights and entitlements under both Australian and overseas laws.
We regularly act for clients who live overseas, or who own assets in both Australia and overseas. We ensure that any overseas assets are dealt with in any Australian property settlement and, where possible, that any Australian orders are enforceable overseas. We also advise clients who are or have been involved in overseas court processes and want orders enforced or varied in Australia.
We also advise our international clients about child support and whether it should be determined in the country where the children live, the payer lives, or the payee lives.
We have international alliances through the International Academy of Family Lawyers and the American Bar Association. We have access to family lawyers in most countries. We liaise with overseas lawyers where necessary.
Many people’s financial affairs are complex, and they need expert advice about how to deal with these complexities as part of their family law property settlement. Some of the complex asset structures that we regularly deal with include family and unit trusts, companies, partnerships, joint ventures, businesses, property developments, self managed superannuation funds, share options and overseas trusts and assets.
We provide expert and strategic advice about how to best deal with complex asset structures in a family law property settlement. We work closely with accountants, financial advisors and tax lawyers to ensure that property settlements do not trigger unnecessary tax consequences.
We assist our clients who have not been actively involved in the family’s financial affairs to understand those arrangements.
Separation and bankruptcy often coincide, or one may follow the other. Amendments were made to both the Family Law Act and the Bankruptcy Act so that disputes are usually decided together in the same court—either the Family Court or the Federal Circuit Court.
We are conscious when resolving financial matters that the settlement may need to survive bankruptcy.
We act for trustees in bankruptcy, receivers, liquidators and non-bankrupt spouses in family law matters. We can help guide you through the inter-relationship of bankruptcy law, family law and insolvency, and assist you to decide on the correct strategy, the most appropriate court and the best time to act.
Superannuation is treated as part of the property pool. Superannuation can be complex, particularly defined benefits and self-managed superannuation.
We have expertise in giving advice and negotiating the fair division of superannuation. We take particular care to ensure that all of the complexities associated with superannuation are taken into account, including tax consequences.
We look at the nature, form and characteristics of each superannuation entitlement and provide advice regarding the specific circumstances of each couple.
There are many ways to resolve family law disputes. The options include negotiation, mediation, family dispute resolution, arbitration and litigation. Most of our clients, with our assistance, are able to achieve a negotiated outcome. If they cannot, we give strategic advice about litigation and are pro-active in the conduct of litigation.
We are experienced in all aspects of dispute resolution, and can support you through dispute resolution processes which do not involve lawyers (such as family dispute resolution), through to processes involving lawyers such as negotiation and mediation to litigation—if that is necessary.
Sometimes third parties become involved in the family law dispute between a separating couple. A person or a company might be owed money by the couple. Extended family members and business partners may have rights which might be affected by a property settlement between the couple. Third parties might become involved in the dispute about a property settlement or about the future care of a child.
We regularly represent third parties such as creditors, trustees in bankruptcy, parents, grandparents and siblings, family trusts, companies and business partners. We provide expert advice and strategic options to best protect your rights.
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Lawyer
01.
Will de-federation of the Family Court fix fragmentation of family law? An analysis of the ALRC’s final report on family law
Jacky Campbell. June 2019.
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02.
The Family Court: Restructure, Destruction or Fade Away?
Jacky Campbell. November 2018.
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04.
Tomaras– is the Family Law Act an escape hatch to avoid tax?
Jacky Campbell. February 2019.
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05.
The Micawber principles: When bankruptcy and Family Law Collide
Jacky Campbell. October 2019.
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07.
Treaties and international agreements relevant to family law proceedings in Australia
Jacky Campbell. February 2019.
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08.
Bullet-proof financial agreements—rare as hens’ teeth? Looking at financial agreements after Thorne v Kennedy
Jacky Campbell. November 2018.
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Negative property pools and who will wear the debt
1 Introduction There are two ways to approach this question: one can consider property pools where the debts outweigh the parties’ modest equity in a home and superannuation. As these cases are rarely litigated because the costs are disproportionate to the property pool, it is difficult to draw any principles from them. For example, in […]
Jacky Campbell. November 2019.
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Eight tips on add-backs
Add-backs in proceedings for the alteration of property interests under the Family Law Act 1975 (Cth) (FLA) occur when the court adds back funds or other property to the property of the parties, when funds or other property has been used by one of the parties for their own purposes, usually after separation. The categories […]
Jacky Campbell. October 2019.
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Eight tips for dealing with overseas property
In these increasingly mobile times, the family law courts are often faced with the question of how to deal with property which is located overseas, such as bank accounts, superannuation and real property. Does Australia have jurisdiction to deal with part or all of the overseas property? The test is that Australia is not a […]
Jacky Campbell. October 2019.
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Will de-federation of the Family Court fix fragmentation of family law? An analysis of the ALRC’s final report on family law
Family law never stagnates. Legislative reforms since the introduction of the Family Law Act 1975 (Cth) have often either followed societal developments or, more frequently, led or accompanied them. However, the next 12 months has the potential for even greater change for family lawyers, the family law courts and parties than has ever occurred in […]
Jacky Campbell. June 2019.
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Family Law and Health Care Decision Making for Children
Introduction A person’s consent is generally required in Australia before medical treatment can be provided. People are not required to provide that consent, and there are various reasons why they may withhold their consent. The issue of consent is, however, complicated when the patient lacks the requisite capacity to provide consent and when people who […]
Jacky Campbell and Hayley Chester. July 2019.
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Hall, the High Court and spousal maintenance
The High Court considered spousal maintenance and the term “financial resources” in Hall v Hall (2016) FLC 93-709. An earlier article discussing the decisions of the trial judge and the Full Court in detail and can be read here. Overview The High Court, in Hall, considered: The meaning of “financial resources” in s 75(2)(b) Family […]
Jacky Campbell. August 2016.
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Superannuation Splitting Agreements and Orders
Introduction The Family Law Legislation Amendment (Superannuation) Act 2001 (“the FL Superannuation Act”) and associated regulations started on 28 December 2002. This paper looks at the practicalities of drafting orders and superannuation agreements, not valuation of superannuation interests and what percentage split should be made to the non-member. Part VIIIB Family Law Act 1975 (Cth) (FLA) […]
Jacky Campbell. June 2019.
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The Family Court: Restructure, Destruction or Fade Away?
“Don’t it always seem to go That you don’t know what you’ve got till it’s gone They paved paradise And put up a parking lot” “Big Yellow Taxi” by Joni Mitchell The Family Court of Australia (FCofA) was established in 1976 as a best practice model offering in-house alternative dispute resolution such as mediation and […]
Jacky Campbell. November 2018.
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The Truly Binding Finanical Agreement – Is concise drafting the key?
In a post Thorne v Kennedy [2017] HCA 49; (2017) FLC 93-807 landscape, it has never been more important to draft financial agreements with precision, fairness and full disclosure. This paper concentrates on the drafting essentials to minimise the risk of a financial agreement being found not to be binding or being set aside. It […]
Jacky Campbell. May 2019.
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Financial Agreements: still worth the candle?
Post Thorne v Kennedy (2017) FLC 93-807, family lawyers and clients have reconsidered the worth of financial agreements under the Family Law Act 1975 (FLA). At the outset, it is impossible to guarantee to clients that financial agreements are binding and will not be set aside. Lawyers can, however, take steps to reduce the risks. […]
Jacky Campbell. May 2019.
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Tomaras– is the Family Law Act an escape hatch to avoid tax?
The Australian Taxation Office recently appealed to the High Court of Australia on the question of whether there was power under the Family Law Act 1975 (FLA) for the husband to be substituted for the wife in relation to a tax debt owed by the wife of over $250,000 plus interest. In Commissioner of Taxation […]
Jacky Campbell. February 2019.
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Thorne v Kennedy—has the High Court hung financial agreements out to dry?
There has been a strong reaction, almost panic-stricken, in the media and by lawyers to the first examination of financial agreements by the High Court. Is this reaction justified? Has the High Court hung financial agreements out to dry, or are they still a viable option? In Thorne v Kennedy [2017] HCA 49; (2017) FLC […]
Jacky Campbell. November 2017.
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The Micawber principles: When bankruptcy and Family Law Collide
1. Introduction Why is this paper called “The Micawber principles”? Mr Micawber, in Charles Dickens’ David Copperfield is the eternal optimist. His famous phrase “Something will turn up” is probably reflective of why many people end up bankrupt. Judge Driver, in a case referred to in this paper, described a bankrupt as Mr Micawber. Bankruptcy issues […]
Jacky Campbell. October 2019.
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Australian Law Reform Commission discussion paper
The Australian Law Reform Commission Discussion Paper on the Review of the Family Law System was released on 2 October 2018. The Discussion Paper is over 300 pages, asks 33 questions and makes 124 proposals for changes to the family law system. Many other proposals and suggestions are embedded in the Discussion Paper and are […]
Jacky Campbell. October 2018.
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Hot Cases in family law – 2018
The most important cases in 2018 have been diverse. This paper looks at some of these. Financial agreements continue to raise new legal issues, and defining a de facto relationship continues to be far more problematic than one would expect. An unusual case involved the ability of an adult child to access the court file […]
Jacky Campbell. October 2018.
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Gloomfield – why subject matter is so important in financial agreements
The subject matter of a financial agreement is important. The parties and their lawyers overlooked this fundamental and preliminary point in the long-running Bloomfield & Grainger litigation which commenced in 2014 and ended in 2018. There were many hearings at which no issue was taken as to whether or not the litigation was about a […]
Jacky Campbell. March 2018.
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But wait – there are more amendments to the Family Law Act in 2018
The two Bills restructuring the Family Law Courts have been delayed by Parliament for further consideration in 2019. This gave family lawyers hope that 2018 would be a quiet legislative year. But, we were mistaken. Instead, the floodgates have opened. First we had the Family Law Amendment (Family Violence and Other Measures) Act 2018, [see […]
. October 2018.
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Family Violence – changes to the Family Law Act
The Family Law Amendment (Family Violence & Other Measures) Act 2018 (“Family Violence Act”) commenced operation on 1 September 2018. Its changes will impact on the law, practice and procedures in family law matters, not only where there are family violence orders. Although the Bill received considerable attention when it was introduced to Parliament on […]
Jacky Campbell. November 2018.
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Verbiage or substance? – High Court to examine Family Court’s ability to assign tax debts.
The ability of Pt VIIIAA Family Law Act 1975 (FLA) to be used to assign the tax debt of one spouse to another will be examined by the High Court. The decision may have implications for the operation of Part VIIIAA for third parties who are not the Commissioner of Taxation, but the decision is […]
Jacky Campbell. April 2018.
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Treaties and international agreements relevant to family law proceedings in Australia
In family law disputes, the parties often have a significant connection to Australia: they are born here or have become Australian citizens, they have all or most of their property here, and they live in Australia when they separate. But, there are also many cases where parties separate in circumstances where they were born overseas, […]
Jacky Campbell. February 2019.
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Bullet-proof financial agreements—rare as hens’ teeth? Looking at financial agreements after Thorne v Kennedy
There is probably no other aspect of family law which has been subject to such a barrage of legislative changes, prospective legislative changes and contradictory judgments, than financial agreements. The High Court delivered its judgment in Thorne v Kennedy [2017] HCA 49; (2017) FLC 93-807 on 8 November 2017, apparently changing the law, yet again. […]
Jacky Campbell. November 2018.
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Shining a torch on the bleakness of parental alienation – Solicitors in the coalmine
This paper is not an analysis of the psychological literature, but is written from the perspective of a solicitor who acts for parents who display alienating behaviour to their former partners and parents whose relationship with their children appear to have been damaged or may be in the process of being damaged by the behaviour […]
Jacky Campbell. August 2018.
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5 top tips for preparing financial agreements after Thorne v Kennedy
If you think that the law relating to financial agreements changes faster than Australia changes Prime Ministers, you’re right. The High Court in Thorne v Kennedy (2017) FLC 93-807 added to the complexity. Here are the 5 top tips for preparing financial agreements in the wake of Thorne v Kennedy: The stronger party should be […]
Jacky Campbell. March 2018.
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Gloomfield – why subject matter is so important in financial agreements
The subject matter of a financial agreement is important. The parties and their lawyers overlooked this fundamental and preliminary point in the long-running Bloomfield & Grainger litigation which commenced in 2014 and ended in 2018. There were many hearings at which no issue was taken as to whether or not the litigation was about a […]
Jacky Campbell. March 2018.
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Hot Cases in Family Law 2017
Even before the delivery of the judgment by the High Court in Thorne & Kennedy on 8 November 2017, a financial agreement case, there have been major developments under the Family Law Act 1975 (FLA) in case law in 2017. This paper covers: Wallis & Manning – contributions and comparable cases. Calvin & McTier – […]
Jacky Campbell. November 2017.
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Escaping tax debts? Is this the brave new world of Pt VIIIAA Family Law Act?
Minimising tax paid, if not actively evading tax, is considered by many family law clients to be a justifiable activity or even a national sport. The power of the Family Law Courts to use Pt VIIIA Family Law Act 1975 (“FLA”) to assign a taxation debt owed by one party to a relationship to the […]
Jacky Campbell. November 2017.
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Property—the latest on contributions and superannuation
The assessment of contributions to property is a fraught area. Clients often want to argue that their contributions should be given more weight. This is particularly problematic when dealing with initial contributions, post-separation contributions, windfall such as inheritance and Tattslotto wins. This paper gives some background to the problems and discusses recent cases. CONTRIBUTIONS Mallet […]
Jacky Campbell. July 2017.
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Section 79A – setting aside property settlement orders: Procedural courtroom challenges in Family Law
There has been much hype around the setting aside of financial agreements, particularly following Thorne v Kennedy (2017) FLC 93-807. Additional uncertainty arises as to whether financial agreements are binding or can be “saved”. Consent orders are the fall-back and perhaps less risky option to settle property matters following a separation and provide some protection […]
Jacky Campbell. August 2018.
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High Court to rule on financial agreements
How do the concepts of duress, undue influence and unconscionability apply to the setting aside of financial agreements? Are they alternative arguments or overlapping? Does the giving of legal advice mean that a financial agreement cannot be set aside for duress? These are the types of questions which may be addressed in a forthcoming decision […]
Jacky Campbell. April 2017.
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Bankruptcy, financial agreements and the rights of creditors
The Full Court of the Family Court of Australia in Grainger & Bloomfield considered the standing of a creditor to apply to set aside a financial agreement after the debtor spouse became a bankrupt. Shortly prior to the bankruptcy, the bankrupt spouse transferred her legal title in the home to her husband, which left the creditor unable […]
Jacky Campbell. April 2016.
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Two recent cases on setting aside financial agreements
Introduction There are complex legal principles involved in drafting a financial agreement which will stand up to court scrutiny. There are two main risks: The agreement is found not to be binding because it does not meet the technical requirements; and The agreement is set aside. Two recent cases illustrate the problems. In Saintclaire & […]
Jacky Campbell. June 2016.
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Battling over Benji – contributions or best interests?
Recently, the Family Court declined to make interim property orders about a dog, leaving the parties to wait for a final hearing to determine the issue. This article looks at whether that was the right decision and what other options are available for parties to resolve disputes about “pet custody”. The distress and trauma for […]
Jacky Campbell. April 2018.
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Introduction to Wolters Kluwer Australian Family Law Act 1975 book
Introduction Foreshadowed major legislative changes to financial agreements and other aspects of the Family Law Act 1975 did not eventuate in the past 12 months, but the changes to that Act and the Family Law Rules 2004 were sufficient to mean that there have been many changes to this Book. The most significant amendments relate […]
Jacky Campbell. November 2017.
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Hot cases in Family Law 2017
Even before the delivery of the judgment by the High Court in Thorne & Kennedy on 8 November 2017, a financial agreement case, there have been major developments under the Family Law Act 1975 (FLA) in case law in 2017. This paper covers: Wallis & Manning – contributions and comparable cases. Calvin & McTier – […]
Jacky Campbell. November 2017.
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Hot cases in Family Law 2016
In the last 12 months or so there have been some significant cases under the Family Law Act 1975. Those dealt with in this article cover: Spousal maintenance – Hall The definition of “financial resource” Life expectancy – Fontana A lottery win early in the marriage Add-backs Bankruptcy basics Whether a financial agreement can be […]
Jacky Campbell. November 2016.
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Polygamous marriages recognised under Australian law—but not gay marriages
In 2004, Prime Minister John Howard amended the Marriage Act 1961 (Cth) to expressly restrict the ability of couples to marry, unless they are a heterosexual couple. In Ghazel & Ghazel [2016] FamCAFC 31, the Full Court of the Family Court of Australia considered the question of whether an unintended consequence of the amendments was […]
Jacky Campbell. March 2016.
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Which country? The “clearly inappropriate forum” test in Australian family law
In deciding whether Australia should exercise jurisdiction in proceedings under the Family Law Act 1975 (“the Act”) , the usual test is whether or not Australia is a “clearly inappropriate forum”. The application of the “clearly inappropriate forum” test was recently considered in Deslandes & Deslandes. In that case, the parties lived in France for 5 years, sailed […]
Jacky Campbell. December 2015.
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Which country? New Zealand vs Australia—a special case
The “forum non conveniens” test does not apply when determining which forum should determine a family law dispute when the contest is between Australia and New Zealand. An example of the application of the test which applies to these forum disputes occurred in Nevill & Nevill. In that case, the wife issued property proceedings in Australia. The husband […]
Jacky Campbell. December 2015.
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Introduction to Wolters Kluwer Australian Family Law Act 1975 book
Every year there are obvious amendments to family law legislation, but also many other pieces of legislation which do not, by reference to their name, alert family lawyers to their relevance. These amendments are, of course, incorporated into the online version of the Autsralian Family Law Act 1975 with Regulations and Rules as they occur. […]
Jacky Campbell. November 2016.
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Introduction to CCH Australian Family Law Act 1975 book
Introduction Legislative change in family law has been unusually slow in the past 18 months which has allowed time for the Family Law Courts to consider and consolidate their approach to recent legislative and judicial changes. Since the last edition of this book, there have been two sets of amendments to the Family Law Rules […]
Jacky Campbell. November 2015.
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Introduction to CCH Australian Family Law Act 1975 book
Introduction The most sweeping change to the legislation in this book since the publication of the last edition was the renaming of the Federal Magistrates Court of Australia as the Federal Circuit Court of Australia. This received widespread publicity. Less publicised was the insertion of two further Parts into the Family Law Act 1975 (“the […]
Jacky Campbell. November 2013.
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Introduction to CCH Australian Family Law Act 1975 book
Introduction During the past 12 months there have been two major changes to the Family Law Act 1975 (“the Act”), two sets of changes to the Family Law Rules 2004 and to the Family Law Regulations 1984 and one set of changes to the Federal Magistrates Court Rules 2001. Other legislation has made relatively minor […]
Jacky Campbell. November 2012.
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Wrangling over Rover—who gets the dog after a relationship breakdown?
Dogs, cats and other pets are often treated as members of the family, more so than in the past. This trend is particularly obvious with dogs. The cost of, and demand for, designer dog breeds like cavoodles and labradoodles is high. They are given human names like Lucy or Charlie – not Rover or Fido […]
Jacky Campbell. May 2017.
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Which country? Child abduction proceedings, undertakings and maintenance orders
International mobility continues to increase through greater travel and work opportunities, and the number of cases dealt with by the Family Law Courts continues to increase exponentially. The difficulties involved with resolving financial disputes at the end of a relationship are often more complicated if there are children. Parties often want to return to their “home” country […]
Jacky Campbell. December 2015.
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Bankruptcy, financial agreements and the rights of creditors
The Full Court of the Family Court of Australia in Grainger & Bloomfield considered the standing of a creditor to apply to set aside a financial agreement after the debtor spouse became a bankrupt. Shortly prior to the bankruptcy, the bankrupt spouse transferred her legal title in the home to her husband, which left the creditor unable […]
Jacky Campbell. April 2016.
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The rights of trustees in bankruptcy and s 75(2)(ha)
Trustees in bankruptcy are often pessimistic about how they will fare in proceedings under s 79 Family Law Act 1975 (“FLA”). The recent case of Grainger & Bloomfield is likely to increase this pessimism. The impact of s 75(2) in the determination of claims under s 79 when one party is bankrupt may be less than indicated in previous […]
Jacky Campbell. April 2016.
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Stanford, bankruptcy and unsecured liabilities—options and opportunities
The High Court decision of Stanford v Stanford has implications for trustees in bankruptcy and non-bankrupt spouses who are parties to property proceedings under s 79 Family Law Act (“FLA”). This paper explores some of the possibilities, challenges and opportunities raised by one of the rare occasions when the High Court has deliberated on what s […]
Jacky Campbell. March 2015.
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When family law meets bankruptcy
Background Before 2005 trustees and non-bankrupt spouses were often engaged in races to commence or complete litigation in different courts. The Bankruptcy and Family Law Legislation Amendment Act 2005 (“the 2005 Act”) applies to bankruptcies for which the date of bankruptcy was on or after 18 September 2005. The solution was ostensibly simple, that all […]
Jacky Campbell. February 2015.
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Stanford—implications for trustees in bankruptcy
The recent High Court decision of Stanford v Stanford (2012) FLC 93-518 has possible implications for trustees in bankruptcy involved in or contemplating property proceedings under s 79 Family Law Act (“the Act)”. The facts of the case and its general implications are set out in another article by the writer on CCH Law Chat […]
Jacky Campbell. January 2013.
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The Baby Gammy case
Recently, the Family Court of Western Australia delivered judgment in the “Baby Gammy” case. Although colloquially called the “Baby Gammy” case, the Court was asked to determine the parenting arrangements which were in the best interests of Pipah (Baby Gammy’s twin sister).The lengthy judgment of almost 800 paragraphs and 190 pages is reported as Farnell […]
Jacky Campbell. June 2016.
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Surrogacy—tip toeing through a legal minefield
Understanding inconsistency in the law between states in Australia presents problems for practitioners and their clients. Navigating the many legal barriers facing those desperate for a child, who battle bureaucracies and the legal systems of Australia and other nations, is a major challenge. There is also a significant amount of misinformation available to clients about […]
Jacky Campbell. February 2014.
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Subpoenas—more changes to procedures in the Family Court
A new year always brings changes to the Family Law Rules 2004. The year 2016 is no exception. The Family Law Amendment (Arbitration & Other Measures) Rules 2016 reform three major areas of the Family Law Rules: A new Chapter 26B dealing with arbitration. Amendments with respect to subpoenas. A new Division 4.2.8 dealing with […]
Jacky Campbell. January 2016.
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Privilege against self-incrimination in family law proceedings
Family lawyers often struggle with the timing of when to seek a certificate for their client under s 128 Evidence Act 1995 (Cth). Section 128 deals with the privilege against self-incrimination. A certificate is commonly sought to protect a client from criminal charges, such as for tax or Centrelink fraud. Recent decisions of the Family Court […]
Jacky Campbell. November 2015.
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Subpoenas, the costs of production and opposing production
Subpoenas are often an extremely useful way to obtain documents which are not produced through the usual disclosure process under the Rules of the Family Law Courts. For example, subpoenas can be used: As an alternative to enforcing disclosure; or To obtain documents which are not subject to the duty of disclosure because they are […]
Jacky Campbell. November 2015.
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Another Strahan case—loss of legal professional privilege
Legal professional privilege is the privilege of the client, but lawyers need to ensure that the privilege is not unintentionally lost. Sometimes it is lost by waiver, but it can be lost in other ways. The Full Court of the Family Court, in another appeal in the protracted Strahan litigation, Strahan & Strahan [2013] FamCAFC […]
Jacky Campbell. April 2014.
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High Court to consider spousal maintenance
In a rare foray into the Family Law Act 1975, and an even rarer foray into the entitlements of parties to an order for spousal maintenance and particularly interim spousal maintenance, the High Court has granted special leave to the wife to appeal (Hall v Hall [2016] HCA Trans 23) against a decision of the […]
Jacky Campbell. March 2016.
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Having it all
Each generation of women faces different challenges with careers and family. I believe the generation before mine faced greater ones than I did. Bizarrely, I also believe the current generation of female law graduates face greater challenges than me. I was born in 1961, the last Baby Boomer year. Older Baby Boomers and the pre-war […]
Jacky Campbell. December 2013.
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Superannuation splitting scheme: assessing contributions and s 75(2) factors
Introduction The ability to split superannuation as part of adjusting property interests between the parties at the end of a de facto relationship or marriage offers opportunities and challenges to family lawyers and clients. This paper first gives a general overview of the superannuation splitting scheme and then looks at applying s 79(4) of the Family […]
Jacky Campbell. June 2014.
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Asset split in Family Court matter: financial planner’s report was significant
Thomson Reuters Weekly Tax Bulletin & Thomson Reuters Separation and Financial Services Bulletin Family Court proceedings are fraught enough as it is with the emotional issues involved. But the necessity of splitting assets etc frequently brings in tax and superannuation issues … and therefore much complexity (and more emotional angst). A recent Family Court case […]
Jacky Campbell. June 2013.
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Interim property settlements and the treatment of legal costs post Stanford and Bevan
I have found that family lawyers generally fall into one of 2 camps when considering the impact of the High Court of Australia’s decision in Stanford. There is one camp who submits that the decision can be limited to its extraordinary facts, and that its general comments on the way that a Court should approach […]
Wendy Kayler-Thomson. August 2014.
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Financial agreements—more legislative amendments coming in 2016
Changes are pending in Federal Parliament to the financial agreement provisions in the Family Law Act 1975 (“the Act”), particularly in relation to the following: Requirements to be binding; Grounds for setting them aside; and Spousal maintenance. The Family Law Amendment (Financial Agreements and Other Measures) Bill 2015 (“the Bill”) includes significant amendments to Pt VIIIA (financial agreements for married couples) and […]
Jacky Campbell. December 2015.
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Opposing the enforcement of a financial agreement – a second bite of the cherry?
There have been few reported cases with respect to the enforcement of financial agreements. Recently, the Family Court had to decide whether having previously refused to set aside a financial agreement or make a declaration that it was not binding, it could exercise its discretion not to enforce the agreement. In Fan & Lok the wife’s […]
Jacky Campbell. November 2015.
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A Porsche, a cemetery plot, $900,000 and the Sergeant Schultz defence: Lawyers sued for failure of cohabitation agreement
A husband is suing his lawyers because his cohabitation agreement was not validly executedThe Family Court ordered that his former de facto wife was entitled to retain the husband’s Porsche with a personalised number plate, his cemetery plot and $900,000 cash. His lawyers’ defence is reminiscent of Sergeant Schultz famous words from the television show […]
Jacky Campbell. November 2015.
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Financial agreements and the law of contract: grounds for setting aside
Introduction Besides the difficulties encountered by lawyers trying to navigate the complexities of Pt VIIIA (and the equivalent, but not precisely the same, provisions for de facto couples in Pt VIIIAB) including the retrospective amendments of s 90G(1) and the transitional provisions, family lawyers need knowledge of contract law. They must apply contractual principles when […]
Jacky Campbell. March 2015.
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The ever changing landscape of financial agreements
In the last couple of years the earlier enthusiasm of legal practitioners for financial agreements has waned. A steady stream of reported cases has alerted legal practitioners to the technical difficulties of meeting the requirements of the Family Law Act 1975 (“the Act”), the broad grounds upon which agreements can be set aside, and the […]
Jacky Campbell. August 2013.
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Binding financial agreements unbound
The Family Court’s decision in Parker & Parker has important implications for financial agreements and legal professional privilege. Parker & Parker, delivered by the Full Court of the Family Court on 7 March 2012, is arguably the most significant decision on financial agreements since Black & Black. The Full Court in Parker has confirmed that […]
Jacky Campbell. November 2012.
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Non-compliant self-managed superannuation funds in family law proceedings
Under the Family Law Act 1975, the Family Law Courts have power to make orders splitting superannuation so as to achieve a just and equitable outcome which might not otherwise be possible if only non-superannuation interests are adjusted between the parties. Particular problems arise however when self-managed superannuation funds are found to be non-compliant. A […]
Jacky Campbell. June 2014.
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Proving the existence of de facto relationships in family matters: finding certainty in murky waters
Introduction Since 1 March 2009 the Family Court and the Federal Circuit Court have been able to deal with property and maintenance disputes under the Family Law Act 1975 between de facto couples in all states and territories except Western Australia (and South Australia since 1 July 2010). The first part of this paper sets […]
Jacky Campbell. July 2018.
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Registration of de facto relationships in Victoria – proposed changes
De facto couples can register their relationships in Victoria. This has several consequences, including bringing the relationship within the definition of “de facto relationship” for the purposes of the Family Law Act 1975. The usual jurisdictional hurdles, such as a relationship of two years or having a child, do not apply. The couple will, however, […]
Jacky Campbell. January 2016.
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Essentials in de facto property law
Introduction Since 1 March 2009 the Family Law Courts have been able to deal with property and maintenance disputes between de facto couples in all states except Western Australia (and South Australia since 1 July 2010). This paper does not deal with the jurisdiction of the State and Territory courts to deal with property disputes […]
Jacky Campbell. July 2012.
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Part VIIIAB financial agreements—not quite part VIIIA
It might be assumed that financial agreements between de facto partners under the Family Law Act 1975 (“the Act”) have the same requirements and consequences as financial agreements between couples who are intending to marry, married or divorced. This is not so. As a result, the legal advice required to be given is different for […]
Jacky Campbell. May 2012.
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Comparable cases—the controversy about their importance
In university law courses, the importance of precedents is emphasised – ratio decidendi and obiter dicta are prevalent phrases. Bewilderingly, family lawyers advising clients are confronted with the breadth of the court’s seemingly unfettered discretion and unpredictability of outcomes. Recently, the Full Court in Wallis & Manning (2017) FLC 93-759 gave some hope that a […]
Jacky Campbell. April 2017.
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Post-separation property “windfalls”—crack the champagne or back to court?
When one of the parties receives a “windfall”, such as an inheritance or a Tattslotto win, after separation, the recipient may seek to “quarantine” it on the basis that the other party had not contributed to it. Even if it is not quarantined, should the contribution of a post-separation “windfall” be given more weight than […]
Jacky Campbell. March 2017.
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Contribution of pre-marriage skills and experience
“Special” contributions are out, but how much recognition should pre-marital skills and experience be given? This issue was considered in Pfenning & Snow. The husband unsuccessfully sought a 40% disparity in the outcome of the alteration of the parties’ property interests, based on an assessment of his financial contributions by reference to his working life […]
Jacky Campbell. May 2016.
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When s 79 orders are made when the Family Court is unaware of the death of one of the parties
What happens if a court makes a property settlement order under s 79 Family Law Act 1975 (Cth) (“the Act”) after a party dies, without the court having knowledge of the death? This was the dilemma faced by the Family Court of Western Australia in Mooney & Mooney, where the court had made an order dismissing […]
Jacky Campbell. December 2015.
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High Court declines opportunity to determine guidelines for post-separation “windfalls”
Two members of the High Court, including the Chief Justice, recently declined the opportunity to develop principles for the assessment of post-separation windfalls and contributions generally. In Singerson v Joans the High Court refused the husband’s application for leave to appeal against the decision of the Full Court of the Family Court in Singerson & Joans. […]
Jacky Campbell. October 2015.
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Dealing with uncertain liabilities
Recently, the Full Court of the Family Court in Trask & Westlake said that for orders to be “just and equitable” and “appropriate”, they needed to reflect the reasons in the judgment. This seems obvious, but when a real property is to be sold pursuant to orders, the precise sale price is unknown. In Trask, on […]
Jacky Campbell. October 2015.
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Stanford—is the Full Court in reverse or just changing gears?
The Full Court of the Family Court has considered the impact of the High Court’s decision in Stanford v Stanford in several cases. In particular, the Full Court in Bevan & Bevan and Chapman & Chapman rejected the notion that Stanford required that the court be satisfied that it was just and equitable to make an […]
Jacky Campbell. October 2015.
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Full Court prefers formulas in property orders
The Full Court of the Family Court in Trask & Westlake recently explained the form of orders which should be made when real properties are to be sold. The orders made by the Full Court were more complex than the Family Law Courts usually make, using a mathematical formula to give a more precise percentage outcome. […]
Jacky Campbell. September 2015.
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Does a trustee owe a duty of notification to a discretionary beneficiary?
In Segelov v Ernst & Young Services Pty Ltd [2015] NSWCA 156, the New South Wales Court of Appeal considered the question of whether a trustee owed a duty of notification to a beneficiary of a discretionary trust. The beneficiary did not know that she was a beneficiary of the trust or that she received […]
Jacky Campbell. June 2015.
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Stanford—whatever happened to the four steps?
Introduction Judgment was delivered by the High Court in Stanford v Stanford on 14 November 2012. In a rare examination of the Family Law Act 1975 (“the Act”) and particularly s 79, the High Court stated its views regarding: Whether an order for alteration of property interests can be made under s 79 if parties are […]
Jacky Campbell. November 2013.
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Implications arising from Stanford
Judgment was delivered by the High Court in Stanford v Stanford on 14 November 2012. In a rare examination of the Act and particularly s 79, the High Court stated its views regarding: Whether an order for alteration of property interests can be made under s 79 if parties are not separated or are “involuntarily” separated. […]
Jacky Campbell. September 2013.
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Divorce, death and ageing—what happens when one spouse dies?
This paper deals with: The effect of death (and imminent death) and ageing on the property aspects of matrimonial and de facto relationship breakdown under the Family Law Act; and The law relating to the care of children when one parent dies. Death of a party before property proceedings are issued Section 79 proceedings for […]
Wendy Kayler-Thomson. October 2013.
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Stanford—the High Court decision
Introduction Judgment was delivered by the High Court in Stanford v Stanford on 14 November 2012. In a rare examination of the Family Law Act 1975 (“the Act”) and particularly s 79, the High Court stated its views regarding: Whether an order for alteration of property interests can be made under s 79 if parties are […]
Jacky Campbell. December 2012.
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Valuing a haunted house
Does a resident ghost increase or decrease the value of a home? Unfortunately, this important issue remains unresolved in Australia although in Descas & Descas [2013] FMCAfam 69, the wife tried to argue that it had a detrimental effect on the home’s value. There is some overseas evidence which suggests that a ghost can reduce […]
Jacky Campbell. February 2013.
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Jacky Campbell, November 2019
There are two ways to approach this question: one can consider property pools where the debts outweigh the parties’ modest equity in a home and superannuation. As these cases are rarely litigated because the costs are disproportionate to the property pool, it is difficult to draw any principles from them. For example, in Abadi & Sofer [2019] FCCA 8 the property pool was $100,000 and the wife’s costs were $66,000. Sometimes these types of cases are litigated to determine who will be liable for a debt and to ensure that property is sold so the parties have no future liability or limit their liability.
This paper deals with cases where the gross property pool is large, but the debts are so significant that they cannot be paid out from all the available property. In some cases this may mean that one party ends up with only debt whereas the other party retains property with little or no debt. The position is more complicated if the party bearing the debt becomes bankrupt and is likely to do so.
It is important to bear in mind that lawyers are expected to ensure that costs are proportionate to the property pool. The Australian Law Reform Commission in its Final Report “Family Law for the Future – An Inquiry into the Family Law System” spent several pages discussing the need for proportionality although it did not make a specific recommendation. There is also pressure from the media and the courts for this. Proportionality is not an easy principle to apply to negative property pools.
This paper covers the basics of debts in s 79 proceedings, but also some of the more complex issues such as bankruptcy and the equity of exoneration.
The principles in relation to debts in proceedings under s 79 FLA were summarised by Evatt CJ in Prince & Prince (1984) FLC 91-501 at p 79,076:
Prior to Stanford v Stanford (2012) FLC 93-518, it was clear that the debts of the parties had to be identified and carefully considered as to whether they should reduce the property pool or be borne by one party, usually the party in whose name the debt was in, unless it is assigned under Pt VIIIAA or an indemnity given.
In Biltoft & Biltoft (1995) FLC 92-614 the Full Court looked at the position of unsecured creditors saying (at [52]):
“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… Gibbs J. (as he then was) pointed out at p 355 [in Ascot Investments] that the Court “must take the property of a party to the 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…”
The Full Court then set out some limitations on this principle (at [57]):
“Notwithstanding the general practice which has developed, the Court has indicated that it may properly determine not to take into account or to discount the value of an unsecured liability in certain circumstances. Such liabilities would include but are not limited to a liability which is vague or uncertain, if it is unlikely to be enforced or if it was unreasonably incurred.”
The Full Court concluded in relation to the general rule (at [63]):
“… the rule is not absolute, is not prescribed by the statute and there are a number of well recognised exceptions…. 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, taken 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.”
The Full Court of the Family Court in Puddy & Grossvard (2010) FLC 93-432 was clear that both s 79(10)(a) and s 75(2)(ha) refer to debts which are uncontroversial.
The general rule about debts which are to be borne by one party was stated by the Full Court in Campbell v Kuskey (1998) FLC 92-795 (at p 84,924) as:
“In addition, it is inappropriate in most cases to use s 75(2) as a means of bringing to account in a general way a liability, or potential liability, which has not otherwise been brought to account as a liability when determining the overall net pool of assets. The reason for this is that by so doing, a trial Judge may produce a result that works an injustice as against one party or the other. For example, in the circumstances of this case, his Honour gave the husband the benefit of an adjustment pursuant to s 75(2) of somewhat less than $86,328. If the husband had then entered into the scheme suggested by the accountants he would have accrued a taxation liability of $86,328 and would therefore be at a disadvantage. If however, the Commissioner of Taxation failed to deem the loan accounts to be dividends under s 108 the husband will receive the s 75(2) adjustment in his favour as a windfall benefit. This would work an injustice to the wife”.
The Full Court of the Family Court in Rodgers & Rodgers (2016) FLC 93-703 quoted this passage favourably and emphasised that there was no binding rule of law that the court must deduct liabilities unless the case falls into an exceptional category, but that this applied in most cases.
A creditor may, in certain circumstances, apply to join the s 79 proceedings. Section 79(10) provides:
“The following are entitled to become a party to proceedings in which an application is made for an order under this section by a party to a marriage…:
(a) A creditor of a party to the proceedings if the creditor may not be able to recover his or her debt if the order were made…”
Section 79(10) does not apply if the party is bankrupt to the extent to which the debt is a provable debt under the Bankruptcy Act 1966 (Cth) (BA) or the party is a debtor subject to a personal insolvency agreement to the extent to which the debt is covered by a personal insolvency agreement. In those cases the trustee may apply to join under s 79(11).
In making determinations under s 79 (property) or s 72 (maintenance), s 75(2)(ha) FLA requires the Court to consider:
“… the effect of any proposed order on the ability of a creditor of a party to recover the creditor’s debt, so far as that effect is relevant.”
Obviously there is some scope for debts to be assigned under s 90AE Family Law Act 1975 (Cth) (FLA) but as was pointed out, in the Commissioner of Taxation for The Commonwealth v Tomaras & Ors (2018) FLC 98-374, the court will rarely, if ever, substitute one party for another in relation to a tax debt.
Pt VIIIAA FLA allows a creditor to be directed by a family law court to substitute one party to manage for another as the debtor. The rights, liabilities or property interests of a creditor can be altered. However, powers of the court are not unfettered and after an initial panic, by financiers, it appears they will rarely be exercised in relation to genuine third parties. There is much more scope where the third party is related to one of the parties provided that the requirements of s 90AE can be met. Section 90AE(3) and (4) provide:
(3) The court may only make an order under subsection (1) or (2) if:
(a) the making of the order is reasonably necessary, or reasonably appropriate and adapted, to effect a division of property between the parties to the marriage; and
(b) if the order concerns a debt of a party to the marriage – it is not foreseeable at the time that the order is made that to make the order would result in the debt not being paid in full; and
(c) the third party has been accorded procedural fairness in relation to the making of the order; and
(d) the court is satisfied that, in all the circumstances, it is just and equitable to make the order; and
(e) the court is satisfied that the order takes into account the matters mentioned in subsection (4).
(4) The matters are as follows:
(a) the taxation effect (if any) of the order on the parties to the marriage;
(b) the taxation effect (if any) of the order on the third party;
(c) the social security effect (if any) of the order on the parties to the marriage;
(d) the third party’s administrative costs in relation to the order;
(e) if the order concerns a debt of a party to the marriage – the capacity of a party to the marriage to repay the debt after the order is made;
Note: See paragraph (3)(b) for requirements for making the order in these circumstances.
Example: The capacity of a party to the marriage to repay the debt would be affected by that party’s ability to repay the debt without undue hardship.
(f) the economic, legal or other capacity of the third party to comply with the order;
Example: The legal capacity of the third party to comply with the order could be affected by the terms of a trust deed. However, after taking the third party’s legal capacity into account, the court may make the order despite the terms of the trust deed. If the court does so, the order will have effect despite those terms (see section 90AC).
(g) if, as a result of the third party being accorded procedural fairness in relation to the making of the order, the third party raises any other matters–those matters;
Note: See paragraph (3)(c) for the requirement to accord procedural fairness to the third party.
(h) any other matter that the court considers relevant.
The High Court in Tomaras confirmed that Crown immunity did not apply so that in theory, a tax debt could be apportioned or substituted between the parties. Justice Gordon explained (at [32]) that, although “under Pt VIIIAA, the court has jurisdiction over debts owed to the Commonwealth and the court has the power under s 90AE to order the Commissioner to substitute the husband for the wife in relation to a taxation debt, “there will seldom, if ever, be occasion to exercise that power”.
As a matter of practice, as she pointed out (at [37]), s 90AE will rarely be used in relation to tax debts. She said further (at [87]):
“The fact that the husband in this appeal was bankrupt is reason enough not to make the order sought by the wife under s 90AE. But there are other facts, matters and circumstances which compel the same conclusion in this appeal: the inability of the husband to exercise the Pt IVC rights of objection and review (both because the time allowed to the wife for objections has long expired, and because of the difficulties identified above); the fact that the debt owed to the Commonwealth, in relation to which the Commissioner has obtained default judgment, is long overdue; and the fact that the size of that Commonwealth debt continues to increase, not just on a daily basis, but at a higher rate, because of the accruing GIC. That list is not and cannot be exhaustive. However, those facts and matters, or even some of them, compel the conclusion that a court could not be satisfied of the matters prescribed in s 90AE(3) and, therefore, the court would not be empowered to make a substitution order under s 90AE(1) in Pt VIIIAA.”
Justice Gordon tested her conclusion by reference to Pt VIII FLA, which empowers a court to make an order under s 80(1)(f) FLA directing a party to a marriage to simply pay a debt owed by the other party, rather than make an order substituting them as a debtor. This could be a direction to pay a tax debt owed to the Commonwealth. If the husband had cash or another immediately realisable asset or assets to meet that debt, an order could be made under s 80(1)(f) directing the husband to make a payment direct to the Commissioner of Taxation for the benefit of the wife. If that form of order could not be made (because the husband lacked means to meet the debt), then, contrary to the requirements of s 90AE(3), it would be foreseeable that if an order were made under s 90AE(1), it would result in the debt not being paid in full and, in all the circumstances, it would not be just and equitable to make the order. So, the fact that the husband could not satisfy an order under s 80(1)(f) strongly suggested, even required, the conclusion that two requirements of s 90AE(3) – that it must not be foreseeable that if the order were made, it would result in the debt not being paid in full, and that it must be just and equitable to make the order – would not be satisfied. She concluded (at [90]) that there was “limited” scope to deal with a taxation debt in a s 90AE(1) order.
Chief Justice Kiefel and Keane J said (at [13]) that:
“Given the difficulty confronting the wife’s application for substitution by reason of the condition in s 90AE(3)(b), the question stated for the opinion of the Full Court was unlikely ever to be of other than academic interest.”
Although this paper refers to s 79 and other sections of the FLA which deal with married couples, there are similar sections for de facto couples.
4 Tax debts and s 75(2)(ha) FLA
There is a history of the Family Court being concerned to ensure that revenue authorities, such as the Australian Taxation Office and State Revenue Offices, are paid (eg. Chemaisse & Chemaisse (1988) FLC 91-915). Priority has been given to tax debts over the interests of the non-bankrupt spouse and other unsecured creditors (Hannah & Hannah; Tozer & Tozer (1989) FLC 92-052).
However, Coleman J in Lemnos & Lemnos (2009) FLC 93-394 considered that the Australian Taxation Office no longer had priority over other creditors due to the Insolvency (Tax Priorities) Legislation Amendment Act 1993. Among other amendments, s 123(5) BA was deleted. This section protected payments of tax. The trial Judge, Le Poer Trench J, for different reasons, reached the same conclusion. He said (cited at [127] of the Full Court’s judgment):
“I have some concern with the outcome of this case insofar as the creditor principally to lose out in this case is the Australian Tax Office and therefore the tax payers of this land. The question should realistically be asked why the wife should ultimately prosper at the expense of the public purse. The answer so far as I am concerned is that the Family Law Act as now standing provides for that to be the outcome in appropriate cases. The legislation does not elevate the status of creditors to a ranking above the other considerations.”
The former matrimonial home was worth $4.5-5m. It was in the husband’s sole name. The mortgage was $2.4m and the husband’s tax liabilities were over $5m.
Justice Le Poer Trench found the contributions of the parties to be equal. The wife argued that the husband’s actions in respect of the income tax liability amounted to wasting of the matrimonial assets under s 75(2). Justice Le Poer Trench agreed and held that it was appropriate to require the husband to satisfy the ATO without recourse to the wife’s property.
The court found that considering the interest of creditors under s 75(2)(ha) did not allow a further adjustment in favour of the wife under s75(2)(ha).
In determining whether a division of the property was just and equitable, the court was not satisfied that the wife had knowledge of the non-payment by the husband of his proper tax liabilities and was not persuaded by the trustee that the wife was receiving a windfall as a result of the husband’s non-payment of tax.
The trustee appealed and the Full Court allowed the appeal, remitting the matter for re-hearing.
Justice Coleman held that the trial judge had concluded that the wife should receive 50% equity in the property, and made orders which “had the effect of prioritising the wife’s s 79 entitlement over the unsecured creditors of the husband’s bankrupt estate” [at (173]). Only after consideration of the s 75(2)(ha) interests of creditors could the trial judge have concluded that it was “appropriate in this case to require the husband to satisfy the debt to the ATO from his own resources” (at [175]). By focusing on the absence of culpability by the non-bankrupt wife the trial judge was distracted from the proper exercise of his discretion and pre-judged the s 75(2)(ha) issue by considering that the wife had not been involved in the tax deductions.
Justices Thackray and Ryan held that the trial judge erred in giving undue weight to the wife’s innocence in the tax deductions claimed by the husband. They held (at [243]):
“… Having had the benefit of the funds flowing from the husband’s conduct, it would seem to us neither just nor equitable for the wife to escape all responsibility for payment of the primary tax that would otherwise have been paid.”
They adopted the reasoning in Johnson & Johnson (1999) FamCA 3969 where the Full Court held (quoted at [244] and [245] in Lemnos):
“20.4 … his Honour’s discretion miscarried when he failed to provide for the wife to share in any penalties that may be imposed by the taxation commissioner.
20.5 In our view the fact that the wife was or was not involved in the tax avoidance process which may lead to the imposition of penalties was only one consideration that his Honour needed to weigh up when determining liability for the penalties as between the parties. The benefits indirectly gained by the wife in having the pool of assets otherwise increased as a result of the availability of funds which would otherwise have been paid out in tax also have to be considered.
20.6 … a just outcome demanded that the wife take the good with the bad. Whilst there is a sense of culpability about the penalties, they represent no more in this case than an outgoing incurred in creating the asset pool.
20.7 … Absent any suggestion that the husband was on a frolic of his own and acting contrary to the wife’s express wishes, we see no reason for his Honour to have left the husband to shoulder the burden of the tax penalties.
Justice Thackray and Ryan noted (at [28]) that:
“The views expressed in Johnson relate to allocation of responsibility for income tax penalties. Although in the instant case it is accepted the husband was “on a frolic of his own” we do not accept that the wife’s lack of knowledge or complicity in the husband’s wrongful deductions is determinative of whether she should ultimately share responsibility of the payment of primary taxation …”
Commissioner of Taxation & Worsnop (2009) FLC 93-392 also illustrates the application of s 75(2)(ha). The Commissioner of Taxation appealed against an order that the former matrimonial home be sold and, after the costs of sale, the proceeds be divided equally between the wife and the Commissioner. The only substantial asset was the home worth $4.75 million. There was conflicting evidence as to the wife’s knowledge of the husband’s tax avoidance but the trial Judge accepted that the wife did not know. The trial Judge made no adjustment in favour of the wife for s 75(2) factors although she had the primary care of 4 children aged between 1¾ and 13 years and this affected her earning capacity. Her s 75(2) factors were off-set against the husband’s indebtedness to the ATO as a factor in the Commissioner’s favour under s 75(2)(ha).
The Commissioner appealed. In balancing the competing claims of the wife against the Commissioner, the Full Court found that the trial Judge clearly appreciated the critical features of the exercise, and said (at [86]):
“In our view, the Commissioner of Taxation is in a position distinguishable from that of a commercial creditor. Commercial creditors have a choice about to whom they extend credit. On the other hand, the position of the Commissioner as a creditor of taxpayers is of a completely different origin. The onus is on taxpayers to make full and proper disclosure to the Commissioner of Taxation. The Commissioner does not extend credit at all, but becomes a creditor by virtue of the conduct of the affairs of the taxpayer. As seen, Rose J gave “…much weight to the fact that the outstanding tax indebtedness of the husband is a debt to the Crown and implicitly there is a public interest issue”, though he also recognised that the Commissioner had no priority over the wife’s claims.”
The appeal was dismissed.
In a bankruptcy most of the property of the bankrupt vests in the trustee of the bankrupt (s 58(1) BA) and is divisible against creditors (s 116(1) BA) except for exempt property (s 116(2) BA). The vesting is immediate and does not depend upon the trustee lodging, for example, caveats on real estate. The trustee’s equitable interest is acquired by force of statute, so other parties need to be wary when dealing with a potential bankrupt. These issues were canvassed in NWC Finance Pty Ltd v Borsellino (No 2) [2016] NSWSC 1338.
A family law court has power to alter the interests of a bankruptcy trustee in the vested bankruptcy property (s 79(1)(b)).
One way to consider the interests of creditors is under s 75(2)(h), but as was pointed out by Le Poer Trench J in Lemnos & Lemnos [2007] FamCA 1052, s 75(2)(ha) is only one factor amongst many to be considered under s 75(2) and their interests are not given more or less weight than the others 75(2) factors. The interests of a bankruptcy trustee or unsecured creditor do not arise elsewhere in the s 79 process unless they are entitled to be considered as “legal and equitable interests” to be determined by the court under s 79(1) (see Stanford v Stanford (2012) FLC 93-518). Doubt has been cast by the Full Court of the Family Court on whether unsecured liabilities are “interests” (eg. Bevan & Bevan (2013) FLC 93-545 and Layton & Layton [2014] FamCAFC 120). Despite this doubt, in many cases where neither party is bankrupt, the parties and the court agree that certain debts be deducted from the gross property pool when calculating the property available for division between the parties in line with Biltoft & Biltoft (1995) FLC 92-614.
The extent to which s 75(2)(ha) covers the interests of a trustee as opposed to a creditor may, however, be re-considered following the Full Court decision of Bloomfield & Grainger and Anor (2015) FLC 93-677. The Full Court was dealing with financial agreements and adopted a narrow reading of “creditor” in s 90K(1)(aa) so as to exclude a trustee in bankruptcy. It seems possible that in the future this narrow reading of “creditor” could also apply to s 75(2)(ha). This is supported by the fact that in the FLA the rights of trustees in bankruptcy and creditors are referred to expressly in certain sections, eg s 79(10) and s 79(11).
A trustee in bankruptcy is not automatically a party to property settlement proceedings. An action commenced by a person who later becomes bankrupt is stayed until the trustee elects in writing to prosecute or discontinue the action (s 60(2) BA). The election must be made within 28 days after notice of the action is served on the trustee (s 60(3)). If the trustee elects to continue FLA proceedings, what standing does the bankrupt have? And what if the trustee does not elect?
Standing of trustee
The trustee has standing to join the s 79 FLA proceedings if the conditions of s 79(11) FLA are met. The section provides:
If:
(a) an application is made for an order under this section in proceedings between the parties to a marriage with respect to the property of the parties to the marriage or either of them; and
(b) either of the following subparagraphs apply to a party to the marriage:
(i) when the application was made, the party was a bankrupt;
(ii) after the application was made but before it is finally determined, the party became a bankrupt; and
(a) the bankruptcy trustee applies to the court to be joined as a party to the proceedings; and
(b) the court is satisfied that the interests of the bankrupt’s creditors may be affected by the making of an order under this section in the proceedings;
the court must join the bankruptcy trustee as a party to the proceedings.
In Bethke & Bethke (2019) FLC 93-906 the Full Court rejected the argument by the bankrupt that his trustees in bankruptcy should not have been joined to the proceedings because the trial judge failed to consider whether joinder was in the creditors’ best interests or it was equitable and just. The Full Court said that if the s 79(11) requirements were met, the court must join the trustees as a party to the proceedings. The only real question to be asked in the circumstances of this case was whether the requirements of s 79(11)(d) were met. The Full Court said (at [49]-[51]):
“The requirements in s 79(11)(d) will ordinarily be easily satisfied because it is axiomatic that:
(a) The interests of the bankrupt’s creditors are affected if the size of the bankrupt’s estate is less than the total amount owed to the creditors;
(b) The property of the bankrupt vests in the Trustee; and
(c) That property can either be increased or decreased as a result of an adjustment to the property of either the applicant or the respondent, held jointly or severally by the making of a property settlement order.
In this case:
(a) The Trustees’ assessment of the appellant’s direct financial contributions to the assets held jointly and severally by the parties was in the order of $21,000;
(b) The appellant’s creditors significantly exceeded his possible claim under s 79 of the Act. The primary judge was told one of the appellant’s debts exceeded $500,000 …
(c) The appellant had forged a mortgage for $385,000 which was registered against the property in the respondent’s name. The respondent sought that the mortgage be set aside under s 106B of the Act in the proceedings for the property settlement order; and
(d) If the respondent was successful in the proceedings, the appellant’s creditors in his bankruptcy were going to get less.
The primary judge, in this case, was correct in making an order joining the Trustees as parties to the proceedings having been satisfied that “the interests of the bankrupt creditors may be affected” and that the low bar set by s 79(11)(d) of the Act had been comfortably cleared in this case.”
The procedure for any third party to become a party to a case is either by being named as a respondent by one of the parties to the case, or by applying to intervene in a case. A party to a case may add another person as a party by amending the application to add the name of the person (r 6.03(2) Family Law Rules 2004 (FLR). In addition, r 6.03(3) requires that the party seeking to add another party:
“(a) file an affidavit setting out the facts relied on to support the addition of the new party, including a statement of the new party’s relationship (if any) to the other parties; and
(b) serve on the new party:
(i) a copy of the application, amended application, response or amended response; and
(ii) the affidavit mentioned in paragraph (a); and
(iii) any other relevant document filed in the case.”
Justice Cronin in Pencious & Pencious [2010] FamCA 605 took issue with the apparent simplicity of an earlier version of r 6.03. He said (at [1], [2], [4]):
“…In my view it is not that simple.
The recipient of the application for joinder as well as all other parties to the litigation must be able to identify what material facts give rise to a cause of action against the party sought to be joined. Perhaps the practical test is whether the application would enable the party so joined or to be joined, to respond, in the sense of filing a defence to the claim.
After pointing to the jurisdictional basis upon which orders are sought (if they are), the application for joinder (or the person seeking to defend having joined a person) must be able to show that the rights of those persons may be affected by an issue in the case but also that participation is necessary to enable the court to determine all issues in the case.”
He agreed with the Full Court in B Pty Ltd and Ors & K (2008) FLC 93-380 which said (at [43]):
“However, the narrative or descriptive nature of evidence is often unsuited to formulate or particularise a cause of action against a third party. Something resembling a statement of claim will generally be necessary.”
In the Family Court, a person who is not a party to a case who seeks to intervene in a case must comply with r 6.05 FLR unless they are a person entitled to intervene without the court’s permission. Some examples are given, such as a creditor under s 79(10) and the Attorney-General. The person must file a Notice of Intervention by Person entitled to Intervene and an affidavit:
The trustee is not obliged to join the proceedings and can seek to be dis-joined if they object to continuing. The trustee may not want to be a party after weighing up the costs of the proceedings as against the likely benefits, or lack of funding. However, a trustee may be a “necessary party” within r 6.02(1) as their “rights may be directly affected by an issue in a case”. To succeed in a dis-joinder application, the trustee will need to be prepared to abide by any orders made by the court.
Trustee elects to continue proceedings
If a trustee elects to continue the s 79 proceedings, a bankrupt loses the right to make submissions regarding vested bankruptcy property. The bankrupt must seek the leave of the court to make submissions (s 79(12)). Leave can only be granted in exceptional circumstances (s 79(13)). The bankrupt can, however, as of right, make submissions about property which has not vested, such as superannuation. These submissions will probably indirectly deal with vested property.
It is also possible that the trustee can elect to continue the s 79 proceedings under s 60(2) BA but not become a party and allow a creditor or the bankrupt to continue the proceedings relying on s 134 and s 178 BA. For example, a creditor was allowed to continue the proceedings in Vincent & Vincent and Anor [2016] FCCA 227 which is discussed later in this paper. These options have not been fully explored.
In Reua & Reua [2008] FamCA 1038 Stevenson J found that there were “exceptional circumstances” within s 79(13) to enable the bankrupt to make submissions about vested bankruptcy property because:
None of these seem to be “exceptional” circumstances in the sense otherwise used in the FLA.
Trustee does not elect to continue the proceedings – the problem of s 60 BA
The question of what happens if the trustee does not elect to continue the s 79 proceedings arose in Sloan & Sloan [2018] FamCA 610. The husband became bankrupt in February 2018. The trustee did not elect to continue the property and parenting applications instituted by the bankrupt prior to the bankruptcy.
The wife posed two main arguments against the husband being able to continue the litigation. The first related to the effect of the bankruptcy vesting provisions in the light of the High Court decision of Cummings v Claremont Petroleum NL (1996) 185 CLR 124, which went to the question of whether the husband’s right to litigate had vested in the trustee and, in any event, whether the husband had sufficient interest in the subject matter of the litigation to give him standing. The second related to the operation of s 60 BA.
Section 58 BA provides that property held by the husband at the time of his bankruptcy, along with property acquired by him during the period of bankruptcy, vests in the trustee. The consequence is that, to the extent that a right to litigate may be considered to fall within the definition of property within s 5 BA, it vests in the trustee. The definition of “property” within the BA is broad, and:
“Means real or personal property of every description, whether situate in Australia or elsewhere, and includes any estate, interest or profit, whether present or future, vested or contingent, arising out of or incident to any such real or personal property.”
Justice Gill noted (at [8]) that the High Court majority found in Cummings that “the definition is not such as to capture all rights to litigate as aspects of property under the BA.” The High Court was dealing with an attempt to commence an appeal by two bankrupt litigants, who became bankrupt following the hearing of the case but prior to judgment being handed down. The questions in Cummings were:
The husband relied upon cases dealing with the application of Cummings to family law litigation: O’Neill & O’Neill (1998) FLC 92-811 at [87] which discussed Page & Page (No 2) (1982) FLC 91‑241 and Reed & Reed; Grellman (1990) FLC 92-105. In Cummings, the Full Court accepted the position of Frederico J in Page that the right to litigate a s 79 application is a personal right that does not pass to the trustee in bankruptcy. Justice Frederico specifically referred to the operation of s 60 BA and indicated that the provision did not stop a bankrupt from bringing or continuing proceedings under s 79 FLA. Applying Cummings, the Full Court in O’Neill stated (at [88]):
“Furthermore, the majority of the High Court in Cummings referred, without apparent disapproval, to the concept of “rights of action which do not pass to a trustee on bankruptcy because they are personal to the bankrupt and do not affect the quantum of the bankrupt estate” (emphasis added)… Although there must be a question as to meaning of the words…just quoted, it would appear to remain good law that a bankrupt spouse may initiate and prosecute property settlement proceedings during the course of his or her bankruptcy – although any property acquired would have to vest in the trustee by virtue of s58(1)(b) of the BA (apart from the limited classes of property exempted under s116(2) of that Act).”
Reed, perhaps inconsistently with Cummings, supported the right to litigate at first instance due to the possibility of the fruits of a s 79 application outstripping what was to be recovered pursuant to the bankruptcy.
The wife relied upon Guirguis v Guirguis and Official Trustee in Bankruptcy (1997) FLC 92-726 (which predated and was considered in O’Neill) where the prospect of a surplus (consistently with Cummings) did not give standing to a bankrupt to pursue an appeal. She asserted that s 60 BA stopped the husband from conducting any proceedings other than proceedings in respect of property that, pursuant to s 116 BA, was not divisible among creditors, such as superannuation.
After considering the earlier cases, Gill J in Sloan concluded (at [20]):
“Subject to the caution expressed by the Full Court regarding the qualification as to affecting the quantum, this supports the notion that s 79 proceedings fall into the category of actions that do not vest in the trustee as they are personal to the bankrupt.”
Justice Gill dealt with the wife’s other arguments and concluded that the issue of standing identified in Cummings did not stifle the husband’s proceedings, but more problematic for the husband’s application was s 60 BA (at [26]) “from which a clear basis for the ending of the husband’s application flows”.
Section 60 BA states:
“(1) The Court may, at any time after the presentation of a petition, upon such terms and conditions as it thinks fit: …
(b) Stay any legal process, whether civil or criminal and whether instituted before or after the commencement of this subsection, against the person or property of the
debtor:
(i) In respect of the non-payment of a provable debt or of a pecuniary penalty payable in consequence of the non-payment of a provable debt; or
(2) In consequence of his or her refusal or failure to comply with an order of a court, whether made in civil or criminal proceedings, for the payment of a provable debt; … An action commenced by a person who subsequently becomes a bankrupt is, upon his or her becoming a bankrupt, stayed until the trustee makes election, in writing, to prosecute or discontinue the action.
(3) If the trustee does not make such an election within 28 days after notice of the action is served upon him or her by a defendant or other party to the action, he or she shall be deemed to have abandoned the action.
(4) Notwithstanding anything contained in this section, a bankrupt may continue, in his or her own name, an action commenced by him or her before he or she became a bankrupt in respect of:
(a) any personal injury or wrong done to the bankrupt, his or her spouse or de facto partner or a member of his or her family; or
(b) the death of his or her spouse or de facto partner or of a member of his or her family. …
(5) In this section, action means any civil proceeding whether at law or in equity.”
The underlying point made for the wife was that the specific exclusions in s 60(4) BA, which do not include family law proceedings, implicitly meant that proceedings instituted under the FLA are not exempted from the operation of the provision. This understanding of the operation of s 60 BA was consistent with the analysis of Carew J in Lincoln (Deceased) v Moore [2016] FamCA 547 and by Cronin J in Trent & Rowley [2014] FamCA 447.
It was common ground between the parties that the trustee was on notice of the current proceedings but that 28 days had not passed since the trustee came to be on notice. The trustee appeared on 11 May 2018 to advise the Court that the trustee had not yet made an election to prosecute or discontinue the action commenced by the husband.
Justice Gill distinguished Page, (at [35]):
“It may be observed that the Husband’s s 79 application in Page was not on foot at the time of the bankruptcy, but post-dated it, meaning that s 60 of the Bankruptcy Act did not have operation in relation to the staying of those proceedings in any event. To the extent that Justice Frederico’s assertion as to “continuing an application” was a reference to the operation of s 60 of the BA in the context of pre-existing proceedings, it constitutes obiter dicta.”
Justice Gill concluded (at [39]):
“The plain meaning of the language used in the section is to apply to all civil litigation (other than the exempted classes). Litigation that relates to matters other than property caught by the vesting provisions is not exempted. The provision has a blanket effect, other than in the limited specific exceptions set out at s 60(4).”
Justice Gill explained the breadth of the impact of s 60 BA on FLA proceedings (at [40]-[42]):
“Given the breadth of the definition of “action” this also has the apparent and unwelcome effect that proceedings under Part VII of the FLA relating to children are also included (save potentially to the extent that they constitute injunctive protections relating to a “wrong done to the bankrupt…or a member of his or her family.”) resulting in their being stayed by a bankruptcy. This effect of s 60 makes no sense and potentially undermines the well-being of children, without any corresponding benefit being conferred on creditors (if such benefit could be weighed against the welfare of a child).
However, absent a relevant exception, this is the effect of the language used in the provision.
The broad operation of s 60(2) and (3) means that in the event that the trustee has not made an election to prosecute the current proceedings, then they are first stayed and then abandoned. This, on its terms, includes all aspects of proceedings, including child-related proceedings.”
However, in relation to the husband’s contempt application which he issued after he went bankrupt, Justice Gill found (at [43]) that it was not affected by s 60 BA. Further, as it was not a property right, it was able to continue.
Following the delivery of reasons further orders were made. The orders included a notation that Justice Gill had been advised by the parties that the trustee had made an election pursuant to s 60(2) BA following an order made by Justice Thawley of the Federal Court to extend the period of time available to the trustee to make that election. An order was made joining Mr G as Trustee of the property of Mr Sloan (a bankrupt) as Second Applicant in the proceedings.
In Biddick & Etier [2018] FamCA 744, s 60 BA was also a problem. In July 2018, the husband and the wife executed documents for property orders to be made by consent. Essentially, they each kept the property in their respective names and possession. The proposed orders included the following problematic provision, for which no power to make the order could be identified (at [6]):
“That Ms Biddick immediately cease and desist in publishing (in any form) or verbalising defamatory statements that are directed or pointed or inferred at Mr Etier. That at all times information held by the parties by either of them remain confidential. That settlement between the parties confers that all legal disputes between the parties are settled and neither party will commence any proceedings against either party at any time.”
A further problem was that the wife became bankrupt after the proceedings commenced. Section 60 BA was therefore relevant. Justice Gill referred to his earlier case of Sloan and noted (at [13]):
“It should, however, be noted that Ms Biddick’s right to litigate, insofar as it concerns ‘property that will not form a part of the estate available for distribution to creditors, but rather will deal with interests that will lie with the bankrupt’ remains, as Ms Biddick retains standing in relation to these aspects. Whether this will result in her recommencing proceedings remains to be seen.”
The staying of the proceedings meant that absent the election by the trustee, the proposed consent orders could not be made and Ms Biddick’s application was deemed to be abandoned. This meant that the proposed consent orders could not be made into orders. The matter was relisted for directions, to enable the husband to have the proceedings finally determined. Justice Gill noted the right of the wife to recommence FLA proceedings in relation to exempt property.
A similar approach to s 60 was taken by Cronin J in Trent & Rowley [2014] FamCA 447. He referred to Cummings and said (at [1]):
“A bankrupt’s contingent interest in a surplus in his or her estate does not alone give a right or entitlement which would allow him or her to sue to enforce proprietary rights.”
A majority of the High Court in Cummings referred to the possibility that where a trustee declines to exercise their power to sue or to appeal against a judgment, the bankrupt may apply to a court (exercising BA jurisdiction) for an order under s 178 BA. Section 178 BA has now been repealed, but it stated:
“(1) If the bankrupt, a creditor or any other person is affected by an act, omission or decision of the trustee, he or she may apply to the Court, and the Court may make such order in the matter as it thinks just and equitable.
(2) The application must be made not later than 60 days after the day on which the person became aware of the trustee’s act, omission or decision.”
Section 178 has been replaced by the much lengthier s 90-15 Insolvency Law Reform Act 2016 (Cth) (ILRA) the relevant part of which commenced on 1 September 2017. The extent to which the old s 178 is preserved in the new provision is uncertain.[1] It may enable proceedings to be continued by a bankrupt or creditor instead of by the trustee if the trustee does not elect, or elects and does not want to take part in the proceedings.
Under the Sloan line of authority some earlier cases where the trustee chose not to intervene would have been decided differently. If the bankrupt is the applicant even in parenting proceedings, unless the trustee elects to continue the proceedings, the bankrupt’s application is deemed to be abandoned. The non-bankrupt spouse may still be able to continue the proceedings if they have filed a Response and will become the applicant (r 10.11(3) FLR). The respondent will become the applicant. The bankrupt may need to try to re-file and the BA does not prevent this.
Creditor’s standing
The standing of a creditor to be a party to FLA proceedings is less clear than that of the trustee and the bankrupt. Section 58(3) BA states:
“Except as provided by this Act, after a debtor has become a bankrupt, it is not competent for a creditor:
(a) to enforce any remedy against the person or the property of the bankrupt in respect of a provable debt; or
(b) except with the leave of the Court and on such terms as the Court thinks fit, to commence any legal proceeding in respect of a provable debt or take any fresh step in such proceeding.”
The limited role of creditors to continue or institute proceedings after bankruptcy was discussed in Fraser v Commissioner of Taxation & Official Trustee [1996] FCA 1801, where Beaumont J said (at [42]):
“The point is that there is no scope for any role to be played by individual creditors acting on their own initiative; if litigation is to be instituted with a view to the recovery of assets, it is the trustee’s function and responsibility to be the dominus litis and thus entirely in charge of the litigation to the exclusion of individual creditors. In other words, the relevant scheme of the legislation specifically that of s 58(3), is that individual creditors have no right to decide to pursue, or not pursue, the assets of the bankrupt with a view to the satisfaction of individual debts.”
A creditor is entitled to be a party to s 79 proceedings if the creditor may not be able to recover their debt if a s 79 order is made (s 79(10)(a)). Section 79(10) does not apply to a creditor if the debtor is bankrupt and the debt is a provable debt or covered by a PIA (s 79(10A)).
However, in Vincent & Vincent and Anor [2016] FCCA 227 Judge Riethmuller allowed the creditor to join the proceedings as the beneficiary of the trustee in circumstances where the trustee in bankruptcy had elected not to join the proceedings (unless funded). He said (at [13]; [20]):
“Ordinarily the trustee in bankruptcy is the appropriate person to bring or defend proceedings. It is open to the court to direct the trustee to do so. However, there is a practical problem if the trustee is not in funds and the creditors cannot fund the suit. In such a situation it would be unjust to the creditors not to allow them to represent themselves and pursue the suit for the benefit of the trust estate (indirectly for their even benefit). Whilst such an exercise is unusual, it is open if the justice of a particular case demands. To hold otherwise would allow impecuniosity (potentially caused by the bankrupt) to deny a significant creditor a remedy. . .
I am satisfied that on the present material the Intervenor has a prima facie case that the husband’s property or part thereof should not be settled on the Wife under s 79 of the Family Law Act 1975. Significantly, this is not a case where the Intervenor is pursuing a claim, rather she is now defending the bankrupt estate against a claim by the Wife.”
Another example, similar to Vincent, arose in Van Dyke v Lo Pilato, in the matter of Sidhu [2016] FCA 1347. Justice Katzmann in the Federal Court granted leave to the largest creditor of the bankrupt estate to commence proceedings under s 79A FLA on the basis that she entered into undertakings:
“1. to hold the benefit of any order made in the s 79A proceedings for the trustee in bankruptcy on behalf of the bankrupt estate of Mr Sidhu;
2. to consent to any application by the trustee in bankruptcy to be joined as a party to those proceedings; and
3. if no such application is made, to notify the trustee in bankruptcy of final orders made in those proceedings.”
Justice Katzmann explained why she granted leave to the creditor (at [30]):
“Here, Ms Van Dyke does not seek any undue advantage over other creditors. The purpose of her application and, if it succeeds, the effect of her action under s 79A is to augment the bankrupt estate for distribution between all creditors. Ms Van Dyke has given an undertaking to facilitate this course. The willingness of an applicant to enter into an undertaking to hold the benefit of any order made in the Family Court proceedings on behalf of the bankrupt estate has been held to render proceedings of that kind in the interests of “the general body of creditors”…
Other factors Katzmann J considered to be relevant were:
The above cases can, perhaps be explained in part, by the preference of a court for there to be a contradictor rather than the proceedings be undefended.
Any property recovered by a creditor or bankrupt must be paid to the trustee of the bankrupt. The inability of the Family Court to order that a payment be made directly to an unsecured creditor of a bankrupt was made clear in Trustee for the bankrupt estate of Lasic & Lasic (2009) FLC 93-402. The Full Court understood the trial Judge’s concern that if the husband’s entitlement was paid to the trustee, the creditor Mr M would receive nothing. Reluctantly, the Full Court concluded that ordering a direct payment by the wife to Mr M was not within the trial Judge’s power.
Before lodging a caveat it is necessary to ascertain whether the potential caveator has a caveatable interest. If the caveator has a caveatable interest, the next step is to ensure that the caveat is properly worded to claim the interest that the caveator has and not go beyond the caveator’s interest.
If the registered proprietor or another interested person disputes the caveator’s claim there are 2 methods to have it removed. The administrative procedure for seeking the removal of a caveat is set out in s 89A Transfer of Land Act 1958 (Vic):
“(1) Subject to the provisions of this section, where a recording of a caveat (not being a caveat lodged by the Registrar) has been made pursuant to s 89(2), any person interested in the land affected thereby or in any part thereof may make application in an appropriate approved form to the Registrar for the service of a notice pursuant to ss (3).
(2) An application under this section shall –
(a) specify the land and the estate or interest therein in respect of which it is made; and
(b) be supported by a certificate signed by a person for the time being engaged in legal practice in Victoria, referring to the caveat and stating the person’s opinion that, as regards the land and the estate or interest therein in respect of which the application is made, the caveator does not have the estate or interest claimed by the caveator.
(3) Upon receiving any such application and certificate and upon being satisfied that the applicant has an interest in the land in respect of which the application is made, the Registrar shall give notice to the caveator that the caveat will lapse as to the land and the estate or interest therein in respect of which the application is made on a day specified in the notice unless in the meantime either—
(a) the application is abandoned by notice in writing given to the Registrar by or on behalf of the applicant; or
(b) notice in writing is given to the Registrar that proceedings in a court or VCAT to substantiate the claim of the caveator in relation to the land and the estate or interest therein in respect of which the application is made are on foot.
(4) The Registrar shall not cause a day to be specified in the notice that is less than 30 days after the day on which the notice is served or, if the notice is sent by post, the day on which it is introduced into the course of post.
(5) Upon the specified day, unless –
(a) the application has been abandoned as aforesaid; or
(b) notice in writing has been given to the Registrar that proceedings as aforesaid are on foot –
the caveat shall lapse as to the land and the estate or interest therein to which the application then relates, and the Registrar shall make all necessary amendments in the Register.
(6) An application under this section may be abandoned either wholly or as to part of the land or the estate or interest therein in respect of which it is made either before or after notice is given pursuant to s-s (3), but where notice has been given, only with the consent of the caveator or the caveator’s agent.
(7) Where notice in writing of the kind referred to in paragraph (b) of s-s (3) is given to the Registrar –
(a) if in the proceedings in question the claim of the caveator is not substantiated to the satisfaction of a court or VCAT – the court or VCAT may make such order in relation to the caveat as the court or VCAT thinks fit and the Registrar shall give effect thereto;
(b) if there is subsequently served upon the Registrar a copy of any notice, or an office copy of any order of the court or VCAT, disclosing that the proceedings in question have been discontinued, withdrawn or struck out or evidence to the satisfaction of the Registrar that those proceedings have been dismissed – the caveat shall lapse as to the land and the estate or interest therein to which the application then relates, and the Registrar shall make all necessary amendments to the Register.
Section 90(3) TLA sets out that court proceedings can also be issued for the removal of the caveat:
“Any person who is adversely affected by any such caveat may bring proceedings in a court against the caveator for the removal of the caveat and the court may make such order as the court thinks fit.”
The nature of proceedings under s 90(3) TLA to remove a caveat were described by Derham AsJ in Hermiz v Yousif [2019] VSC 160. The caveator lodged two caveats. The first was removed after the plaintiff’s solicitors objected. The caveator changed solicitors and lodged a further caveat. The caveator claimed a freehold interest in the land on the basis of an implied, resulting or constructive trust. The plaintiff and his wife had entered into a contract to sell the land at a time when there was no caveat on the land by the caveator. As a result of the caveat, they were unable to complete the sale, they were still paying interest on their NAB mortgage of $710,000, they had allowed the purchaser to enter into possession under a licence but were not receiving any income from the purchaser and could not purchase another property.
The caveator had proceedings in the Federal Circuit Court seeking adult child maintenance from the plaintiff but did not seek an order in relation to the land or claim an interest in it.
Associate Justice Derham set out the applicable law for removal of a caveat (at [23]-[26]):
“Under s 89(1) of the TLA, a caveat can only be lodged by a person claiming an estate or interest in the land. The estate or interest must be established to the requisite standard by the person who lodged the caveat, if the caveat is challenged.
The plaintiff’s application is made pursuant to s 90(3) of the TLA, where any person adversely affected by a caveat lodged under s 89 of the TLA is permitted to ‘bring proceedings in a court against the Caveator for the removal of the caveat’. Section 90(3) empowers a court to ‘make such order as the court thinks fit’, and thus gives the Court a discretion. The application is in the nature of a summary procedure analogous to the determination of interlocutory injunctions.[2] The procedure is consequently interlocutory in substance, even though it may give rise to a final order.[3] The principles applicable were dealt with by Warren CJ in Piroshenko v Grosjman. [4] They are well settled. The authorities establish the following:[5]
(a) the Court’s power under s 90(3) of the TLA is discretionary;
(b) the Caveator bears the onus of establishing that there is a serious question to be tried that it does have the estate or interest in land as claimed;[6]
(c) if the Caveator establishes a prima facie case to be tried in relation to the estate or interest claimed, the Caveator must further establish that the balance of convenience favours the maintenance of the caveat until trial;
(d) there is a relationship between the strength of the case in establishing a prima facie case to be tried and the extent to which the Caveator must establish the balance of convenience favours the Caveator; the stronger the prima facie case, the more readily the balance of convenience might be satisfied. It is sufficient that the Caveator show a sufficient likelihood of success that, in the circumstances, justifies the practical effect which the caveat will have on the ability of the registered proprietor to deal with the Land in question in accordance with its normal proprietary rights.
The prima facie case test is often used interchangeably with whether a serious question to be tried is established. The prima facie case test is to be preferred.[7] That does not mean that the Caveator must show that it is more probable than not that at trial the plaintiff will succeed. The Caveator must show that they have a prima facie case with sufficient likelihood of success to justify the maintenance of the caveat, and the preservation of the status quo pending trial.[8]
An application to remove a caveat involves two steps:
(a) first, the Caveator must establish that there is a prima facie case – there is a probability on the evidence before the Court that the Caveator will be found to have the asserted legal or equitable rights or interest in the land;
(b) second, having done so, the Caveator must establish that the balance of convenience favours the maintenance of the Caveat on the title until trial and:[9]
that probability is sufficient to justify the practical effect which the caveat has on the ability of the registered proprietor to deal with the property in question in accordance with their normal proprietary rights.”[10]
In relation to the need for a caveatable interest, Derham AsJ said at [31]:
“It is a fundamental feature of a caveat under the TLA that it must be supported by an estate or interest in land. The interest to be protected by the lodging of a caveat is a proprietary interest. That is, in order to support a caveat, an interest ‘must be an interest in respect of which equity would give specific relief against the land itself, either by way of requiring the provision of a registrable instrument or in some other way, for example, ordering a sale to enable a charge to be satisfied out of the proceeds.[11] An interest based on a ‘resulting, implied or constructive trust’ can form the basis of a caveat.[12] As Dodds-Streeton J noted in Goldstraw,[13]examples include part performance of an agreement for disposition of an interest in land,[14] where parties have acquired land pursuant to a failed joint venture,[15] where the claimant has made an indirect contribution to the purchase price of property to which another party takes title, [16] or there is a common intention that a person will acquire an interest in a particular property to which another party holds legal title, and the person acts on that belief to his or her detriment, such that it would constitute a fraud to deny the interest intended to be acquired.” [17]
Applying the principles to the case, Derham AsJ said (at [32]):
“Ms Yousif does not advance any basis known to the law for raising an implied, resulting or constructive trust in the Land. There is no suggestion that she made any financial contributions to its acquisition, so no resulting trust can arise. Cooking, cleaning and supporting the plaintiff financially whilst he studied for his Australian medical qualification more than ten years before the Land was acquired does not show that it is or would be unconscionable for the plaintiff to deny her an interest in the Land.” [18]
The caveator objected to the plaintiff applying under s 90(3) TLA rather than using the cheaper s 89(A) procedure. Derham AsJ rejected this argument, saying (at [44]-[45]):
“Ms Yousif complained that by applying under s 90(3) of the TLA the plaintiff had adopted an expensive procedure which was burdensome to her when compared with the administrative procedure available under s 89A of the TLA. It was pointed out to Ms Yousif that the plaintiff had, by his solicitor’s letters written before the commencement of the proceeding, demanded the removal of the caveat and threatened to seek indemnity costs and damages if she did not. She had the option of removing the caveat but did not do so.
In addition, Counsel for the plaintiff pointed out the differences, from the perspective of a plaintiff who had contracted to sell the Land before either the first or the second caveat was lodged, of the different procedures and the steps that could, and likely would, have been required in the event that the administrative procedure had been adopted. These include the necessity to wait out the period of 30 days under s 89A, within which Ms Yousif might have commenced a writ proceeding to make good the claim made in the caveat, with the need thereafter, assuming the facts stayed as they are before me, for pleadings and an application for summary judgment by the current plaintiff. The delays in that process were likely to be in the order of between four and six months. Meanwhile, the risk remained that the purchasers under the contract of sale would rescind the contract requiring the property to be resold (perhaps in a falling market). The very reason for the summary procedure is to enable application to be made that avoids that sort of delay where the case is clear, as it is here.”
An indemnity costs order was made against the caveator and Derham AsJ agreed that it was appropriate that the plaintiff reserve its right to make a claim against the solicitors who lodged the caveat. Derham AsJ said (at [53]-[54]):
“The inference from the correspondence that preceded the application is that Ms Yousif was attempting to use the caveat as a bargaining chip. Taking the facts she advanced in her affidavit and as asserted by her solicitors in their letters at the highest, there is no tenable basis for any caveatable interest in the land in her favour and the solicitors should have been aware of that. Taking into account these matters, and the conclusion I have reached as to the complete lack of a proper basis for the lodgement of the caveat, this is a case where it is appropriate to make an order that the defendant pay the plaintiff’s costs on an indemnity basis.
The plaintiff also sought to reserve its right to make a claim for costs against the solicitors who lodged the caveat. It is appropriate to do so. The lodgement of a caveat over land is a serious matter and they should not be lodged where there are no grounds. Solicitors who lodge caveats have a responsibly [sic] to ensure that there are proper grounds for the interest claimed before lodging a caveat.”
If a caveator wants to maintain a caveat after a s 89(A) notice has issued, proceedings must be issued in a “court of competent jurisdiction”. The broad interpretation given by the Registrar of Titles was upheld in Dharmalingham v Registrar of Titles and Anor [2005] VSC 417. Justice Hargrave agreed with the Registrar of Titles’ submission (at [46]):
“… the Registrar is entitled to take a broad view of a caveator’s notice and not a narrow or pedantic view. Substantial compliance is enough.”
In this case, the caveator had issued proceedings in the Kuala Lumpur High Court in Malaysia. She later issued proceedings in the Family Court of Australia and had obtained an injunction in that court preventing the plaintiff, who was the husband’s sister, from dealing with the land.
At the time, s 4 TLA defined “court” as:
“’Court’ means the Supreme Court and, in relation to land the value of which does not exceed the jurisdictional limit of the County Court, the Supreme Court or the County Court.”
This definition was changed in 2009 to the current wording: “court of competent jurisdiction”. However, interestingly, the former wording was given a broad meaning to encompass courts which were not Victorian courts.
In Dharmalingham the plaintiff challenged under s 116 TLA the refusal of the Registrar to amend the Register and lapse the caveat. Justice Hargrave said (at [47]-[51]) in relation to the Registrar’s obligation with respect to s 89(A):
“In the first place, the purpose of the caveat provisions must be considered. The obvious purpose of the caveat provisions is to enable any person claiming an estate or interest in land to protect that estate or interest pending an entry in the Register recording that interest. Having given the holders of such interests the power to lodge a caveat, Parliament ought not to be taken to have intended that the protection afforded by such a caveat should be lost by administrative decision in respect of an ambiguous notice. This is especially so in circumstances where the mere giving of a caveator’s notice conveys an intention on the part of the caveator to maintain the caveat. The consequences of a caveat lapsing may be catastrophic for the caveator in a particular case.
Secondly, s 89A does not contain any provision requiring the Registrar to give a caveator a right to be heard if a question arises as to the sufficiency of a caveator’s notice. Although the Registrar may make enquiries of the caveator in respect of an ambiguous notice if there is time to do so, there will often be no time. This is because it is common experience that, where a time is specified for something to be done, it is often not done until the specified day or shortly beforehand. In such circumstances, there will be no time to enable the Registrar to hear the caveator in respect of an ambiguous notice. Section 89A(5) requires the Registrar to treat the caveat as having lapsed “Upon the specified day”. The Registrar’s consideration of a caveator’s notice is obviously not intended to be a lengthy process involving consultation with, or giving a hearing to, the caveator.
Thirdly, it must be kept in mind that the s 89A procedure is only one way in which a caveat can cease to have force and effect. Under s 90, a caveat may lapse following the lodgement for registration of a dealing, and the consequent service of a Registrar’s notice under s. 90(1). The service of such a notice casts the obligation upon the caveator to approach “the Court” and seek an order to protect their interests. Under s 90(3) any person adversely affected by a caveat may bring proceedings in “the Court” for removal of the caveat.
Fourthly, there is no prescribed form in the Act for a caveator’s notice. The lack of any prescription of the form of a caveator’s notice indicates that Parliament did not intend that a caveator’s notice should be strictly construed to see whether it complies with the provisions of s. 89A(3)(b).”
Finally, in my view, Parliament should not be taken to have intended that the Registrar should decide borderline cases as to whether or not a caveator’s notice complies with s. 89A(3)(b). Under s 110(1)(b), a person sustaining loss or damage by reason of any amendment of the Register is entitled to be indemnified from public monies in respect of such loss and damage. The amount of loss and damage could be very substantial. It is unreasonable to suppose that Parliament intended to expose the Registrar to liability, to be met from the public purse, as a result of a wrong decision as to whether a caveator’s notice satisfies the requirements of s. 89A(3)(b) in a particular case. This is especially so in circumstances where the registered proprietor, or any other person adversely affected, may bring proceedings to remove a caveat or may lodge a dealing for registration which will have the effect of requiring the caveator to obtain relief from “the Court” within a specified period. In my view, Parliament intended that disputes about the validity of caveatable interests should be fought out between the various persons claiming an estate or interest in the subject land, and not determined by the decision of the Registrar as to whether to treat an ambiguous caveator’s notice as being compliant or non-compliant with the strict requirements of s 89A(3)(b).
Justice Hargrave concluded (at [63]-[72]):
“When these documents are read together, the caveator’s notice can be seen as giving notice to the Registrar of the following matters:
(1) The caveator’s notice is given in response to the s 89A notice.
(2) The caveator intends to maintain the caveat.
(3) The caveator makes a claim in relation to the estate or interest of the plaintiff in the land.
(4) The caveator contends that the land is part of “matrimonial property” of the caveator and her husband.
(5) The caveator claims an estate in fee simple in the land, on the basis that it was fraudulently transferred by her husband to the plaintiff “with the intention to dissipate our matrimonial property”. Although not expressly stated, this claim implies an allegation that the plaintiff holds the land on a constructive trust for the caveator. It is implicit that such a trust is alleged to have arisen from the plaintiff’s receipt of the land for less than full consideration when she knew, or was on notice, that the land was being transferred to her by the husband in breach of trust or fiduciary duty.
(6) Proceedings are on foot in the High Court of Malaya to substantiate the claim of the caveator in relation to the land and the estate or interest of the plaintiff in the land. Those proceedings were commenced by the caveator’s husband for Judicial Separation, and the caveator’s claims in relation to the land were raised by her in her “answer” to the husband’s petition, in which the caveator seeks “inter alia, for maintenance.”
(7) The caveator lodged the caveat in order to protect her interest in the land “pending disposal of the Judicial Separation and or Divorce Petition and division of matrimonial assets”. This was clearly a reference to the caveat being lodged pending resolution of the proceedings which were on foot in the High Court of Malaya.
There is no doubt that the caveator’s notice gives notice that proceedings are on foot. Further, in my view, the notice adequately states that the proceedings are to substantiate the claim of the caveator in relation to the land and the estate or interest of the plaintiff in respect of which the plaintiff made the s 89A application. As I have said, the caveator’s notice expressly refers to the caveator’s claim to the land and, in addition, states in express terms that the caveator’s claim to the land is made in relation to the estate or interest of the plaintiff in the land.
The issue is whether the caveator’s notice gives sufficient notice that the proceedings in the High Court of Malaya are proceedings in a court of competent jurisdiction. In my view, the caveator’s notice satisfies the requirements of s 89A(3)(b) in this regard. Although the High Court of Malaya does not have jurisdiction to order the Registrar to make any amendment to the Register, as it is not a “Court” within the meaning of the Act, there is no reason to doubt that the High Court of Malaya has the power to make orders in personam requiring the parties before it to execute one or more instruments dealing with the land. For example, the High Court of Malaya could order the plaintiff to transfer the land, or a part thereof, to or for the benefit of the caveator.
On behalf of the plaintiff, it was submitted that the High Court of Malaya does not have in personam jurisdiction of the kind which I have referred to above. It was submitted that this was so because it is settled law in Malaysia that the rule in British South Africa Company v Companhia de Mocambique FN[19] (known commonly as the rule in Mocambique) applies in Malaysia. Stated generally, the rule in Mocambique prevents a court from adjudicating upon the title to land in a foreign jurisdiction. Accordingly, it was submitted on behalf of the plaintiff that the High Court of Malaya has no jurisdiction to adjudicate upon the claim by the caveator in relation to the land, unless the caveator’s claim falls within one of the exceptions to the rule in Mocambique ...
In my view, it is not necessary for me to determine whether the caveator’s claim in relation to the land falls within one of the exceptions to the rule in Mocambique. This is because it was not necessary for the Registrar, and in my view it is not necessary for me, to “go behind” the caveator’s notice and examine in detail the extent of the jurisdiction of the High Court of Malaya. On the face of the caveator’s notice, reference is made to specific proceedings in the High Court of Malaya. In my view, the Registrar was entitled, and I am entitled, to assume that the High Court of Malaya has in personam jurisdiction over those parties before it. Even if this were not so, the expert evidence of a Malaysian solicitor, Christopher Foo Kah Foong, confirms that the High Court of Malaya has jurisdiction to order in personam relief in relation to land situated in a foreign country where the jurisdiction of the High Court is otherwise attracted.
As to jurisdiction of the High Court of Malaya, Mr Foong gave evidence that s. 23(1) of the Courts of Judicature Act 1964 (Malaysia) was, relevantly, determinative. Under s. 23(1) of that Act it is provided:
“Subject to the limitations contained in Article 128 of the Constitution every High Court shall have jurisdiction to try all civil proceedings where –
(a) the cause of action arose; or
(b) the defendant or one of several defendants resides or has his place of business; or
(c) the facts on which the proceedings are based, exist or are alleged to have occurred; or
(d) any land the ownership of which is disputed is situated;
within the local jurisdiction of the Court and notwithstanding anything contained in this section in any case where all parties consent in writing to the local jurisdiction of the High Court.”
On the face of the documents before the Registrar on the specified day, it was apparent that a number of these jurisdictional requirements had been met. First, the transfer of land, which the caveator alleges is fraudulent, was signed by the caveator’s husband in Kuala Lumpur, Malaysia. This is apparent on the face of the transfer of land. Accordingly, the caveator’s claim in relation to the land is based upon facts which are alleged to have occurred, or her cause of action is alleged to have arisen, within the local jurisdiction of the High Court of Malaya at Kuala Lumpur.
Second, having regard to the fact that the transfer of land was signed in Kuala Lumpur, and the fact that the caveator’s husband has commenced proceedings in the High Court of Malaya at Kuala Lumpur, it is reasonable to infer that the husband resides or has a place of business within the local jurisdiction of the High Court of Malaya at Kuala Lumpur. Although the caveator’s husband is the petitioner in the Malaysian proceedings, the caveator’s notice refers to a claim by the caveator against the husband. This claim is constituted by her “answer” to the petition, in which the caveator seeks “inter alia, for maintenance”. On the face of the caveator’s notice, it is open to conclude that the caveator’s claim in relation to the land forms part of the caveator’s claim for maintenance. In this sense, the caveator’s husband is a “defendant” residing within the jurisdiction of the High Court of Malaya at Kuala Lumpur. As a result, the High Court of Malaya has in personam jurisdiction on this ground.
It was next argued on behalf of the plaintiff that the High Court of Malaya at Kuala Lumpur was not a court of competent jurisdiction because the plaintiff was not a party to the Malaysian proceedings. I reject this argument. There is no requirement in s 89A(3)(b) that a caveator’s notice give notice of proceedings which are on foot against the proprietor of the estate or interest in respect of which the s 89A application it made. Although it may be expected that a court of competent jurisdiction would be reluctant to make an order affecting the rights of a registered proprietor to land in the absence of the registered proprietor as a party, in the same way that I refused to hear this case in the absence of the caveator as a party, that does not mean that there may not be proceedings which meet the description in s 89A(3)(b) but which do not join the registered proprietor as a party. If this were not the case, it would mean that a caveator who made a mistake, and neglected to join the proprietor of the estate or interest in the land in respect of which the s 89A application is made as a party to the proceedings, would thereby suffer the result that the caveat lapsed by reason of the non-joinder of a necessary party to the proceedings referred to in the caveator’s notice under s 89A(3)(b). This would be so notwithstanding that there is ample power in courts to join all necessary parties after the commencement of proceedings. Indeed, as noted above, I made orders of this kind in this proceeding.
It follows that, in my view, the caveator’s notice gives notice of proceedings in a court of competent jurisdiction to substantiate the claim of the caveator in relation to the land and the estate or interest therein in respect of which the plaintiff made the s 89A application.
It is important that lawyers not assume that all states and territories of Australia have the same law with respect to caveats as Victoria. For example, New South Wales has a lapsing procedure, but any proceedings to maintain a caveat must be issued in the Supreme Court of New South Wales.
In the recent NSW case of Guirgis v JEA Developments Pty Ltd [2019] NSWSC 164, Kunc J referred to the impact of the move to electronic conveyancing and the greater role of solicitors and licensed conveyancers with respect to the lodgement of caveats (at [39]):
“As New South Wales’ conveyancing system moves to a completely electronic platform, the role of conveyancers, solicitors and others as persons qualified to prepare and lodge caveats becomes all the more important. Ordinary members of the public are, in practical terms, no longer able to lodge caveats without the intervention of a “Subscriber”, who in many cases will be a solicitor or licensed conveyancer. The requirement to give the requisite representations and certifications operates to confer on them the role of a guardian at the gate.”
An example of a case where the Family Court exercised jurisdiction under s 90(3) TLA to order the Registrar of Titles to remove a caveat was Green & Walls [2019] FamCA 76.
The equity of exoneration is probably under-utilised in family law proceedings. A useful case to refer to is Farrugia v Official Receiver [1982] FCA 52; (1982) 58 FLR 474. Mr Farrugia was made bankrupt after he had, with the consent of Mrs Farrugia, extended the mortgage and used $10,500 for his own purposes. After the home was sold, the net proceeds of sale were divided 50% to Mrs Farrugia and 50% to the Official Receiver as Mr Farrugia was bankrupt. Mrs Farrugia issued proceedings, claiming that she was entitled to a further $5,250 from the proceeds of sale, being 50% of the half received by Mr Farrugia and used for his own purposes, together with interest on that sum.
Justice Deane said:
“Where the property of a married woman is mortgaged or charged in order to raise money for the benefit of her husband, it is presumed, in the absence of evidence showing an intention to the contrary, that, as between her husband and herself, she meant to charge her property merely as a surety. In such a case, she is, as between her husband and herself, in the position of surety and entitled both to be indemnified by the husband and to throw the debt primarily on his estate to the exoneration of her own …
The present case is not, however, the simple one where the whole of the moneys borrowed jointly by husband and wife on the security of their joint property have been applied for the benefit of the husband. As has been mentioned, $12,500 of the amount borrowed was applied for the joint benefit of Mr and Mrs Farrugia upon the discharge of the previous mortgage under which they were jointly liable. It was only the balance of $10,500 that was applied for the benefit of Mr Farrugia alone. A question which arises is whether the one borrowing can, for the purposes of the application of the relevant equitable principles, be in effect subdivided into what was borrowed and applied for the joint benefit of Mr and Mrs Farrugia and what was borrowed and applied for Mr Farrugia’s benefit alone. In my view it can. It seems to me that where the joint property is charged partially for the benefit of the husband alone and partly for the benefit of both husband and wife and it is possible to apportion the principal between the two, there is room for the application of the equitable doctrine of exoneration and the wife is, in the absence of agreement to the contrary, entitled to exoneration to the extent of what was borrowed and applied for the benefit of the husband alone …”
Mrs Farrugia was successful.
The law was well set out in Parsons & Parsons v McBain [2001] FCA 376 ALR which has been frequently cited since. The Full Court of the Federal Court rejected the view that the equity of exoneration only applied between husband and wife. The Full Court said (at [20]-[25]):
“The equity of exoneration is an incident of the relationship between surety and principal debtor. It usually arises where a person has mortgaged his property to secure the debt of another, whether or not that other has covenanted to pay the debt. However, it will also arise in a case where, although not an actual suretyship, the relationship is treated as one of suretyship. This is Lord Selbourne’s third class of suretyship mentioned in Duncan, Fox, & Co v North and South Wales Bank (1880) 6 App Cas 1, 10. For the doctrine to apply in this class, the following facts will usually exist. First, a person must charge his property. Where the person is the beneficial owner of the property it will be sufficient if the charge is by his trustee. Second, the charge must be for the purpose of raising money to pay the debts of another person or to otherwise benefit that other person. Third, the money so borrowed must be applied for that purpose. See generally Re Berry (a bankrupt) [1978] 2 NZLR 373.
An equity of exoneration operates in the nature of “a charge upon the estate of the principal debtor by way of indemnity for the purpose of enforcing against that estate the right which [the beneficiary] has, as between [the beneficiary] and the principal debtor, to have that estate resorted to first for the payment of the debt”: Gee v Liddell [1913] 2 Ch D 62 at 72. Thus, where co-owners mortgage their property so that money can be borrowed for the benefit of one mortgagor, the other has an interest in the property of the co-mortgagor whose property is to be regarded as primarily liable to pay the debt.
The trial judge denied to each appellant the right of exoneration because she had received “a tangible benefit” from the 1992 mortgage. The benefit, which might more accurately be described as an expected benefit, was that, by putting money into the partnership business, the business might survive and, as put by counsel for the trustee, that would bring “home money to put food on the table and clothe the children”.
If a surety receives a benefit from the loan, the equity of exoneration may be defeated. So, if the borrowed funds are applied to discharge the surety’s debts, the surety could not claim exoneration, at least in respect of the benefit received. But the benefit must be from the loan itself. The question suggested by the Lord Chancellor of Ireland is: “Who got the money?”: see In re Kiely (1857) Ir Ch Rep 394, 405. In Paget v Paget [1898] 1 Ch 470 both the husband and the wife “got the money” and this prevented the wife claiming exoneration.
The “tangible benefit” referred to by the trial judge will not defeat the equity. It is too remote. In any event, the exoneration to which a surety is entitled could hardly be defeated by a benefit which is incapable of valuation, and even if it were so capable, the value is unlikely to bear any relationship to the amount received by the principal debtor.
Although each appellant is entitled to exoneration, that does not give her ownership of her husband’s property, but merely a charge over it. It will therefore be necessary for each appellant to transfer a one half interest in the property to the trustee. He will then hold it subject to each appellant’s charge. In any event, each appellant has the right to be subrogated to the mortgage over her husband’s interest in accordance with cases such as Banque Financière de la Cité v Parc (Battersea) Ltd [1998] UKHL 7; [1999] 1 AC 221.”
A family law matter where the claim was successfully made by the non-bankrupt spouse was the case of Vincent & Vincent referred to earlier. The outcome was not reported. Judge Riethmuller allowed the creditor to continue the proceedings. The creditor’s claim was a debt from personal injury. She had judgment against the husband. The trustee wasn’t in funds and decided that to defend the wife’s s 79 claim was too risky. The Judge allowed the creditor to run the proceedings on behalf of the trustee as the beneficiary of the estate because the creditor said that she couldn’t afford to pay lawyers. Of course, she could and did, but she wanted control of the proceedings.
The matter went to trial and settled during final submissions when the creditor conceded the trustee was entitled to very little. The creditor had received some money in reduction of her debt from the parties’ mortgage before the husband went bankrupt. The husband had also paid considerable legal costs for the proceedings between himself and the creditor. The bankruptcy occurred after the wife had issued FLA proceedings.
The wife made various offers to the creditor, but the creditor wanted all of the wife’s interest in the home. The highest offer the wife made was $150,000 before the proceedings commenced. However, the equity of exoneration operated so that the husband had already received almost all of his half share of the home. As a result, the wife was only required to pay $38,016 to the Official Trustee. The creditor therefore received nothing or almost nothing.
Dealing with debt is not simple – it is much easier to deal with net property pools where each party ends up with some property. Negotiating a settlement is much more challenging when one party is expected to walk away with debt. The legal issues which arise are different than in positive property pools, but there are also opportunities to protect a party’s position, some of which have been canvassed in this paper.
© Copyright – Jacqueline Campbell of Forte Family Lawyers and Wolters Kluwer/CCH. This paper uses some material written for publication in Wolters Kluwer/CCH Australian Family Law and Practice. The material is used with the kind permission of Wolters Kluwer/CCH.
[1] “Decision Time”, S Mullette (last viewed on 13 November 2019) at https”//www.matthewsfolbig.com.au//news/insolvency-restructuring-debt-recovery/ decision-time/
[2] Eng Mee Yong v Letchumanan [1980] AC 331, 337; Piroshenko v Grosjman (2010) 27 VR 489, [12]-[23]; Goldstraw v Goldstraw [2002] VSC 491, [30]).
[3] Eng Mee [1980] AC 331, 337; Smith v Callegari (1988) V Conv R 54-300, 63,858-9; Joseph Lynch Land Co Ltd v Lynch [1995] 1 NZLR 37, 43.
[4] Piroshenko (2010) 27 VR 489, [7]-[11].
[5] See, eg, Percy & Michele Pty Ltd v Gangemi [2010] VSC 530, [38]-[48]; Piroshenko (2010) 27 VR 489, [13]-[20]; Schmidt v 28 Myola Street [2006] 14 VR 447, 457, [32]; Goldstraw [2002] VSC 491, [30]; Sylina v Solanki [2014] VSC 2, [43].
[6] TLA s 89(1).
[7] CFHW Pty Ltd v Burness [2014] VSC 451, [17], citing Australian Broadcasting Corporation v O’Neill (2006) 227 CLR 57, 82); Carbon Black Pty Ltd v Launer [2015] VSCA 126, [37].
[8] Sylina [2014] VSC 451, [20]; Piroshenko (2010) 27 VR 489, 494; O’Neill (2006) HCA 46, (2006) 227, CLR 57,82.
[9] Piroshenko (2010) 27 VR 489; Carbon Black [2015] VSCA 126.
[10] Piroshenko (2010) 27 VR 489, [18].
[11] Spencer v Spencer, Hedigan J, Supreme Court of Victoria, 16 October 1996, 9, cited in Goldstraw [2002] VSC 491, [24].
[12] Taddeo v Catalano (1975) 11 SASR 492; McMahon v McMahon [1979] Vic RP 23, [1979] VR 239; Goldstraw [2002] VSC 491, [26]
[13] Goldstraw [2002] VSC 491, [26].
[14] Ogilvie v Ryan [1976] 2 NSWLR 504.
[15] Muschinski v Dodds [1985] HCA 78, (1985) 160 CLR 583.
[16] Baumgartner v Baumgartner [1987] HCA 59; (1987) 164 CLR 137.
[17] Hohol v Hohol [1981] Vic RP 24, [1981] VR 221.
[18] Muschinski v Dodds [1985] HCA 78; (1985) 160 CLR 583, 620, 623
[19] [1893] AC 602
Jacky Campbell, October 2019
Add-backs in proceedings for the alteration of property interests under the Family Law Act 1975 (Cth) (FLA) occur when the court adds back funds or other property to the property of the parties, when funds or other property has been used by one of the parties for their own purposes, usually after separation.
© Copyright – Jacqueline Campbell of Forte Family Lawyers and Wolters Kluwer/CCH. This paper uses some material written for publication in Wolters Kluwer/CCH Australian Family Law and Practice. The material is used with the kind permission of Wolters Kluwer/CCH.
Jacky Campbell, October 2019
In these increasingly mobile times, the family law courts are often faced with the question of how to deal with property which is located overseas, such as bank accounts, superannuation and real property.
October 2019
© Copyright – Jacqueline Campbell of Forte Family Lawyers and Wolters Kluwer/CCH. This paper uses some material written for publication in Wolters Kluwer/CCH Australian Family Law and Practice. The material is used with the kind permission of Wolters Kluwer/CCH.
Jacky Campbell, June 2019
Family law never stagnates. Legislative reforms since the introduction of the Family Law Act 1975 (Cth) have often either followed societal developments or, more frequently, led or accompanied them. However, the next 12 months has the potential for even greater change for family lawyers, the family law courts and parties than has ever occurred in a 12 month period since 1975.
The Attorney-General, Christian Porter, says he is committed to the structural reforms of the Family Court and the Federal Circuit Court (the family law courts) he proposed prior to the 18 May 2019 federal election. In a media release on 29 May 2019 he said:
“The highest priority will be the structural reform of the family law courts to ensure families requiring the assistance of the courts to finalise their relationship are able to have their matters dealt with as quickly, efficiently and cheaply as possible.”
Regarding the recommendations of the Australian Law Reform Commission (ALRC) in its Final Report on the Review of the Family Law System released on 10 April 2019 (Final Report) which can be accessed at www.alrc.gov.au/inquiries/family-law-system, Mr Porter said:
“If re-elected, the Government will … be fully committed to considering and developing individual responses to the complex issues raised in each of the 60 recommendations made in the final ALRC report.
I have asked my department to commence its consideration of the ALRC’s report and to develop comprehensive advice about each of the reforms suggested by the ALRC to ensure that the family law system supports modern Australian families to resolve their disputes safely and as efficiently and cheaply as possible.”
There are many aspects of family law which demand review, but regrettably the ALRC’s Final Report was not the comprehensive review that was promised. Some of the areas it covered are:
The federal government seems determined to institute major reform to the structure of the family law courts and to family law generally. There are three major questions:
This article looks at the Terms of Reference of the ALRC’s Review of the Family Law System, deficiencies with the Terms of Reference, problems with the Final Report, lists all the Recommendations indicating those which are likely to have significant support, and gives commentary on some of the Recommendations.
Note: The views and opinions expressed in this article are those of the author.
On 27 September 2017, the then Attorney-General George Brandis announced a review of the FLA and stated that it was “the first comprehensive review of the FLA since its commencement in 1976”. He announced 15 Terms of Reference, including:
Other Terms of Reference covered such matters as family violence (mentioned three times); the adversarial court system; the integration of the family law system with other Commonwealth, state and territory systems; rules of procedure; and improving the clarity and accessibility of the law. There was a catch all Term of Reference of “any other matters related to these Terms of Reference”.
Whilst the ALRC was undertaking the Inquiry, there was a debate between the federal government, the ALRC and other stakeholders as to whether the Terms of Reference included consideration of structural reform of the family law courts. The Inquiry was promoted by the federal government as the first comprehensive review of the FLA since 1976, so it was reasonable to interpret the Terms of Reference broadly to include structural reform (particularly when structural reform was being considered by Parliament), and other aspects of family law not specifically mentioned but “related to” the Terms of Reference.
The Federal Circuit Court and Family Court of Australia Bill 2018 and the Federal Circuit Court and Family Court of Australia (Consequential Amendments & Transitional Provisions) Bill 2018 (the Restructure Bills) were tabled in Parliament on 23 August 2018, while the ALRC was still conducting its Inquiry: after the Issues Paper was released in March 2018, but before the Discussion Paper was released in October 2018. The Bills were aimed at “increasing efficiencies and reducing delays” (para 1 of the Explanatory Memorandum to the Federal Circuit and Family Court of Australia Bill 2018) which addresses the first Term of Reference being “the appropriate, early and cost‑effective resolution of all family law disputes.” Structural reform was a matter which could and should have been considered in depth by the ALRC as part of its “comprehensive review of the FLA”.
Interestingly, there was no express reference to child support in the Terms of Reference although this is a fundamental part of family law and continues to impact on families and children for many years after the parents have resolved their property disputes.
The ALRC, in its Issues Paper released in March 2018, recognised two deficiencies in the Terms of Reference: structural reform and child support. It also referred to the quandary it faced because it considered that matters of state and territory responsibility and the child protection system are part of the “family law system”.
The Inquiry into the family law system was an initiative of the Coalition government and that government was returned at the federal election in May 2019. The ALRC’s recommendations are therefore likely to be given serious consideration by the federal government and provide a blueprint for reform of the family law system. There will be pressures from stakeholders – the family law courts, lawyers and special interest groups and organisations advocating for family violence victims and men’s rights.
The ALRC’s Final Report is over 570 pages with 60 Recommendations. The ALRC claims that the implementation of its Recommendations will improve the family law system by doing the following:
The ALRC pointed out (at 1.5) that it was constrained by time limits and by the breadth of the matters it was required to inquire into within a short timeframe. As a result, the ALRC said it had to omit some issues and apologised for not producing a “bold new initiative” or “magic wand fix”. Besides these constraints, the ALRC was also restricted by the narrow Terms of Reference – a major deficit was the omission of an express Term of Reference about the best structure for the family law courts. Whilst the Law Council of Australia and others, argued that the Terms of Reference allowed the ALRC to consider structural reform, the Attorney-General publicly declared that it was not part of the ALRC’s inquiry which was only dealing with principles and legal provisions of the family law system (Media Release 30 May 2018; “Law Council takes aim at Porter over family reforms” Australian Financial Review, 10 April 2019).
In the absence of a definition in the Terms of Reference, the ALRC interpreted (at p13) the phrase “family law system” broadly, to refer collectively to:
This broad definition, which incorporates matters under state and territory jurisdiction, rather than just federal jurisdiction, meant that the Inquiry made Recommendations which the federal government does not have the power to implement.
The ALRC said that it was guided by the following over-arching principles in formulating its recommendations:
Principle One | It is essential to the efficacy of the family law system that there are integrated pathways to adjudication, through which both public and private law jurisdiction can be exercised — to protect children and vulnerable parties, and to regulate interpersonal relationships. |
Principle Two | It is essential to the rule of law that the substantive and procedural law is clear, coherent, and enforceable so as to enable families to resolve issues arising after separation (without exacerbating parties’ exposure to litigation) in a just, timely, and cost-effective manner that is reasonable in, and proportionate to, the circumstances of the case. |
Principle Three | It is essential to the integrity of the family law system that all those who work within the family law system (including judges, registrars, lawyers, and the wide range of medical and social science professionals) are equipped with the skills and the tools necessary to achieve outcomes that are in the best interests of children and fair to the parties, and which are designed to promote conciliation and reduce contention at every step. |
Principle Four | The substantive law should be drafted in a manner that assists both lay people and lawyers to locate and apply the law so as to facilitate the resolution of issues arising after separation as quickly and cost effectively as possible. |
The Recommendations are listed under the relevant chapters of the Final Report are, with an indication of whether they are likely to receive wide stakeholder support are:
4. Closing the jurisdictional gap | Likely to be widely supported | Comment | |
Recommendation 1 | The Australian Government should consider options to establish state and territory family courts in all states and territories, to exercise jurisdiction concurrently under the FLA, as well as state and territory child protection and family violence jurisdiction, whilst also considering the most efficient manner to eventually abolish first instance federal family courts. | Needs to be part of a full investigation as to the best structure | |
Recommendation 2 | The Australian Government should work with state and territory governments to develop and implement a national information sharing framework to guide the sharing of information about the safety, welfare, and wellbeing of families and children between the family law, family violence, and child protection systems. The framework should include:
· the legal framework for sharing information; · relevant federal, state, and territory court documents; · child protection records; · police records; · experts’ reports; and · other relevant information. |
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Recommendation 3 | The National Domestic Violence Order Scheme be expanded to include family law court orders and orders issued under state and territory child protection legislation. The benefit of this would be to give the family law courts and professionals in the child protection system more timely and accurate information without the need to apply for subpoenas or rely on the parties’ evidence. | √ | |
5. Children’s matters | |||
Recommendation 4 | Section 60B of the FLA should be repealed. | May have unintended consequences | |
Recommendation 5
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Section 60CC of the FLA should be amended so that the factors to be considered when determining parenting arrangements that promote a child’s best interests are:
· What arrangements best promote the safety of the child and the child’s carers, including safety from family violence, abuse, or other harm; · Any relevant views expressed by the child; · The developmental, psychological, and emotional needs of the child; · The benefit to the child of being able to maintain relationships with each parent and other people who are significant to the child, where it is safe to do so; · The capacity of each proposed carer of the child to provide for the developmental, psychological, and emotional needs of the child, having regard to the carer’s ability and willingness to seek support to assist with caring; and · Anything else that is relevant to the particular circumstances of the child. |
May have unintended consequences | |
Recommendation 6 | The FLA should be amended to provide that in determining what arrangements promote the best interests of an Aboriginal or Torres Strait Islander child, a court must consider the child’s opportunities to connect with, and maintain the child’s connection to, the child’s family, community, culture, and country. | √ | Unclear how this fits into the legislative regime |
Recommendation 7 | Section 61DA of the FLA should be amended to replace the presumption of “equal shared parental responsibility” with a presumption of “joint decision making about major long-term issues”. | √ | May be opposed by men’s rights groups |
Recommendation 8 | Section 65DAA of the FLA which requires the courts to consider, in certain circumstances, the possibility of the child spending equal time, or substantial and significant time with each parent, should be repealed. | √ | May be opposed by men’s rights groups |
Recommendation 9 | Section 4(1AB) of the FLA should be amended to provide a definition of member of the family that is inclusive of any Aboriginal or Torres Strait Islander concept of family that is relevant in the particular circumstances of the case. | √ | |
Recommendation 10 | Combined rules for the Family Court of Australia and the Federal Circuit Court of Australia should provide for proceedings to be conducted under Pt VII Div 12A of the FLA by judges of both courts. Both courts should be adequately resourced to carry out the statutory mandate in s 69ZN(1) of the FLA. | √ | |
7. A simplified approach to property division | |||
Recommendation 11 | The FLA should be amended to:
· Specify the steps that a court will take when considering whether to make an order to alter the interests of the parties to the relationship in any property; and · Simplify the list of matters that a court may take into account when considering whether to make an order to alter the interests of the parties to the relationship in any property. |
√ |
May have unintended consequences |
Recommendation 12 | The FLA should be amended to include a presumption of equality of contributions during the relationship. | May have unintended consequences | |
Recommendation 13 | The FLA should be amended to provide that the relevant date to ascertain the value of the parties’ rights, interests, and liabilities in any property is the date of separation, unless the interests of justice require otherwise. | Needs further investigation | |
Recommendation 14 | The family courts and the Australian Financial Complaints Authority should develop a protocol for dealing with jurisdictional overlap with respect to debts of parties to family law proceedings. The protocol should provide that:
· disputes about the enforceability of a debt against one or both parties under the National Consumer Credit Protection Act 2009 (Cth) are dealt with by the Australian Financial Complaints Authority; and · disputes about the reallocation of a debt between parties to a family law proceeding are dealt with by the family courts. |
√ | |
Recommendation 15 | The Privacy Act 1988 (Cth) and the National Consumer Credit Protection Act 2009 (Cth) should be amended to provide that when a court has ordered that one party (Party A) be responsible for a joint debt and indemnify the other party (Party B) against any default, credit providers are prohibited from making an adverse credit report against Party B to any credit reporting business as a consequence of the subsequent actions of Party A. | √ | |
Recommendation 16 | The FLA should be amended to provide a presumption that the value of superannuation assets accumulated during a relationship are to be split evenly between the parties. | √ | |
Recommendation 17 | The FLA should be amended to simplify the process for splitting superannuation including:
· Developing template superannuation splitting orders for commonly made superannuation splits; and · When the applicant is suffering economic hardship, requiring superannuation trustees to limit the fees they charge members and their former spouse for services provided in connection with property settlement under Pt VIII to the actual cost of providing those services. |
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Recommendation 18 | The FLA should be amended so that:
· The spousal maintenance provisions and provisions relating to the division of property are dealt with separately under the legislation; and · Access to interim spousal maintenance is enhanced by the use of Registrars to consider urgent applications. |
√ | |
Recommendation 19 | The FLA should be amended to include a statutory tort of family violence that would provide remedies consistent with existing common law remedies. | Needs further investigation. May lead to more litigation | |
Recommendation 20 | The FLA should be amended to extend s 69ZX to property settlement proceedings. | √ | |
8. Encouraging amicable resolution | |||
Recommendation 21 | The FLA should be amended to:
· Require that parties take genuine steps to attempt to resolve their property and financial matters prior to filing an application for court orders; and · Specify that a court must not hear an application unless the parties have lodged a genuine steps statement. A failure to make a genuine effort to resolve a matter should have costs consequences. |
√ | |
Recommendation 22 | Regulation 25 of the Family Law (Family Dispute Resolution Practitioners) Regulations 2008 (Cth), which refers to ‘equality of bargaining power between the parties’, should be amended to refer to the ‘equality of bargaining power between the parties, including an imbalance in knowledge of relevant financial arrangements’. | √ | |
Recommendation 23 | The FLA should be amended to require Family Dispute Resolution Providers to provide a certificate to the parties in all matters where some or all of the issues in dispute have not been resolved. | √ | |
Recommendation 24 | Sections 10H and 10J of the FLA, which provide for confidentiality and inadmissibility of discussions and material in Family Dispute Resolution in relation to parenting matters, should be extended to Family Dispute Resolution for property and financial matters. The legislation should provide an exception for a sworn statement in relation to income, assets, superannuation balances, and liabilities that each party signs at the start of Family Dispute Resolution, which should be admissible. | √ | |
Recommendation 25 | The FLA should be amended to clearly set out the disclosure obligations of parties, and the consequences for breach of those obligations. | √ | |
9. Arbitration | |||
Recommendation 26 | The FLA and the Child Support (Assessment) Act 1989 (Cth) should be amended to increase the scope of matters which may be arbitrated, whether or not upon referral from a court. Those matters should include all financial issues, including child maintenance and child support, subject to limitations. Appropriate occasions for arbitration would not include disputes:
· Relating to enforcement; · Under ss 79A or 90SN of the FLA (subject to limitations); and · In which a litigation guardian has been appointed. |
√ | |
Recommendation 27 | The FLA should be amended to remove the opportunity for a party to object to registration of an arbitral award, while maintaining appropriate safeguards for the integrity of registered awards. | √ | |
Recommendation 28 | The FLA should be amended to allow some children’s matters to be arbitrated. Appropriate occasions for arbitration in children’s matters would not include disputes:
· Relating to international relocation; · Relating to medical procedures of a nature requiring court approval; · Relating to contravention matters; · In which an Independent Children’s Lawyer has been appointed; and · Involving family violence which satisfy ss 102NA(1)(b) and (c) of the FLA. |
√ | |
Recommendation 29 | The FLA should be amended to provide that upon application by an arbitrator, or by a party to an arbitration, a court has power to make directions at any time regarding the further conduct of the arbitration, including power to make a direction terminating the arbitration (whether or not the arbitration was referred from a court). | √ | |
10. Case management – efficiency and accountability | |||
Recommendation 30 | The FLA should include an overarching purpose of family law practice and procedure to facilitate the just resolution of disputes according to law, as quickly, inexpensively, and efficiently as possible, and with the least acrimony so as to minimise harm to children and their families. | √ | |
Recommendation 31 | The FLA should impose a statutory duty on parties, their lawyers, and third-parties to cooperate amongst themselves, and with the courts, to assist in achieving the overarching purpose. Breach of the duty will have costs consequences for the person who fails to act in accordance with the overarching purpose. | √ | |
Recommendation 32 | The FLA should be amended to provide the courts with a power to make an order requiring a litigant to seek leave of the court prior to making further applications and serving them on the other party where the court is satisfied that such an order is appropriate for the protection of the respondent and/or any children involved in the proceedings, having regard to the overarching purpose of family law practice and procedure. | √ | |
Recommendation 33 | Section 45A of the FLA should be amended to provide that the courts’ powers of summary dismissal may be exercised where the court is satisfied that it is appropriate to do so, having regard to the overarching purpose of family law practice and procedure. | √ | |
Recommendation 34 | The family courts should consider promulgating a joint Practice Note for Case Management which describes the courts’ approaches to the family law practice and procedure provisions. | Better in the Rules? | |
Recommendation 35 | The FLA should be amended to provide for the appointment and protection of referees in the same terms as provided for in ss 54A and 54B of the Federal Court of Australia Act 1976 (Cth). | Needs more consideration | |
Recommendation 36 | Section 117 of the FLA should be amended to:
· Remove the general rule that each party to proceedings under the Act bears his or her own costs; and · Articulate the scope of the courts’ power to award costs. |
Needs more consideration. May create more litigation rather than discourage it | |
Recommendation 37 | The FLA should be amended to provide courts with an express statutory power to exclude evidence of “protected confidences”. In determining whether to exclude evidence of protected confidences the court must:
· Be satisfied that it is likely that harm would or might be caused, directly or indirectly, to a protected confider, and the nature and extent of the harm outweighs the desirability of the evidence being given; and · Ensure that in parenting proceedings, the best interests of the child is the paramount consideration when deciding whether to exclude evidence of protected confidences. |
More appropriate to deal with in the Evidence Act 1995 (Cth) | |
11. Compliance with children’s orders | |||
Recommendation 38 | The FLA should be amended to require parties to meet with a Family Consultant to assist their understanding of the final parenting orders made by a court following a contested hearing. | √ | |
Recommendation 39 | The FLA should be amended to provide that:
· in all parenting proceedings for final orders, the courts must consider whether to make an order requiring the parties to see a Family Consultant for the purposes of receiving post-order case management; and · the appointed Family Consultant has the power to seek that the courts place the matter in a contravention list or to recommend that the court make additional orders directing a party to attend a post-separation parenting program. |
√ | |
Recommendation 40 | The FLA should be amended to require leave to appeal interim parenting orders. Leave should only be granted where:
· the decision is attended by sufficient doubt to warrant it being reconsidered; and
· substantial injustice would result if leave were refused, supposing the decision to be wrong. |
√ | |
Recommendation 41 | The FLA should be amended to explicitly state that when a new parenting order is sought, and there is already a final parenting order in force, the court must consider whether:
· There has been a change of circumstances that, in the opinion of the court, is significant; and · It is in the best interests of the child for the order to be reconsidered. |
√ | |
Recommendation 42 | Part VII Div 13A of the FLA should be redrafted to achieve simplification, and to provide for:
· a power to order that a child spend additional time with a person; · a power to order parties to attend relevant programs at any stage of proceedings; and · a presumption that a costs order will be made against a person found to have contravened an order. |
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12. Support services in the courts | |||
Recommendation 43 | The FLA should be amended to:
· replace ‘family consultants’ with ‘court consultants’; and · redraft s 11A to include a comprehensive list of functions that court consultants would provide to children, families, and the courts. |
√ | |
Recommendation 44 | Section 68LA(5) of the FLA should be amended to include a specific duty for Independent Children’s Lawyers to comply with the Guidelines for Independent Children’s Lawyers, as promulgated from time to time and as endorsed by the family courts. | √ | |
Recommendation 45 | The Australian Government should ensure the availability of Indigenous Liaison Officers in court registries where they are required. | √ | |
Recommendation 46 | The FLA should be amended to include a supported decision making framework for people with disability consistent with recommendations from the ALRC Report 124, Equality, Capacity and Disability in Commonwealth Laws. | √ | |
Recommendation 47 | The FLA should include provisions for the appointment of a litigation representative where a person with disability is unable to conduct the litigation. These provisions should be consistent with the recommendations of the ALRC Report 124, Equality, Capacity and Disability in Commonwealth Laws. | √ | |
Recommendation 48 | The Australian Government should work with state and territory governments to facilitate the appointment of statutory authorities as litigation representatives in family law proceedings. | √ | |
13. Building accountability and transparency | |||
Recommendation 49 | Section 115 of the FLA should be amended to expand the Family Law Council’s responsibilities to include:
· monitoring and regular reporting on the performance of the family law system; · conducting inquiries into issues relevant to the performance of any aspect of the family law system, either of its own motion or at the request of government; and · making recommendations to improve the family law system, including research and law reform proposals. |
√ | Seems essential to continue the work started by the ALRC |
Recommendation 50 | The Family Law Council should establish a Children and Young People’s Advisory Board, which would provide advice and information about children’s experiences of the family law system to inform policy and practice. | √ | |
Recommendation 51 | Relevant statutes should be amended to require that future judicial appointments of all federal judicial appointments include consideration of the person’s knowledge, experience, skills, and aptitude relevant to hearing family law cases, including cases involving family violence. | Watering down of current s 22(1) FLA | |
Recommendation 52 | The Law Council of Australia should work with state and territory regulatory bodies for legal practitioners to develop consistent requirements for legal practitioners undertaking family law work to complete annually at least one unit of continuing professional development relating to family violence. | √ | But queries over implementation |
Recommendation 53 | The Australian Government Attorney-General’s Department should develop a mandatory national accreditation scheme for private family report writers. | √ | |
Recommendation 54 | The FLA should be amended to:
· require any organisation offering a Children’s Contact Service to be accredited; and · make it an offence to provide a Children’s Contact Service without accreditation. |
√ | |
14. Legislative clarity | |||
Recommendation 55 | The FLA and its subordinate legislation should be comprehensively redrafted. | √ | |
Recommendation 56 | Privacy provisions that restrict publication of family law proceedings to the public, currently contained in s 121 of the FLA, should be redrafted. | √ | |
16. Secondary interventions | |||
Recommendation 57 | The Family Advocacy and Support Service’s social support services should be expanded to provide case management to clients who are engaged with the family law systems. | √ | |
Recommendation 58 | The Australian Government should work with Legal Aid Commissions in each state and territory to expand the Family Advocacy and Support Service to court locations that have a demonstrable need and to ensure the provision of adequate and appropriate services. | √ | |
Recommendation 59 | Family Relationship Centres should be expanded to provide case management to clients with complex needs who are engaged with the family law system. | √ | |
Recommendation 60 | The Australian Government should work with Family Relationship Centres to develop services, including:
· Financial counselling services; · Mediation in property matters; · Legal advice and legally assisted Dispute Resolution Services; · Legally assisted Dispute Resolution; and · Children’s Contact Services. |
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There are a number of appendices to the Final Report. Appendix G contains examples of re-drafted parenting provisions. Appendix H sets out a suggested restructure of the children’s provisions. Appendix J sets out the existing and proposed decision making pathways in children’s matters.
The problems with the ALRC’s Final Report include:
.1 The FLA was “impenetrable” for lay people and even many lawyers;
.2 The family law system has been deprived of resources to such an extent that it cannot deliver the quality of justice expected of a country like Australia, and to whose family law system other countries once looked and tried to emulate (at 1.8). This has led to a loss of faith in the system.
Although the ALRC made recommendations to address the impenetrability of the FLA it did not make substantive recommendations to address the funding crisis of the family law courts. It recommended that new services be funded, but not increased funding for current services.
.1 Child support has become an overly complex scheme both in legislative terms and procedures for altering assessments. The amounts payable are criticised by some for being too high and by others for being too low;
.2 The rights of trustees in bankruptcy vs the rights of creditors (particularly where there is a bankruptcy) to intervene in FLA proceedings, e.g. Grainger & Bloomfield (2015) FLC 93-677. For example, the definition of “creditor” in s 75(2)(ha) appears not to encompass the trustee in bankruptcy. The ability of a bankrupt to continue parenting proceedings in which the bankrupt is the applicant has been called into question in Sloan & Sloan [2018] FamCA 610, unless the trustee in bankruptcy elects for it to continue under s 60 Bankruptcy Act 1966;
.3 Aligning the property and maintenance provisions which deal with married couples more closely to those that deal with de facto couples. They are similar, but not precisely the same;
.4 Does the definition of a de facto relationship need review? Can it be made clearer? There has been no change to the definition since it commenced in 2009, although there is now considerable case law on how difficult the definition is to apply in practice;
.5 Which court procedures work best? For example, there was no examination of the differing experiences and outcomes of parties whose first court date is a case assessment conference in the Family Court or a listing in a duty list in open court with 10 to 30 other cases in either of the family law courts;
.6 The involvement of third parties. As family law matters have become more complex, the FLA has been amended and expanded to deal with third parties, but there has been very little review of the effectiveness of these provisions;
.7 Adult child maintenance which, like spousal maintenance, is probably under-utilised, and might benefit from a similar revamping of procedures as proposed by the ALRC for spousal maintenance;
.8 The uncertainty about whether financial agreements are binding or can be set aside. The problems were highlighted by the High Court decision of Thorne v Kennedy (2017) FLC 93-807.
The ALRC stated (at 4.4) that as the structure of the current federal family law system was not within its Terms of Reference, it had not considered the Restructure Bills. However, the ALRC still concluded (at 4.7) that the existing family law court structure may, through no fault of the judges of the two courts, be “no longer fit for purpose”, and recommended a replacement family law court structure.
The ALRC challenged (at 2.12) the assumption that a federal family law court system was still appropriate and effective “for the resolution of family law disputes which involved complex matters of both state and federal law”. It also considered that the current federal family court system hindered the development of “a more holistic approach” to a modern family law system with modern notions of parents and families and different cultural understandings of the meaning of “family”.
The ALRC controversially proposed, as its first Recommendation, the breaking up of the Family Court of Australia so that each of the states and territories have its own family court. Recommendation 1 was not a proposal in the Discussion Paper, so was made without the ALRC having the benefit of the views of stakeholders. In the absence of submissions, the ALRC relied on earlier inquiries and reports which expressed concerns about jurisdictional fragmentation (eg. para 4.3 of the Family Law Council Report Families with Complex Needs and the Intersection of the Family Law and Child Protection Systems Family Law Council Final Report 2016).
Family violence orders, FLA jurisdiction and child protection are dealt with in different courts, and there is a split of jurisdiction between state and territory courts and federal courts. As a result there can be inconsistency of orders and children at risk are falling through the gap. Some parties have to navigate the fragmented system in potentially three different courts. Unfortunately the extent of the problems was not statistically supported and the various options to address the issues were not fully explored in the Final Report.
As there was no comparison with structural reforms proposed by the federal government and no consultation with stakeholders, Recommendation 1 comes across as a headline-grabbing after-thought – a belated attempt to present a bold new initiative that was otherwise lacking from the Final Report.
The structural reform options which were most frequently discussed during the period of the Inquiry, but not considered by the ALRC were:
These two reform proposals are discussed in “The Family Court: Restructure, Destruction or Fade Away?” which can be found here [WKC link] and the problems of hastily-introduced structural reforms were pointed out. In the author’s submission to the Senate Legal & Constitutional Affairs Committee which was considering the Restructure Bills she recommended that:
“The Australian Law Reform Commission be given extra time to consult before delivering its Final Report, to ensure that it addresses the issue of structural reform of the family law courts, as it indicated in its Issues Report that it would do. If necessary, the Terms of Reference be changed to make this an express Term of Reference.”
The New South Wales Bar made a similar recommendation to the Senate Committee:
“Before any restructure, and before completion of the ALRC’s final report, the terms of reference of the ALRC Review should be changed specifically to remit to the ALRC the review of the structure and role of the courts within the broader family law system as it is not feasible or responsible to consider policy development and reform of the family courts as independent of and from policy development and reform of the family law system.”
It is also unfortunate that the Recommendation in the Final Report for structural reform is inconsistent with many of the other Recommendations. This incoherence is explained by the ALRC as arising from the length of time it will take to implement its structural reform recommendation and, in the meantime, the problems need to be addressed in other ways.
Recommendation 1 has high prominence in any inquiry. It should be a recommendation which the bulk of readers would say “of course”, or at least “what a good idea, we should consider that further”. Unfortunately, the lack of consultation with stakeholders and the failure to refer to it in the Discussion Paper, means that the public reaction has been negative, or at least muted. It raises many questions, which were not discussed or inadequately discussed in the Final Report including:
Most stakeholders, including the Law Council of Australia, acknowledge that having two federal courts exercising concurrent jurisdiction has been a failure. However, the options discussed in the Final Report to produce a “one court” solution did not consolidate the Family Court of Australia with the FLA jurisdiction of the Federal Circuit Court, but instead looked at ways of linking the child protection jurisdiction exercised by the state and territory courts to the FLA jurisdiction of the federal courts. The opinions considered to consolidate state and territory jurisdiction with FLA jurisdiction included (at 4.47- 4.128):
The ALRC confirmed (at 4.54) that there were constitutional problems with the referral of child protection powers to the federal family law courts unless the Full Court of the Family Court was prepared to revisit the exercise of accrued jurisdiction by the family law courts, suggesting (at 4.57 to 4.65) that the Full Court had taken an overly narrow approach. If accrued jurisdiction was able to be exercised by the Family Court of Australia in relation to child protection and family violence, that would ameliorate some of the consequences of the jurisdictional gap (at 4.65). Altering the Constitution to allow the Commonwealth to exercise child protection powers requires a successful referendum, but the history of referenda in Australia has not been one of success. The option of the states and territories referring their child protection powers to the family law courts (at 4.56) was only briefly mentioned and not considered by the ALRC to be a solution, relying on the Family Law Council’s conclusion (at 4.56) not to recommend it.
The ALRC acknowledged (at 4.32 to 4.36) that the family law courts regularly adjudicate parenting matters with multiple risk factors involving family violence, child abuse, drug and alcohol dependency and/or serious mental illness. However, the ALRC seems to have concluded that the family law courts lacked the capacity to deal with these disputes, in part because they have no independent investigative body akin to a child protection department and cannot compel a child protection department to intervene in a family law case. The evidence for this conclusion is unclear. Although the unwillingness of child protection agencies to engage with FLA proceedings can be problematic, it is arguably an over-reaction to abolish the family law courts altogether for that reason. It is also inconsistent with the criticism by the ALRC of the family law courts for not adopting the approach of Allsop CJ (at 4.64), who interpreted “the proper party to fulfil the parenting responsibilities” as including the State and therefore the family law courts could require child protection departments to participate in FLA proceedings. Given that Recommendation 1 requires the co-operation of the states and territories, another option is to seek that the states and territories agree to their child protection departments being involved more frequently in FLA matters before federal family law courts. This would help to bridge the gap. There are protocols for notifications to child protection departments of allegations that a child has been abused or is at risk of abuse, but the departments rarely become involved in FLA cases.
The law and procedures of the family law courts have been changed at various times to improve communication between the child protection system and the family law courts. The Discussion Paper proposed further changes, such as the co-location of child protection workers at family law court premises. Despite this proposal receiving considerable support, including of the Law Council of Australia, it was not in the Final Report’s Recommendations.
The ALRC expressly stated (at 4.8) that they were not suggesting “that specialist family law judges are not essential to the proper administration of justice in family law matters”. Instead, it proposed that the federal government reconsider its opposition to state and territory courts becoming the primary fora for resolving family law disputes.
The ALRC did not point out that if state and territory family courts are established, the same judge may not determine all aspects of a family’s problems. The history of a family may not transfer from one dispute to another. For example, family violence orders are frequently made very soon after parties separate. If a judge makes a finding that there should be a family violence order in contested proceedings, that judge cannot hear and determine other matters between the parties as the judge has already made a finding of credit against one party in the earlier proceedings. In family violence proceedings there are no transcripts or judgments which can be relied on in FLA proceedings, even if they are heard in the same court. Requiring, for example, the giving of reasons in family violence matters, may address part of the so-called jurisdictional gap but this was not discussed by the ALRC save that it supported the sharing of transcripts where they exist.
In the absence of submissions on the options for restructure of the family law courts (as these submissions were not sought) the ALRC reviewed previous inquiries and concluded (at 4.43):
“The various inquiries and reports over several decades, and especially those within the last 20 years, have all identified similar structural and systemic problems in the family law system. They have all recommended improved inter-jurisdictional collaboration and cooperation though a variety of protocols, information sharing agreements, and the conferral of enhanced family law jurisdiction on state and territory courts. In spite of those recommendations, the submissions to this Inquiry suggest that little progress has been made in protecting children and vulnerable parties from the ‘jurisdictional gap’.”
The ALRC stated that as the FLA already allowed state and territory family courts to be established, this was the best solution to jurisdictional fragmentation. The ALRC accepted (at 4.9) that its principal recommendation would take significant time to implement and made other recommendations that could be implemented in the short-term to improve collaboration between the federal and state and territory jurisdictions.
There were 7 commissioners involved in the Inquiry when the Final Report was released. Commissioner Faulks dissented on Recommendation 1. He expressed similar concerns (at 4.103-4.112) to those set out in this article. His alternative proposal involved a simplification of the paths between the courts, including that the court file travel with the parties.
The ALRC confirmed that concerns about lack of funding in the family law courts has been problematic for 30 years and was “chronic”. The words of Brennan J of the High Court in Harris v Caladine (1991) FLC 92-217 were quoted by the ALRC (at 1.8) and could have been written in 2019:
“It seems the pressures on the Family Court are such that there is no time to pay more than lip service to the lofty rhetoric of s. 43 of the Act. It is a matter of public notoriety that the Family Court has frequently been embarrassed by a failure of government to provide the resources needed to perform the vast functions expected of the Court under the Act. But the Constitution does not bend to the exigencies of a budget and, if the humanly familial relations create a mass of controversies justiciable before the Family Court, Justices must be found to hear and determine them.”
The number of judges hearing family law matters has decreased significantly in the last 10 years. In the Family Court, the number of judges has reduced by 39 or 18%. Whilst in the Federal Circuit Court the number has increased over the same period by 33%, this was a numerical increase of 17 judges only and therefore overall the reduction in the two courts was 22 judges. The ALRC stated these figures (at 3.61) but did not point out that Federal Circuit Court judges also hear general law matters so the reduction in the number of judges hearing FLA matters has been far greater than these raw numbers suggest.
The recognition by the ALRC (and the High Court) of the funding crisis of the family law courts underscores the questions as to the validity of the federal government’s stated justification for the Restructure Bills. The objective of the Restructure Bills was to solve the problem of court delays by increasing efficiencies, as recommended by PwC in its report Review of the Efficiency of the Operation of the Federal Courts (the PwC Report). The PwC Report assessed the performance of the family law courts primarily by measuring the outputs of final judgments rather than all of the work undertaken by the family law courts. The recommendations in the PwC report were based on a key, but incorrect assumption, that “in practice, both the courts hear matters of similar complexity” (p.3), an assumption further discussed in “The Family Court: Restructure, Destruction or Fade Away?” The PwC report itself said that it had not explored all possible opportunities, assessed all potential implications of each opportunity and recommended that further testing and design was required (PwC report, p.7).
Although the ALRC recognised the funding crisis of the family law courts, it did not make recommendations to address the crisis nor even make the observation that some of the problems in the family law system might be solved by greater funding. It referred to the problems created by the lack of funding frequently, but only recommended increased funding for Registrars to deal with spousal maintenance claims, for an expanded role of family consultants including for post-order case management, for independent childrens’ lawyers, for Indigenous Liaison Officers and to better implement and expand the FLA’s Less Adversarial Trial provisions. It did not recommend an increase in general funding of the existing family law courts including to fund more judges.
The absence of an examination of the costs of increasing funding to the current family law courts as against the cost of the measures recommended by the ALRC is a serious deficit in the Final Report.
A number of the ALRC’s Recommendations are aimed at better enabling the sharing of information by the family law courts with state and territory family violence and child protection systems.
Recommendation 56 (at 4.164) is that s 121 FLA be redrafted to provide greater clarity. As part of the redrafting it should be clearer that s 121 does not restrict the sharing of information with:
Recommendations 2 and 3 are specific proposals about sharing of information intended to give all the courts in the family law system and professionals working in it more timely and accurate information without the need to apply for subpoenas or rely on the parties’ perhaps inadequate evidence. It is a very sensible Recommendation.
The ALRC deliberately described parenting matters under the FLA as “children’s matters”.
The ALRC said (at 2.33) that one of the most difficult issues raised in the Inquiry was whether it remained appropriate for children’s matters under the FLA to be resolved in a court. It considered other modes of decision-making such as a Parent Management Hearings Panel. There was pending legislation to implement this, the Family Law Amendment (Parenting Management Hearings) Bill 2017. However the ALRC (at 2.36) “remained unpersuaded that the additional complexity of another layer of decision making within the family law system is desirable”. A court appeal system would still be needed and a court system was still required for the determination of property rights and for parties unable to reach agreement in relation to children’s matters.
Reforming the children’s provisions in the FLA
The ALRC proposed major reforms of the shared parenting provisions introduced into the FLA in 2006. It recommended (at 5.23) a reshaped decision making framework for parenting orders:
The changed pathway recommended by the ALRC was summarised (at 5.39):
“For care-time arrangements, the ALRC recommends that decision and agreement making should focus on the best interests of children, taking into consideration a more concise list of factors, and any other matters that are relevant. In relation to parental responsibility, the ALRC recommends that the practical effect of the current law be preserved, but that the presumption of equal shared parental responsibility be replaced with a presumption of joint decision making about major long-term issues. The link between a court’s decision on parental responsibility and the matters it must consider in relation to care-time arrangements should be removed.”
In its Discussion Paper, the ALRC proposed that the paramount consideration be “safety and best interests” (proposal 3-3) rather than the existing “best interests” in s 60CA FLA. There was considerable concern from stakeholders that this proposal could have unintended consequences and it was not a Recommendation in the Final Report.
However, the ALRC recommended (Recommendation 4) the abolition of s 60B FLA which sets out objects of Pt VII of the FLA. Many submissions referred to there being overlaps and some inconsistency with s 60CC. The abolition of s 60B was recommended by Professor Richard Chisholm AM, a former judge of the Family Court, but possibly with a Statement of Principles replacing it.
One of the changes to s 60CC (at 5.61) removes the presumption that a relationship with a parent is necessarily in the child’s interests even when the child has had no relationship with that parent. The ALRC intended that its proposed shorter version of s 60CC of the FLA will avoid the necessity for parties (and judges) to feel obliged to address all of the existing s 60CC factors, thereby reducing legal costs for matters which proceed to judgment. However, only a minority of cases are affected as most cases settle prior to this.
Although intended to be covered under the catch-all phrase of “anything else that is relevant to the particular circumstances of the child”, there may be concern, or at least disquiet, that there will be no longer any express reference to:
Whilst the proposed changes to s 60CC were supported by the Law Council of Australia, this was in the context of s 60B remaining in place, with some changes which pick up, for example, the importance of maintaining Aboriginal and Torres Strait Islander identity. Professor Chisholm’s proposal for reform of the parenting provisions recommended that the wording of the current s 60CC(3)(h) be retained and placed in the new section. This seems inconsistent with Recommendation 6 which suggests a re-wording of the FLA to include an expansion of the requirement to consider Aboriginal and Torres Strait Islander identity. It is not clear how the proposals fit together in the absence of a draft of the proposed provisions.
There is some overlapping in the current s 60CC factors, but the slimmed down version may lead to more litigation about what factors are relevant and how the shorter wording of, say, the relevance of a child’s views should be interpreted.
The proposal to repeal s 65BAA will simplify the legislative pathway in parenting disputes. The ALRC considered that this would address the problem of parents assuming that there is a presumption of equal care, enable more appropriate decisions to be made where there is conflict and family violence, reduce the complexity of judgments, and was likely to reduce legal costs and improve outcomes for children.
With respect to the presumption of equal shared time, many submissions (at 5.108) criticised the presumption for introducing an unnecessary step in the process for determining care arrangements, detracting focus from the child’s best interests and safety needs and providing scope for exacerbating conflict. The Family Court’s submission pointed out (at 5.113) that the FLA required the court to consider equal time or substantial and significant time, even when neither party sought it. The ALRC proposed (Recommendation 7) that it be renamed as a “presumption of joint decision making about major long-term issues”. This removes the link (or possible link) between parental responsibility and time children spend with each parent.
It is unfortunate that the ALRC did not more closely adopt the proposals of Professor Chisholm set out in “Re-Writing Part VI of the Family Law Act – A Modest Proposal” (2015) 24(3) Australian Family Lawyer 17,10-11 and reiterated in his submission to the ALRC. Professor Chisholm’s proposal is comprehensive and well thought out.
The current decision making pathway is:
The recommended decision making pathway is far simpler:
Parenting time Decision making about major long term issues
Case management of parenting matters
The ALRC recognised (at 5.141) that the Family Court has a philosophy of encouraging alternative approaches to dispute resolution and had:
“been conscious of the inappropriateness of pure adversarial approaches to the resolution of family law disputes since its inception. The very establishment of the Family Court was premised on the acceptance of the belief that the existing courts had been found to be unsuitable and ill-equipped to deal sympathetically and helpfully with the particular problems of family disputes”.
As a result of its approach, the Family Court introduced significant changes to its procedures over the years. The innovations included (at 1.12) a specialist multi-disciplinary court, an in-house counselling section staffed by psychologists and social workers with child welfare expertise, and mediation as a fundamental part of the system. The ALRC recognised that many of the non-legal supports, such as in-house counselling, had been reduced or stripped away from the court and there were some submissions which wanted them to be enhanced or reinstated.
A 2003 survey of cases by the Family Court found that in considering the best interests of children, factors relating to risk of harm were unlikely to be of high or medium importance. Illustrating the change in the types of matters before the family law courts since then (at 5.4):
“In contrast, a 2014 AIFS Study found that 53.7% of parents who used the courts as their resolution pathway in 2014 reported physical violence was relevant to their situation prior to separation. Parents who used the court as their resolution pathway reported a mean of three complex factors and 38.1% reported four or more complex factors.”
The ALRC recommended (Recommendation 10) that the family law courts have combined rules which allow proceedings to be conducted under Pt VII Div 12A FLA – the existing Less Adversarial Trial program (LAT). Judges and courts should be adequately resourced to carry out the statutory mandate in s 67ZN(1) FLA. Section 67N(1) sets out 5 principles that the court is required to follow when hearing parenting matters or when the parties have consented, in property matters applying Div 12A. The principles are:
(a) The child concerned from being subjected to, or exposed to abuse, neglect or family violence; and
(b) The parties to the proceedings against family violence.
The ALRC noted (at 5.51) that the existing less adversarial trial provisions of the FLA (LAT provisions) largely corresponded with the essential components of the multi-disciplinary panels or tribunal proposed in submissions and also by the federal government in the Family Law Amendment (Parenting Management Hearings) Bill 2017 (Cth). In particular, the LAT provisions were “expressly child focused, quasi-inquisitorial, focused on safeguarding parenting and … conducted without undue delay”. This recommendation was, however, subject to the family law courts being properly resourced, a requirement which was mentioned several times (at 5.151, 5.152 and 5.160).
Besides resourcing, the ALRC considered (at 5.152) that it was possible that judicial officers felt constrained to exercise their powers fully under Div 12A because of concerns about the nature of the judicial powers vested in the courts by the Constitution. This concern was emphasised by the High Court in R v Watson; ex parte Armstrong (1976) FLC 90-059 where “the High Court held that any discretion exercised by Family Court Judges must be in accordance with the exercise of judicial power and the duty to act judicially”. However, the High Court majority did not reject the ability of the Family Court to dispense with such procedures and formalities as it saw fit with the consent of the parties to the proceeding.
The ALRC referred to practices in the Federal Court of Australia and in the United Kingdom, and somewhat condescendingly reassured the judges of the family law courts (at 5.158) that they “should have little concern that the use of less adversarial processes should be considered anathema to the exercise of judicial power”.
Re-emphasising the need for adequate resourcing of the family law courts, the ALRC concluded (at 5.160):
“The Family Court is required, by virtue of s 69ZN, to give effect to the principles that underpin this legislative framework. It cannot comply with its statutory mandate unless it is provided with adequate resources.”
The ALRC seemed to accept without question that the LAT method, properly resourced, was better than traditional litigation. It did not accept the opposing view, that the rules of evidence (which are relaxed in the LAT provisions) help to ensure that judges make decisions which are less likely to be appealed against and seem objectively “fair”.
The ALRC made some sensible recommendations to the property settlement provisions of the FLA, as well as others which are more controversial. It omitted making recommendations about many aspects of property settlements which need reform or review including bankruptcy, financial agreements and the definition of de facto relationships. Its recommendation (Recommendation 20) that the LAT provisions be extended to property cases is likely to be controversial because of the relaxing of the rules of evidence.
Small Asset Pool Cases
The problem with small asset pool cases was a focus of the Discussion Paper, which included proposals for a simplified small asset pool process. In a 2014 study, most parents reported asset pools of less than $300,000. After the release of the Discussion Paper, the federal government announced funding for a court pilot of two options for small asset pool cases. In its Final Report the ALRC (at 10.82) did not make any recommendations with respect to small asset pool cases as it considered “these issues can be appropriately managed by the courts”. Whilst the conclusion is probably correct as the family law courts have been open to finding different procedures in the past, the absence of a formal recommendation is disappointing as at present there is only funding for a pilot and ongoing government funding would be easier to obtain if there was a specific ALRC recommendation. There is also a 2 year trial of funding for legal aid (at 8.36) for small asset pool cases. Funding these types of pilots is important because these cases are challenging to resolve cost-effectively. The same issues can arise as in larger asset pool cases, but resolving them with legal costs proportionate to the size of the pool is not easy.
Simplification of property settlement framework
Introducing into the FLA a structured pathway (Recommendation 11) as to the steps to be followed when altering property interests has merit. Post Stanford v Stanford (2012) FLC 93-518, the pathway is less clear than it was prior. The High Court did not endorse the four step approach set out in such cases as Hickey & Hickey and the Attorney General for the Commonwealth of Australia (Intervenor) (2003) FLC 93-143 and JEL & DDF (2001) FLC 93-075. A structured pathway would assist parties, lawyers and the courts by simplifying and clarifying the legislation.
The ALRC relied on the experiences of individual contributors who (at 7.26) raised concerns about there being no obvious starting point for negotiations and that they had given up on obtaining a property settlement because it was too hard, due to the ambiguous legal framework and the problem of disclosure.
The ALRC sought a simplification of the property settlement framework (at 6.6) as:
“The Family Law Act should provide a clear and easily understood framework that provides sufficient guidance for courts, legal advisers, and the public on the factors that are to be considered when adjusting the property and financial interests of parties on the breakdown of a relationship. Such a framework should assist parties to negotiate a division of their assets that is just to both parties and in the best interests of any children of the parties, without resort to formal dispute resolution processes. A clearer and simplified framework should reduce conflict and improve satisfaction with property settlement outcomes.”
Submissions to the ALRC expressed a diversity of views as to whether the current discretionary system should continue. One thought-provoking point was raised by the Family Court (at 6.35) that a prescriptive regime might have unintended consequences for people who do not appreciate that they were in a de facto relationship until a court declares that they were. By contrast, married couples know that they are married and can be expected to know that there is a legal system to determine any financial dispute. This links back to the omission by the ALRC to examine whether there should be reform of the definition of a de facto relationship. The ALRC did not support the removal of judicial discretion (at 7.7) as it recognised “the importance of providing judicial officers with the scope to order a division of property that is just and equitable in each individual case.”
The ALRC recommended that the simplified pathway to property division (at 7.10) be:
1. Ascertain the existing legal and equitable rights and interests, and liabilities, of the parties in their property;
2. Presume equality of contributions unless a statutory exception applies; and
3. Determine what adjustment should be made in favour of either party having regard to any matter that is relevant to the particular circumstances of the parties, including:
3.1 the caring responsibilities for any children of the relationship;
3.2 the income earning capacity of each of the parties;
3.3 the age and state of health of the parties; and
3.4 the effect of any adjustment on the ability of a creditor of a party to recover the creditor’s debt, so far as that effect is relevant.
There is no reference in the pathway to the requirements in s 79 FLA that the order be:
It is unclear whether the ALRC recommends that those requirements be removed or how they fit in, although the just and equitable requirement (referred to above) appears to remain, and was recognised as important.
Presumption of equal contributions
The ALRC recommended (Recommendation 12) the introduction of a statutory presumption that the parties made equal contributions during the relationship, with limited statutory exceptions. The presumption of equality of contributions could be displaced (at 7.9) with evidence that a party has:
Difficulties with a presumption of equality of contributions were highlighted (at 7.21) by Professor Parkinson. They included complications caused by the rise of de facto relationships and the increase in second and later marriages. Parties may not pool their property and there may be no expectation that parties will support each other. Whether a couple has children is, according to Parkinson (at 7.22) a better indicator of a change in a couple’s relationship than their marital status, and therefore, whether there should be a significant wealth transfer between people following the breakdown of an intimate relationship, which may arise from a presumption of equality of contributions.
The Family Law Council in 1999 supported a presumption of equality of contributions but the ALRC did not point out this recommendation was made 20 years ago, and prior to all states and territories except Western Australia referring to the Commonwealth their powers to make laws about the division of property after the breakdown of de facto relationships. It was also prior to the expansion of jurisdiction under the FLA to include third parties in Pt VIIIAA and superannuation splitting in Pt VIIIB thus increasing the complexity of some cases.
A major problem with the presumption of equal contributions was not discussed by the ALRC. A presumption is a difficult concept for lay people to understand. Earlier in the Final Report, the ALRC discussed how the presumption of equal responsibility had (at 5.19 and 5.114) created “community confusion” resulting in inexperienced parties believing they had no choice but to agree to equal time (at 1.32) and increased legal costs. The impact of presumptions on victims of family violence (see Submissions of Domestic Violence Victoria, No 284; Women’s Legal Service, Queensland, No 286) was not discussed in the Final Report with respect to this proposed presumption.
There were sufficient concerns about the operation of the presumption of equal shared parental responsibility in submissions in response to the Discussion Paper to suggest that similar problems might arise in relation to a presumption of equality of contributions in property settlement cases. A different view was taken by Professor Belinda Fehlberg who argued (at 7.23) that women who experienced family violence had significantly worse outcomes in property settlements than those who did not. She considered that a starting point of equal sharing might be advantageous to these women. However, the equality of contribution presumption has the potential to create a single step in many cases, and significantly reduce the property entitlements of the party with greater future needs.
The ALRC stated (at 6.16) that the complexity of s 79(4) and s 75(2) “particularly the lengthy list of factors with no clear hierarchy, does not assist readers to understand the process that a court would use to arrive at a just and equitable division of property”.
Needs factors
The ALRC recommended a shorter list of needs factors with respect to property settlements (at 7.8):
The change to the s 75(2) factors by simplifying the list of factors (at 7.30) is intended to make “no change to the substantive law” but reduce the length of judgments and the risk of judicial error. The ALRC did not point out that there is no guarantee that the family law courts will interpret a shorter list in the same way as the existing list and therefore the law may change in ways it did not intend. There was no recommendation for making a hierarchy of factors. The expectation of the ALRC was that the law would not change. If the ALRC is correct, then in practice the law will become less transparent because the courts will consider factors not listed in s 75(2).
Valuing assets at date of separation
Legislating for the date of ascertaining the values of parties’ rights, interests and liabilities in property to be the date of separation unless the interests of justice require otherwise (Recommendation 13) has the benefit of making the law clear. The FLA currently does not state when these matters should be assessed. There is, however, decades of family law jurisprudence relying on the date of hearing as being the relevant date (eg. Farmer & Bramley (2000) FLC 93-060); Woodland & Todd (2005) FLC 93-217; Omacini & Omacini (2005) FLC 93-218). The advantages of the change, besides clarity, include removing the need to update valuations and to consider whether parties have spent funds appropriately since separation and allows parties to move on with their lives post separation.
The disadvantages of the change were not discussed in detail by the ALRC. It was not a proposal raised in the Discussion Paper. Possible disadvantages include the unfairness of making orders in a falling housing market based on higher housing values at separation (of course, the contrary applies in the current regime), the lack of recognition of post separation contributions, the difficulties and expense of obtaining retrospective valuations of real properties and the unfairness of leaving a party with property which no longer exists or has a significantly lower value through no fault of that party, such as shares and failed businesses.
There would also be challenges in dealing with superannuation which the ALRC recommended be split equally as to the amount accumulated during the relationship (Recommendation 16). If the superannuation split is a dollar value rather than a percentage (which is usual) the member of the fund whose interest is split may be left with much less than envisaged if share markets are falling. The superannuation splitting system is designed to give the non-member spouse interest on the base amount which compensates for any delays in the split coming into effect. The system does not assume that superannuation will fall in value, although it may, particularly if there is a significant delay between the date of separation and when the split is implemented.
This Recommendation requires proper consideration of the pros and cons of the change.
Debts and bankruptcy
Although the ALRC indicated that most property pools were modest it devoted only 3½ pages in Chapter 6 and about 5 pages in Chapter 7 to examining how debts were taken into account and the impact of one party being a bankrupt. It had no recommendations as to how they should be dealt with under the FLA, but recommended (Recommendation 14) the development of protocols and reform of other legislation so that where, for example an indemnity was given, this was recognised to the extent that the debt did not result in a negative credit rating of the indemnified person. These Recommendations warrant further consideration.
Financial agreements
In the Discussion Paper, the ALRC considered that there was significant anecdotal evidence to conclude that financial agreements did not produce the level of certainty that was envisaged when they were introduced. There was growing concern within the legal profession about professional liability associated with drafting financial agreements if they were eventually set aside, and the difficulties in predicting the circumstances that may lead to a financial agreement being set aside. There were serious questions about whether the financial agreement provisions of the FLA, particularly in relation to prenuptial agreements, were meeting their original policy objectives, and why amendments to the FLA to allow them to do so were possible without unacceptable unintended consequences. The ALRC said in the Discussion Paper that there seemed to be a reasonable case that prenuptial agreements should be removed from the FLA.
The difficulties of financial agreements, although the ALRC acknowledged the impact of Thorne v Kennedy (2017) FLC 93-807, were discussed in only 2 pages in Chapter 6 and one paragraph in Chapter 7 of the Final Report. No substantive recommendations were made to address the problems.
The ALRC raised possible reform options in the Discussion Paper but in the Final Report the ALRC welched on major reform proposals. It concluded that reform efforts should be directed to simplifying the property settlement provisions in the FLA so that it was easier for a party asked to sign a financial agreement to compare their entitlements under the agreement and their likely entitlements under the FLA without the agreement. This was a dramatic back-down in the face of significant ongoing uncertainty and litigation in the area. Significant problems were identified by the ALRC in its Discussion Paper, but the Final Report was a lost opportunity to propose reform of an area in genuine need.
The options for reform raised in the Discussion Paper included to change the FLA to make the requirements clearer for them to be binding and not set aside, abolish them altogether and to require court approval as for the s 87 maintenance agreements which existed previously. Given the significant amount of litigation with respect to financial agreements and the problems of undue influence and unconscionable conduct as recognised by the High Court in Thorne v Kennedy, it is quite incredible the ALRC did not recommend real reforms in this area. Simplifying the legislative pathway for determining property settlement is not a solution to the significant problems with financial agreements for clients and for claims against lawyers.
Superannuation splitting orders
The recommendation (Recommendation 17) to work with the financial sector to develop standard superannuation splitting orders is well overdue. This will not only make it easier for unrepresented parties to have superannuation splitting orders, but will also make legal costs cheaper for represented parties. Each fund has its own preferred wording but there are not usually substantive differences. At least in relation to accumulation funds, which are the majority of superannuation funds, the differences in preferred orders relate more to differences in legal advice given to the funds and personal preferences rather than any real difference in the needs or practical operation of the funds.
Tort of family violence
The introduction of a statutory tort of family violence into the FLA so that past family violence receives greater financial recognition than currently under the principle in Kennon & Kennon (1997) FLC 92- 757 may have some merit, but may increase litigation rather than reduce it. It was not a proposal in the Discussion Paper, which instead focused on family violence as a factor in the consideration of contributions and future needs (Proposal 3-11), leading to concerns about doubling up and not addressing the evidentiary problems (Law Council Submission, No 285).
Redrafting the spousal maintenance provisions (Recommendation 18) to more clearly set out for parties the process for assessing spousal maintenance and remove the cross-reference between property orders and spousal maintenance seems a sensible suggestion. The ALRC also proposed greater use of registrars to make it easier for urgent applications to be heard.
Neither the Discussion Paper nor the Final Report dealt with child support. The ALRC made recommendations about spousal maintenance but managed to do this in a vacuum without reference to the changes in the child support formula which have reduced the amount payable, and how these changes have impacted on the financial circumstances of primary carers and the capacity of primary income earners to pay spousal maintenance.
The ALRC concluded (at 8.2) that as a majority of property and financial matters settle at the door of the court, stronger legislative encouragement to avoid courts and greater availability of family dispute resolution (FDR) and, for more complex matters, legally assisted dispute resolution (LADR), would mean more families would resolve their issues without litigation.
The settlement rates for property and financial matters which take the litigation pathway is much higher than for parenting matters. Not discussed by the ALRC, but an obvious reason for this, is that it is much easier for a party to weigh up the costs of continuing proceedings as against the risks and possible benefits in financial terms in property proceedings than for parenting matters. Time spent with children cannot be given a dollar value.
The potential impact of the proposed genuine steps requirement (Recommendation 21) will be, according to the ALRC, that (at 8.68) parties will first need to try to resolve their property and financial disputes without using courts, unless an exception applies. Similarly to the Pre-action Procedures in the Family Law Rules 2004 which apply in the Family Court of Australia, the parties can take different approaches including:
Placing the duty of disclosure in the FLA rather than in court rules was (Recommendation 25), the ALRC said (at 8.133) consistent with the principles that the “law should be clear, coherent and enforceable, and drafted in a manner that is accessible to the parties”. It recommended that the consequences for breach of the disclosure obligations by parties, and the obligations of all lawyers and FDRPs to advise clients about their duty of disclosure should also be in the FLA.
The ALRC opposed the introduction of compulsory arbitration but recommended (Recommendation 26) the expansion of arbitration to children’s matters except for more complex disputes such as international relocations, medical procedures requiring court approval, interventions, and where an Independent Children’s Lawyer has been appointed.
Recommendation 30 aims to ensure that FLA proceedings and any alternative dispute resolution processes are conducted in a way to facilitate (at 10.7) “the just resolution of the dispute according to law, as quickly and efficiently as possible, and with the least acrimony so as to minimise harm to children and their families”. This is a great objective, but one which has a possible internal contradiction: fast justice may not pick up on the nuances of family violence, child abuse and other risk factors. The problem of court delays impacting on families was raised (at 10.10) by some stakeholders.
Stakeholders raised a number of concerns about the present delays (at 10.10):
The ALRC recommended (Recommendation 31) the introduction of an overarching purpose to impose similar obligations on parties, lawyers and third parties to facilitate the just resolution of dispute with the least acrimony and as quickly and inexpensively as possible. The ALRC recommended that, to maintain consistency across federal jurisdictions (despite recommending the establishment of state and territory family courts), the provisions be modelled on the Federal Court of Australia Act 1976 (Cth) with modifications appropriate to family law:
In relation to s 117 FLA (the power of a court to award costs in FLA proceedings) the ALRC recommended major revisions including removing the general rule that each party bear their own costs (Recommendation 36). The ALRC sought (at 10.37) that costs orders be made more frequently to act as a “brake” on unnecessary legal skirmishes and to discourage ambit claims. Whilst these are admirable objectives, the party who is financially stronger and has greater knowledge can use their advantage to an even greater extent, by using the threat of a costs order against the weaker party who is less able to pay a costs order. The ALRC also said (at 10.25) that it “be amended to expressly cover persons who provide financial or other assistance, so far as that person exercises any direct control, indirect control, or any influence over the conduct of a family law proceeding”. This recommendation is specifically aimed at the parents of a litigant, new partners and well-meaning friends who provide funds for the proceedings and actively direct a party to act in a particular way or risk losing financial support. Third party litigation funders were also identified as problematic.
The ALRC was concerned about the amount of costs paid by parties, but recognised (at 10.135) that:
“Over the years, the nature of the work has changed and the very small percentage of family law disputes not resolved by the parties and that fall to be determined by a court are increasingly complex and lengthy”.
The increased complexity of matters and the impact on legal costs was not acknowledged in the PwC report.
The misuse of processes and systems were identified as impeding post-separation re-establishment and recovery from family violence as well as parenting capacity. Although not recommending any amendments to the definition of “family violence” in s 4AB(2) FLA, the ALRC said (at 10.33) that it was “essential that there be continuing professional development in relation to the nuances and emerging forms of family violence by all those who practice in the family law system, including judges”. Again, the ALRC focused on the specialist nature of family law, including the judiciary, which is not the approach taken by the federal government in the Restructure Bills.
The ALRC recommended that the Family Court and the Federal Circuit Court consider producing a joint practice note covering a long list of case management matters (Recommendation 34). The ALRC did not explain why these matters cannot be addressed in a common set of rules. Practice notes are less accessible to unrepresented clients than court rules.
The ALRC recommended (Recommendation 37) that courts have express authority to exclude evidence of “protected confidences” in specific circumstances, such as where harm might be caused which outweighs the potential benefits of the evidence. “Protected confidences” are records of a sensitive therapeutic nature. These matters might better be addressed (if they are not already) in the Evidence Act 1995 (Cth), so that all evidentiary matters are together.
These recommendations address the high rate of parents returning to court following the making of orders, the costs and stress of responding to contravention applications and the need to better support highly conflicted parents to implement parenting arrangements and develop positive communication.
Recommendation 41 largely puts the rule in Rice & Asplund (1979) FLC 90-725 into the FLA so that unrepresented litigants have greater awareness of the test for a change in parenting arrangements. The ALRC recommended that the FLA set out the more nuanced test from the cases and not just the Rice & Asplund test.
The expanded role of family consultants in post-separation parenting (Recommendation 38) is sensible but needs to be appropriately funded.
The ALRC was acutely aware that although the legislation is primarily read and used by judicial officers, lawyers and other professionals, key passages or terms are quoted when advising clients. The needs of unrepresented litigants also needed to be considered as they are significant. Recommendation 55 was the comprehensive re-drafting of the FLA and its subordinate legislation.
The ALRC’s specific recommendations (at 14.13) to simplify the FLA and its subordinate legislation are:
In relation to specific recommendation 1 above, the redrafted FLA would include:
The other Act would include:
A simpler restructure of the FLA, not proposed by the ALRC, would put the court structure, the Australian Institute of Family Studies and the Law Council of Australia in a separate Act to the FLA but retain the substantive law provisions such as Pt IX, XIA and XII in the FLA.
The proposals to restructure the FLA and re-number it are sensible and well overdue. New areas of jurisdiction have just been shoved into the middle, making the numbering of sections complex in relation to financial matters and jumbled in relation to parenting matters The changeover will be painful for legal professionals and others, particularly when referring to judgments delivered before the change but the FLA will be easier to use. One example of the complexity of the numbering is that there are approximately 120 sections commencing with s 90 and numerous subsections of these, beginning with s 90 and ending with s 90XZH. Section 90 covers a broad range of financial matters, stamp duty, orders and injunctions binding third parties, financial agreements, de facto relationships and superannuation interests. A significant proportion of the FLA is squashed into s 90. There are also over 25 s 60s covering parenting and child maintenance.
Whilst the readability of the FLA for clients is an admirable and sensible objective, placing parts of the legislative regime in a greater number of legislative instruments, arguably makes the law less accessible. There are other ways to make the law accessible, such as putting more resources into fact sheets explaining the law, and better funding legal aid commissions and community legal centres.
The ALRC recommended (at 8.78) that the factors that guide an assessment of suitability for FDR should be moved from subordinate legislation to the FLA. This is sensible as they will be easier for all users to locate. However, proposals that other provisions be moved from the FLA to subordinate legislation or a secondary Act will make them more difficult to locate. It is, for example, proposed in Appendix H that parenting provisions be divided between two Acts.
The ALRC proposed that the parentage provisions be re-written in consultation with the states and territories to ensure consistency of the definition of a parent throughout Australia, fill in gaps created by changes in society and technology, and create one comprehensive piece of legislation which applies for all purposes throughout Australia. The writer’s views were quoted (at 14.24) in the Final Report:
“redrafting these provisions in consultation with states and territories was an ‘excellent idea’, albeit ‘ambitious and challenging’”.
Achieving this will require a high degree of co-operation between the states, territories and the Commonwealth, probably a referral of powers by the states and territories and consideration as to whether and how the states and territories can still retain jurisdiction with respect to surrogacy, registration of births and artificial reproduction procedures. It will be an ambitious and challenging undertaking if it proceeds.
The ALRC recommended (at 14.13) although it was not a specific recommendation, that one set of rules be established to cover all disputes in any courts exercising FLA jurisdiction, as differing rules increase complexity, duplication and confusion for professionals and parties. This recommendation, which was also part of the Restructure Bills tabled before the May 2019 Federal Election, is a project which has already been adopted by the family law courts.
In its Discussion Paper, the ALRC proposed the establishment of a Family Law Commission. The ALRC said that it received mixed responses to this, generally wary of the cost and additional bureaucracy. Instead the ALRC proposed (Recommendation 49) that the role of the Family Law Council be expanded to continuously monitor and assess the functioning of the overall family law system. The implementation of this Recommendation requires the Attorney-General to revive the Family Law Council as it is currently in abeyance with no new members appointed since 2016. The Family Law Council will also need to develop a set of performance indicators. This seems essential given that the ALRC did not complete the comprehensive review it was tasked with – admittedly a momentous job. Some of the ALRC’s Recommendations need further investigation and other areas received only a cursory look or none at all. The Family Law Commission is the most obvious body to do this work.
In making its Recommendation (Recommendation 51) as to the characteristics and expertise of judicial officers in the family law system, the ALRC recognised that (at 13.43):
However, Recommendation 51 is a watering down of the existing s 22(1) FLA and requires only that future appointments of judicial officers exercising family law jurisdiction “include consideration of the person’s knowledge, experience, skills, and aptitude relevant to hearing family law cases, including cases involved family violence”. The current s 22(1), which applies to Family Court, but not Federal Circuit Court appointments, is mandatory. The ALRC proposal does not set out mandatory requirements, only matters to consider. It is, like the Restructure Bills, a move away from specialist judges at a time when clients increasingly seek specialist expertise in their lawyers (exemplified by the continued growth of the family law specialist accreditation scheme) and the ALRC proposes mandatory continuing professional development (CPD) in family violence for family lawyers.
Recommendation 51 illustrates a significant problem with the ALRC’s proposal. If the states and territories have their own courts exercising FLA jurisdiction the federal government cannot impose the same standards on the judges of those courts, as it can on its own courts.
A Judicial Commission to handle complaints against judges was proposed in the Discussion Paper but was dropped from the Final Report. The ALRC agreed (at 13.63) with the submissions which suggested that any Judicial Commission should cover all federal judicial officers. The ALRC considered this was therefore beyond the scope of the Inquiry. It is difficult to understand the ALRC’s reluctance to make this recommendation.
There was some support from submissions to the Inquiry for mandatory CPD on family violence for all lawyers. The ALRC recommended that all legal practitioners undertaking family law be required to complete at least 1 unit of CPD relating to family violence annually. It left (Recommendation 52) to the Law Council of Australia the difficulty of working with the state and territory regulatory authorities to implement this, including the problem of identifying which lawyers need to do the training. For example, is it only lawyers who self-identify as family lawyers or is it all lawyers who act in at least one matter per year?
There has been very little reported public response to the Final Report. Perhaps this is because of the size of the Final Report. Perhaps it is because the tabling of it was delayed until Parliament had almost ceased sitting before the May federal election. Perhaps it is because the focus of stakeholders had already turned to the forthcoming federal election. Perhaps it is because of the surprise by stakeholders about the headline recommendation, Recommendation 1.
The Law Council of Australia said in a Media Release on 11 April 2019 that it would carefully consider the ALRC’s Recommendations, but warned that immediate solutions were required to ease pressures on the Family Court and the Federal Circuit Court for the good of Australian families. It saw any transfer of the FLA jurisdiction to the state and territory courts as a 5-10 year project and envisaged problems with that Recommendation.
Referencing the Restructure Bills, the President of the Law Council, Arthur Moses SC, said:
“Renaming a court to solve problems was a mirage – Australian families need real solutions and prompt action. Similarly, shifting responsibility to another jurisdiction can never be the answer to a problem when a lack of resources is at its core.”
The Chair of the Inquiry, Justice Sarah Derrington, was quoted in an article in the Herald-Sun on 16 June 2019, “Family Court failure”, as supporting two proposals which were not in the Final Report:
Justice Derrington referred to the problem of cases dragging on for years and that:
“People become more emotive the longer the proceedings drag on. … So we’ve got another generation of children who are going to be damaged because their parents couldn’t resolve the matter quickly or efficiently.”
She did not suggest that greater funding and more judges might help the existing family law courts, or that the proposed new courts may be just as under-funded and therefore have as many delays as the existing family law courts.
The ALRC referred to earlier inquiries which have raised similar issues to those raised in the Final Report, but the recommendations of which have not been implemented. This is, of course, a possible outcome for the ALRC’s recommendations. However, the federal government, prior to the May 2019 election, demonstrated considerable drive to restructure the family law courts, and said it wanted to see the ALRC’s Final Report to consider what other reforms were necessary or desirable.
A good example of a seemingly simple and obvious reform, which may be too expensive for the federal government to prioritise, is the long-overdue re‑numbering of the unwieldy FLA. These reforms would make the main Act more accessible for parties, lawyers, the courts and other users. However, the cost of re-drafting the legislation and implementing the changes might be considered too high at a time when the federal government is committed to finding cost savings.
The difficulties the federal government will face in considering what actions to take as a result of the ALRC’s reforms include:
Most of the Recommendations are uncontroversial and likely to receive significant stakeholder support. The more controversial ones may warrant further examination and discussion, perhaps by a revived Family Law Commission. Hopefully, the federal government and other stakeholders will not be too distracted by the controversy which will undoubtedly be attached to Recommendation 1, the limited recommendations for increased funding (although the ALRC acknowledged it was required), and will give the bulk of the Recommendations proper consideration and, hopefully, implement them.
© Copyright – Jacqueline Campbell of Forte Family Lawyers and Wolters Kluwer/CCH. This paper uses some material written for publication in Wolters Kluwer/CCH Australian Family Law and Practice. The material is used with the kind permission of Wolters Kluwer/CCH
Jacky Campbell and Hayley Chester, July 2019
Introduction
A person’s consent is generally required in Australia before medical treatment can be provided. People are not required to provide that consent, and there are various reasons why they may withhold their consent. The issue of consent is, however, complicated when the patient lacks the requisite capacity to provide consent and when people who are providing consent on behalf of that patient refuse to provide the consent. Both State and Federal law is relevant. This paper primarily focuses on Federal law but briefly refers to State law, in this case, Victoria for the sake of completeness.
Victorian law and treatment of children
Some of the states and Territories have specific legislation covering the giving of consent to medical treatment. Victoria has the Medical Treatment Planning and Decisions Act 2016 (MTPD Act) defines decision-making capacity with respect to medical treatment. An adult (defined as the age of 18 or above) is presumed to have decision-making capacity unless there is evidence to the contrary (section 4(2)). Decision-making capacity is defined in section 4(1) of the Act as follows:
(1) A person has decision-making capacity to make a decision to which this Act applies if the person is able to do the following –
(a) understand the information relevant to the decision and the effect of the decision;
(b) retain that information to the extent necessary to make the decision;
(c) use or weigh that information as part of the process of making the decision;
(d) communicate the decision and the person’s views and needs as to the decision in some way, including by speech, gestures or other means.
Section 4(1)(a) is further explained in section 4(3) as follows:
(3) For the purposes of subsection (1)(a), a person is taken to understand information relevant to a decision if the person understands an explanation of the information given to the person in a way that is appropriate to the person’s circumstances, whether by using modified language, visual aids or any other means.
In determining whether or not a person has decision-making capacity, the following factors must be considered:
(a) a person may have decision-making capacity to make some decisions and not others;
(b) if a person does not have decision-making capacity for a particular decision, it may be temporary and not permanent;
(c) it should not be assumed that a person does not have decision-making capacity to make a decision –
(i) on the basis of the person’s appearance; or
(ii) because the person makes a decision that is, in the opinion of others, unwise;
(d) a person has decision-making capacity to make a decision if it is possible for the person to make a decision with practicable and appropriate support.
The Act also sets out that a person who is assessing whether a person has decision-making capacity must take reasonable steps to conduct the assessment at a time and in an environment in which the person’s decision-making capacity can be most accurately assessed.[1]
With respect to decisions regarding medical treatment for a child, a “medical treatment decision maker” of a child is considered to be the child’s parent, guardian, or other person with parental responsibility for the child who is reasonable, available, and willing and able to make the medical treatment decision.[2] Pursuant to the Act, the appointed medical treatment decision maker of a person is the first person listed in the appointment who is reasonable available and willing and able to act at a particular time.[3]
Federal law
The Federal legislation which is relevant is the Family Law Act 1975 (FLA). It is possible that the Federal law and the State law can conflict. The MTPD Act is new and we do not have clarity as to how it fits with the Federal law. The High Court has considered the position in relation to New South Wales law about medical treatment in P v P,[4]which was a sterilisation case. It upheld the Family Court’s ability to decide whether a sterility procedure should be performed. The NSW Act was only invalid to the extent that it prohibited a medical or dental treatment which was authorised by the Family Court.
Parental responsibility
Decisions with respect to a child’s health and medical care can generally be made by a parent of the child, or any other person who has parental responsibility for that child. Pursuant to section 61C FLA, parents have parental responsibility of a child until they turn 18 years, unless that responsibility has been displaced by a court order. Parental responsibility is defined under the FLA as “all duties, powers, responsibilities and authority which, by law, parents have in relation to children.” [5] Orders can be made in the Family Court of Australia or Federal Circuit Court of Australia which grant parental responsibility to another person who is not a parent, or to only one parent of the child.[6] Parental responsibility gives the responsibility to make decisions about short-term and long-term issues. It is generally considered that where parties have joint or shared parental responsibility that long-term issues should be made jointly, but short-term issues can be made by one person. On a day-to-day basis if one parent is consenting to the treatment of the child, the consent of the other parent need not be sought and obtained even if the parents have joint parental responsibility. It is usual for one parent to take a child to a medical practitioner and consent to a variety of common childhood treatments, such as:
More problems arise when decisions may have more long-term effect. Sole parental responsibility is not common, but may be ordered if the parents, or people who hold parental responsibility, cannot reach an agreement regarding long-term medical decisions. In some cases parental responsibility is shared but one person has the sole parental responsibility with respect to an issue which is particularly fraught for that family such as education, religion or health. A person with sole parental responsibility may be required to consult with the other person before making a final decision. An order for sole parental responsibility is rarely made by consent. The parties will probably have gone through 18 months to 2 years of litigation. There are many cases where there should probably be an order for sole parental responsibility because the parties cannot communicate or make decisions together, but people don’t usually have the stamina or the money to finance that litigation, particularly where there is no guarantee of success.
If parents have shared parental responsibility, but cannot agree upon long-term medical treatment for their child, it may be necessary to seek that the court determine the issue. Further, there are certain major medical procedures which cannot be undertaken on a child without obtaining the consent of the court, irrespective of whether the parents consent to the procedure.
Section 67ZC FLA provides the court with power to make court orders in relation to the welfare of children. In deciding whether to make an order under that section, the court must have regard to the best interests of the child as the paramount consideration.[7] Hence, when parents are in conflict with each other in relation to a child’s medical treatment, the Court will determine that the action which is in the best interest of the child should proceed. Acting in a child’s best interests is a maximizing concept and means to do whatever is best for the child overall. Given a number of factors feed into “best interests”, it is obviously not always an option to fulfil all interests. For example, a child has an interest in living longer, but also an interest in being pain-free. It may not be possible to have both. In these circumstances, acting in a child’s best interests requires one to decide between competing interests. It is also important to acknowledge that acting in a child’s best interests does not necessarily mean prolonging the child’s life.
Vaccinations
Although not generally considered to be a “special medical procedure”,[8] it is not surprising given the controversy in the community on the issue, and the “No Jab, No Pay” and “No Jab, No Play” government policies that disputes about whether a child should be given vaccinations are increasingly common in the courts. Also not surprising is that the Courts generally make orders to facilitate the giving of vaccinations. Both the Family Court and the Federal Circuit Court hear these cases which are primarily disputes between separated parents about the exercise of parental responsibility.
The case most commonly referred to is Kingsford & Kingsford.[9] The father arranged for the child to be secretly given vaccinations knowing that the mother was very opposed to it and open about her belief that homeopathic remedies were in the child’s best interests. The Family Court was critical of the father’s subterfuge and said that it reflected poorly on his attitudes to the responsibilities of parenthood. However, even though the Court disapproved of the father’s actions, it made orders for the child to be immunized in accordance with a schedule for catch-up vaccines. Importantly, the court had the benefit of expert evidence as to the benefits and risks.
In cases where the opposition of a parent to the giving of vaccinations is not a reasoned approach to decision-making in the best interests of a child (whether or not misguided), the court can be critical of a nonchalant attitude as it reflects poorly on their parental capacity.[10]
Medical treatment applications
Australian courts have frequently been required to determine cases involving medical issues, particularly relating to children. Applications that are made under section 67ZC FLA relating to medical procedures for a child are heard by the Family Court of Australia. Prior to the establishment of the Family Court in 1975 the decisions were made by the Supreme Court exercising its parens patriae (parent of the country) jurisdiction. This is a very old jurisdiction which certain courts have to protect children, or others who are unable to protect themselves. It is an inherent power and does not arise from legislation. The extent to which the Family Court has parens patriae jurisdiction is unclear, and it usually relies on the FLA to exercise its powers over the welfare of the children. Parents do not need to be separated for the Family Court to make orders in relation to special medical procedures. The Supreme Courts are still occasionally asked to make orders utilising the parens patriae jurisdiction, but this is not common.
The Federal Circuit Court of Australia is a lower level court, and although it decides many parenting disputes, there is a protocol that special medical procedure disputes are determined by the Family Court. The types of issues which the courts have been required to determine has been wide-ranging and include the prescription of contraceptives,[11] termination of pregnancy,[12] disputes about blood transfusions,[13] gender re-assignment,[14] treatment of anorexia nervosa,[15] and heart surgery.[16]
There are also a number of cases which are not in the category of “special medical procedure cases” such as disputes about vaccinations.
When is a child old enough to provide consent to medical treatment?
Parental responsibility is not unlimited, and in particular, the parents’ ability to consent to medical treatment on a child’s behalf reduces as the child matures. In Australia a person can have their own Medicare card once they are aged 15 years. They do not need the consent of their parents to obtain one. They can remain on their parents’ Medicare card (and can be on a maximum of two cards), so the parents may not even know that the child has applied for and obtained their own Medicare card.
Children are considered mature enough to make their own decisions with respect to medical treatment if they are deemed to be “Gillick competent”. Gillick competence means that a child has reached a level of understanding and intelligence required to make their own decisions in relation to their medical treatment.
In the English case of Gillick,[17] the issue to be determined by the House of Lords was whether a medical practitioner could provide advice and prescribe contraceptives to a patient under the age of 16 years, without the prior knowledge or consent of her parents. The Department of Health and Social Security in England had issued guidance to the health sector which stated that medical practitioners could prescribe the oral contraceptive pill to a child under 16 years of age without the consent or knowledge of their parents if they were acting in good faith to protect the best interests of the child. A mother of 5 daughters sought a declaration of the Court that the guiding statement was unlawful as it was inconsistent with parental rights. Her claim was ultimately rejected by the House of Lords. The Court held that there were some circumstances in which a child could consent to their own medical treatment. Those circumstances involved when the child has “sufficient understanding and intelligence to enable him or her to fully understand what is proposed”.[18] The parental “rights” to make decisions about a child’s medical treatment terminate at that time. Having Gillick competence also means that a child can prevent a parent from accessing their medical records.
The level of maturity required to provide consent will vary with the nature and complexity of the medical treatment.[19] For example, the level of maturity required to provide consent for the treatment of minor cuts will be much less than that required to provide consent for the commencement of the oral contraceptive pill. The rate of development depends upon each individual child.[20]
The “Gillick competence” test was adopted in Australia in the case of Marion.[21] Marion’s case, related to sterilisation of an intellectually disabled child. Marion was 13 years at trial but by the time the case reached the High Court she was 14. She was severely disabled – with an intellectual disability, severe deafness, epilepsy, an ataxic gait and behavioural problems. She could not care for herself. The parents applied to the Family Court for:
The Family Court asked the Full Court of the Family Court to answer some legal questions so that the Family Court could them make orders taking into account the best interests of Marion. This is called a Case Stated. The Full Court said that the parents had the power to consent to the sterilisation. The Northern Territory Government (where the family lived), supported by the Attorney-General for the Commonwealth, appealed to the High Court.
In the High Court of Australia the two issues were broadened so that the High Court was required to determine whether the procedure could be authorised by Marion, the parents or a
court such as the Family Court. The issues were:
In relation to the threshold question, the Court adopted the test from Gillick and confirmed that if the child adequately understood the proposed medical treatment, she was capable of giving informed consent. The High Court went on to say that there is no fixed-age to determine whether a child is competent to give consent to a medical procedure. Instead, the Court stated that it was necessary to consider competence in each case based upon the individual characteristics of that child.
As to the question of whether the proposed treatment was outside the scope that a parent can consent to on behalf of the child, the High Court stated that there were clearly features of the proposed surgical procedures which meant court authorisation was necessary. The High Court made a distinction between therapeutic and non-therapeutic surgical procedures.
Consent after Marion’s case
Marion’s case was ground-breaking as the High Court recognised the rights of children with disabilities. The sterilisation could only occur if the procedure was in Marion’s best interests and less invasive options had failed. In order to consent to medical treatment, a child must be in a position to do the following:
The medical practitioner must also meet the requirements of the Medical Treatment Planning and Decisions Act 2016.
If the child is not in a position to do the above, and is considered not to be Gillick competent, they will not be able to make an informed decision relating to their medical treatment. Therefore, the authority falls back on the child’s parents to consent to or refuse the proposed treatment on behalf of the child. If there is disagreement between parents and treating practitioners, it is prudent for the practitioner to obtain court approval before proceeding with the proposed treatment. On the other hand, if the child is considered Gillick competent, the proposed treatment may proceed even if the parents do not consent.
Are there any exceptions to obtaining consent?
Consent to medical treatment for a child is not required from a parent, the child, or a court in circumstances where emergency treatment is necessary.[23] This is recognised in Australia as the “emergency principle” or the “principle of necessity”, whereby treatment can be provided if obtaining consent is not possible and there is an urgent need for treatment to prevent the child dying or suffering serious harm or disability.[24] These exceptions to obtaining consent are established under the common law and statute. At this point, it is also important to acknowledge the common law doctrine of in loco parentis. This doctrine will operate to enable those standing in the role of parent to make medical decisions on behalf of a child lacking capacity.
What if the parents withhold consent to treatment recommended by the medical practitioners?
In circumstances where a medical practitioner’s views with respect to medical treatment of a child differs to that of the parents, a medical practitioner, hospital or Government authority may apply for a court order. In Director Clinical Service, Child & Adolescent Health Services & Kiszko & Anor,[25] the Family Court of Western Australia determined that the child should undergo chemotherapy treatment against the wishes of both parents. The Court heard evidence that the child would die without receiving treatment, but there was a good prospect of a long-term cure if the treatment proceeded. The hospital’s position was that the 6-year old child required chemotherapy and radiotherapy following surgery to remove a brain tumor. The parents did not agree with the proposed way forward and instead sought that the child be treated by way of alternative therapies with a focus on nutrition. The Court referred to the case of Minister for Health v AS,[26] where it was held that:
The question is not whether to respect the parent’s wishes. The role of the court is to exercise an independent and objective judgment and balance the advantage or disadvantage of the medical step under consideration. While the parents’ wishes may be relevant, they are not determinative.
The Court also stated that:
When faced with the stark reality that the child will die if lifesaving treatment is not performed, which has a good prospect of a long-term cure, it is beyond doubt that it is in child’s best interests to receive that treatment…[27]
It was ultimately considered to be in the child’s best interests for the proposed chemotherapy to commence as soon as possible, and the Court made an order to that effect.
In Re Michael,[28] an application was made to the Family Court by the Public Advocate seeking an order for the performance of cardiac surgery on an 11 year old child as a result of the parents refusing to provide consent. The child had suffered from a serious cardiac condition since birth. Upon seeking medical advice from a cardiologist shortly after birth, it was recommended that a Senning procedure be carried out in order to relieve the child’s symptoms, but not to cure his cardiac condition. The parents were concerned about the risks associated with the operation, including the possibility of death, or other complications which may arise following the surgery. The Court heard that a significant amount of pressure was applied to the parents to consent to the operation, but they continued to decline to do so.
Over many years, the child continued to consult medical professionals and pressure for consent to a Senning procedure increased. The doctors gave various estimates of the child’s life expectancy. All of those expectations were surpassed. When the child was eight years old, the Department of Health and Human Services became involved through the intervention of a medical practitioner at the Royal Children’s Hospital who was one of the many doctors seeking consent to the Senning procedure. After many meetings and the matter being referred to the Public Advocate, an application was made to the Family Court by the Public Advocate. Ultimately, the parents both signed undertakings in which, among other things, they said they would ensure the child received appropriate medical and/or surgical treatment in relation to any material and significant condition from which he suffered and which was reasonably attributable to his cardiac condition.
In Re GWW and CMW,[29] the Family Court was required to determine an application made by the parents of a 10 year old child who sought an order authorising the performance on the child of a bone marrow harvest or a peripheral blood collection. The parents also sought a declaration that the parents were able to authorise the performance of the harvest or collection in future. The child’s aunt, who had leukemia, was the proposed donee. The Court noted that the fact that the procedure was not for the child’s benefit, but rather for the benefit of a third party. This was an important factor to consider. When determining what was in the child’s best interests, the Court took into account the child’s wishes, the relationship he had with his aunt, and the risks involved with the procedures. Ultimately, the Court held that the psychological benefit to the child of permitting the procedure to proceed outweighed the risks and it was therefore in his best interests to permit him to be a donor.
Blood transfusions
Another circumstance in which a medical practitioner’s view may differ to that of a parent relates to the refusal of blood transfusions, usually due to religious beliefs. Those cases tend to be determined in the parens patriae jurisdiction of the Supreme Court rather than in the Family Court of Australia. A recent example was Mercy Hospitals Victoria v D1 & Anor.[30]The child was 17 years old, 38 weeks pregnant and a Jehovah’s Witness. The risk of a caesarean section and of associated postpartum bleeding was high. The child and her mother objected to the child being given any blood products. The hospital brought proceedings for a declaration that it could administer blood products to save her life or prevent serious injury. Besides the new MTPD Act, s 24 of the Human Tissue Act 1982 (Vic) was also relevant. This section relieves a medical practitioner from criminal liability where they administer a blood transfusion without the consent of a child if the requirements of the section are met.
D1 had partially completed the Advanced Care Directive under the MTPD Act which would have enabled her to make a binding decision to refuse medical treatment if she had decision making capacity. The hospital referred D1 to a psychiatrist who refused to witness her signature on the form.
The Supreme Court found that the child lacked the necessary maturity and understanding to withhold her consent to a blood transfusion and said:
In final submissions, the hospital said it was prepared to give an undertaking to the Court, as a condition of any declaration, to first use all strategies other than the transfusion of blood or blood products which in the opinion of two registered medical practitioners are reasonably available and clinically appropriate to attempt to avoid D1’s death or serious injury. It is also willing to undertake only to give a blood transfusion on the concurring opinion of two registered medical practitioners. Those undertakings, if required, may alleviate, even if only to a small degree, the sense of violation D1 may feel: that is, through understanding that blood transfusion was withheld until all other reasonably available strategies were tried first and, in the final analysis, was only undertaken on the opinion of two doctors in order to save her life or avoid serious injury.
Taking into account these matters and the observations I have made, I am not satisfied D1 does have a sufficient understanding of the consequences of her choice. I am not convinced she has based her choice on a maturely formed and entrenched religious conviction. Put another way, I am not convinced that overriding her expressed choice would so rob her of her essential self as to outweigh the loss she would suffer through losing her life or sustaining a catastrophic injury. In summary, I do not consider that allowing her, in effect, to choose to die or only survive with serious injury is in her best interests taking into account a holistic view of her welfare (physical, spiritual and otherwise).
To the extent that her psychological and spiritual welfare may be addressed by her knowing that a blood transfusion was only administered as a last resort and upon very carefully considered medical opinion, I think it is appropriate that any declaration be made upon the undertakings that the hospital agrees to give.[31]
Can a ‘Gillick competent’ child refuse medical treatment?
The question of whether a child who is considered Gillick competent can refuse medical treatment has arguably not been dealt with consistently by legislation or legal precedent. There is an academic argument which suggests that once a child has been deemed to have Gillick competency, they should be treated as a competent adult who is in a position to make all medical decisions for which they have capacity, even if those procedures are high risk or complicated procedures. However, Australian case law is not reflective of this position. Currently, a court can override decisions made by a child which relate to medical treatment in circumstances where it is in the child’s best interests to do so.
Special medical procedures
An application must be made to the Family Court to determine whether treatment can proceed in circumstances where the proposed treatment is considered a “special medical procedure”. The Family Law Rules 2004 define a medical procedure application as an application “seeking an order authorising a major medical procedure for a child that is not for the purpose of treating a bodily malfunction or disease”.[32] The only example given in the Rules is “a procedure for sterilising or removing the child’s reproductive organs”. Surgical treatment which is not therapeutic in nature is considered to be a special medical procedure. They are usually operations that are irreversible and sensitive procedures, and a child’s parents or guardian will not consent to a significant treatment or procedure regarded as necessary, the child’s parents or guardian are in dispute about significant and recommended treatment, when the procedure is considered ethically contentious, or a child refuses treatment in a life-threatening situation.
In Marion’s case, a distinction was made between therapeutic and non-therapeutic treatment. Therapeutic treatment was defined as treatment (including surgery) which “is administered for the chief purpose of prevention, removing or ameliorating a cosmetic deformity, a pathological condition or psychiatric disorder, provided the treatment is appropriate for and proportionate to the purpose for which it is administered”. By contrast, non-therapeutic medical treatment was defined a treatment “which is inappropriate or disproportionate having regard to the cosmetic deformity, pathological condition or psychiatric disorder for which the treatment is administered and of treatment which is administered chiefly for other purposes”.
If a medical practitioner commences treatment without obtaining court authorisation, they will be in breach of the FLA even if the parents have provided their consent. Hence, if a child is given invasive treatment without lawful consent, the medical professional may be open to the same actions available to adult patients who are given treatment without consent. Such actions include trespass, criminal prosecution, complaints made to the Medical Practice Board, and exposure to civil damages claims. Court orders are required in these circumstances because they are considered to extend outside the usual parental powers and the consequences of the medical procedures are usually irreversible or have the potential to significantly alter the child’s life.
Sterilisation
Sterilisation is considered a special medical procedure which requires the approval of a court prior to the procedure, regardless of whether the parents’ consent or the child is considered Gillick competent and consents.
For example, in Re Marion, the child’s parents applied for a court order for a hysterectomy and ovariectomy.[33] The parents sought the procedure in order to prevent pregnancy and menstruation and to stablise hormone fluxes. The High Court determined the legal principles which applied but the matter went back to the Family Court to decide what was in her best interests.
In Re Sarah,[34] the Court held that the proposed sterilisation of a 17 year old disabled girl was not in her best interests. In this case, the child suffered from severe intellectual and physical disabilities. She resided fulltime in a health care facility and was dependent on health care providers for her daily needs, including general hygiene, bathing, dressing, provision of food and toileting. She was unable to communicate, with the exception of smiling when she enjoyed something. Sarah’s parents sought a declaration that removal of the uterus and cervix was in the child’s best interests. The court considered Re Marion and
said:
“Proportionality and purpose are the legal factors which determine the therapeutic nature of medical treatment. Proportionality is determined as a question of medical fact. Purpose is ascertained by reference to all the circumstances but especially to the physical or mental condition which the treatment is appropriate to affect.”[35]
The Court heard that the procedure would provide benefits to the child such as minor improvement in hygiene, the risk of pregnancy would be avoided (although the court also considered other good safeguards against the possibility of pregnancy), possible relief of pain (although it was not known if Sarah suffered pain), removal of the concern that the treatment of uterine or cervical pathology may be impeded by her inability to communicate, and the parents’ wishes would be met (noting that they only saw her four times per year). The detriments of the procedure which were put to the court included the risks associated with the operation and the long-term effects of removal of the uterus. There was no evidence that her quality of life would be improved by way of expansion of the activities in which she might be involved, or by decreasing the burden on carers, upon the cessation of her menstruation. The Court held that the proposed procedure would not with any certainty (subject to the removal of the risk of pregnancy) increase the child’s capacity to enjoy life or meet a presently unmet need. A declaration was therefore made that sterilisation would not be in the child’s best interests.
In Re Carla,[36] a five year old girl was born with a sexual development disorder. Both the child’s parents and medical professionals agreed that it was in the best interests of the child to undergo the proposed procedure which involved the bilateral removal of the child’s gonads. Orders were also sought so that such further or other necessary and consequential procedures to give effect to the treatment of the child for her condition able to be authorised by her parents. The procedure would result in the child becoming infertile.
Given the significance of the procedure, it was not known by the treating practitioners and parents whether the treatment fell outside the bounds of permissible parental authority. The parents were concerned that it did fall outside the bounds of parental authority after being informed of Re Lesley[37] in which the Court heard an application for the same procedure and concluded that the treatment fell “squarely within the principles enunciated in Marion’s case” and “requires the sanction of a Court”.[38] The parents, therefore, applied to the Family Court for a determination as to whether it was in the child’s best interests to undergo the treatment.
Ultimately, it was held that the medical treatment was considered to be therapeutic as it was necessary to appropriately and proportionately treat a genetic bodily malfunction that, untreated, posed real and not insubstantial risks to the child’s physical and emotional health. Further, the Court determined that it was not a case where the decision to authorise the medical procedure fell outside the bounds of permissible parental authority as determined by the High Court in Marion’s Case. As such, it did not require court sanction, but the Court nevertheless made an order that the procedure be carried out before the onset of pubertal changes so as to avoid significant risks to the child’s physical and emotional health.
Gender dysphoria
There are three separate stages of gender dysphoria treatment.[39] Stage one relates to puberty blocking hormones being administered to the patient. This involves treatment of the medical condition known as childhood gender identity disorder and is not medical treatment which falls within the categories described in Marion’s case. Following Re Lucy,[40] a court order for stage one treatment has generally not been required. In Re Jamie,[41] the Family Court of Australia determined that a court order need not always be obtained in order to commence stage two treatment and found that a 15 year old was Gillick competent to consent to stage two treatment. However, a court order was required to determine that the child was Gillick competent, even if the parents and treating doctors believed the child was Gillick competent.
Stage two requires the administration of hormones of the opposite sex, being either testosterone or oestrogen. In Re Kelvin, [42] the Full Court of the Family Court overturned Re Jamie and held that a court order for this phase of treatment is no longer necessary if the child is Gillick competent.[43] Re Kelvin involved a child who was registered as a female at birth, but identified as transgender since he was nine years old. Kelvin received treatment from a psychologist, psychiatrist, and endocrinologist. All of Kelvin’s medical practitioners were of the view that Kelvin met the diagnostic criteria for gender dysphoria and that he should undergo stage two treatment for gender dysphoria. In early 2017, an application was made to the Family Court of Australia by Kelvin’s father who sought an order that Kelvin was competent to provide consent for stage two treatment. Kelvin, his parents, and his treating medical practitioners all agreed that it was in Kelvin’s best interests to proceed with stage two treatment.
Following Re Jamie, the Family Court heard approximately 63 cases which sought an order for stage two treatment. Court orders were made by the court allowing treatment to proceed in 62 of those cases. In the one case where an order was not made, the case was dismissed because the child was aged 17 years and 11 months at the time of the hearing and insufficient evidence was produced with respect to Gillick competency. The average time between receiving advice from a medical practitioner that stage two treatment should proceed and when the case was determined by the Family Court was approximately eight months. During that time many of the children suffered from a decrease in their mental wellbeing with increased anxiety, depression, and self-harm. Given this, the Full Court in Re Kelvin considered whether it should confirm the earlier decision in Re Jamie that stage two treatment requires a court order.
In Re Kelvin, a majority of the Full Court of the Family Court found that the state of medical knowledge had evolved since the decision in Re Jamie, particularly in relation to the risks associated with not treating a child who has gender dysphoria. The process set out in Re Jamie was criticised by doctors and parents for unnecessarily increasing mental health risks for transgender young people. The majority agreed that a Gillick competent child can consent to stage two treatment without the need for a court order. A court order remains necessary for stage two treatment if the child lacks Gillick competence or there is disagreement between parents or treating doctors.
The last stage, being stage three, relates to irreversible surgery. Surgical intervention includes, for example, chest reconstructive surgery, hysterectomy, vaginoplasty.
In Re Matthew,[44] the Court considered whether it was necessary for the Family Court to determine Gillick competency where the treatment proposed was therapeutic. If stage three treatment is therapeutic, the medical practitioners considered the child to be Gillick competent, and there was no controversy about the application, then it is no longer necessary to seek an order from the court for stage three treatment.
What if the parents don’t agree regarding a special medical procedure?
In Re Ryan[45] the parties’ 16 year old child had been diagnosed with gender dysphoria. The mother supported the child undergoing stage three treatment to transition to male and commenced court proceedings to facilitate the child’s wishes. The father opposed the treatment and sought for the mother’s application to be dismissed. In the alternative, the mother sought an order that she be allowed to authorise surgery or that the Court authorise the surgery pursuant to section 67ZC FLA. The father opposed the application on the basis that the child would be 18 in approximately 12 months’ time, and therefore could then make his own decisions. The father’s relationship with the child became strained as Ryan began his transition from female to the gender that he identified with. The father did not live with the child on a day-to-day basis (and in fact there was no communication between the two at the time of the court hearing), and he maintained the view that Ryan was going through a “phase”.
The Family Court had made previous orders, including a declaration that Ryan was competent to consent to stage one and two treatment. The evidence demonstrated that Ryan had benefited significantly as a result of having treatment for stage one and two. The court considered that Ryan’s life would be in limbo for approximately 12 months if he was not permitted to proceed. This was likely to be detrimental to him given the physical inconsistency of his body’s masculinity (as a result of having received stage two treatment) which was inconsistent with the presence of female breasts. The court gave weight to the fact that Ryan would experience significant distraction from his education, a decrease in his self-esteem, and a restriction on his ability to participate in the activities of young people his age. In those circumstances, the period of 12 months was considered by the court to be “no small matter”. The court also noted that it was possible, as the father feared, that Ryan would regret his decision, but the evidence suggested that was highly unlikely given the success Ryan had with the first two stages of treatment. That issue was held to be “not determinative”.
It was held that the evidence strongly suggested that Ryan had sufficient intelligence that enabled him to understand the treatment that was proposed. He had previously been assessed to be Gillick competent and nothing had changed which suggested he no long held competency, rather, it suggested his understanding had deepened. Ryan had officially changed his name and a new birth certificate was being issued. The court considered that this represented a further stage in the transition to Ryan becoming male. Evidence was provided to the court (and accepted by the judge) by two single experts and a senior family consultant with respect to Ryan having the relevant ability to understand the consequences of his decision. Ultimately, the Court determined that Ryan was Gillick competent to consent to stage three treatment.
Is a court order required to withdraw life sustaining treatment of a child?
In Re Baby D (No 2),[46] the parents sought to implement the medical advice received in relation to their baby, a twin born at 27 weeks’ gestation. The medical advice was to remove a tube which had been inserted to relieve airway obstruction. During an earlier attempt to remove the intubation, Baby D suffered severe brain damage from a lack of oxygen. The tube was reinserted 35 minutes later to prevent any further complications.
Baby D remained intubated for approximately five months, at which point the medical practitioners believed the best course of action was to remove the tube. However, it was not known what would happen if the tube was removed again, and if Baby D had a similar reaction to the earlier attempt, whether Baby D should be immediately intubated again.
The matter was referred to the Ethics Committee at the hospital which was of the view that the tube should be removed, and if there was another reaction to that removal, Baby D should be placed into palliative care. Despite this view, the Ethics Committee recommended that the parents first seek approval of the Family Court. As a result, the parents applied to the Court for approval to consent to the removal of the tube and also to provide palliative care, if necessary. The Court made that order but noted that the decision to withdraw treatment was within the scope of parental power and did not require authorisation of the court. However, it was noted that “other similar medical procedures within a different factual context may require court authorisation”.[47]
Who should apply and what evidence is needed prior to making an application?
In accordance with Rule 4.08 of the Family Law Rules 2004, various people can make an application to the court seeking orders that relate to medical treatment of a child. Those people include a parent of the child, a person who has a parenting order for a child, the child, an Independent Children’s Lawyer, and any other person concerned with the welfare and development of the child. The final category includes medical and other professionals responsible for medical treatment of the child.
Applicants must ensure that sufficient evidence has been collated prior to filing an application in the Family Court relating a child’s medical treatment. In particular, they must be in a position to give sufficient evidence which satisfies the Court that the proposed medical procedure is in the best interests of the child.[48] Practitioners should ensure that there is evidence from a medical, psychological, or other relevant expert witness which demonstrates the following:
When reviewing the evidence, the Court will consider each fact individually whilst focusing on what is in the best interests of that particular child.[49] The evidence should be provided to the Court in the form of an affidavit. If the evidence is to be provided orally, it is necessary to seek permission of the Court.[50]
Upon the filing of a medical procedure application, the Court must fix a date for a hearing before a judge of the Family Court. In accordance with Rule 4.11 of the Family Law Rules, the Court is required to fix a date to hear the application as soon as possible after the date of filing the application, and if possible, within 14 days of the application being filed. On the first court date, the Court must either make procedural orders for the conduct of the case and adjourn the matter to a fixed date of hearing, or hear and determine the application.
Conclusion
A considerable onus is placed upon medical practitioners when treating children in particular. It is necessary to obtain consent by either the child or his or her guardian, depending on the age and maturity of the child and the nature of the proposed procedure. This consent must obviously be obtained prior to commencing any treatment. In addition to complying with the Medical Treatment and Decisions Act 2006, in cases which involve a special medical procedure, the approval of the Family Court is necessary notwithstanding consent is provided by parents and/or the child. The definition of “special medical procedure” has changed with social and medical developments and knowledge. The cases show a balancing of the conflict between the ability of a child to give consent and the authority of parents and the courts to make the decision despite the views of the child.
[1] Section 4(5) of the Medical Treatment Planning and Decisions Act 2016.
[2] Section 55(4) of the Medical Treatment Planning and Decisions Act 2016.
[3] Section 28(2) of the Medical Treatment Planning and Decisions Act 2016.
[4] [1994] HCA 20.
[5] Section 61B of the Family Law Act.
[6] Section 64C of the Family Law Act.
[7] Section 67ZC(2) of the Family Law Act 1975.
[8] Duke-Randall & Randall [2014] FamCA126. In Mains & Redden [2011] FamCAFC 184 the Full Court of eh family Court said that further evidence was required before it could decide whether immunisation was a “special medical procedure”
[9] [2012] FamCA 889.
[10] Gaskill & Beveridge [2018] FamCA 1114.
[11] Gillick v West Norfolk and Wisbeck Area Health Authority and Another [1986] AC 112.
[12] K v Minister for Youth and Community Services and Another [1982] 1 NSWLR 311.
[13] See for example, Elliott Birkett v Director General of Family and Community Services and Others (Unpublished) Supreme Court of NSW (1993), File No. 3161/91; Re E (A Minor) (Wardship: Medical Treatment) [1993] 1 FLR 386.
[14] Re A (A Child) (1993) FLC 92-402; Re Jamie [2013] FamCAFC 110; Re Kelvin [2017] FamCA 78.
[15] Re W (A Minor) [1993] 1 FLR 1 (English Court of Appeal).
[16] Re Michael (1994) FLC 92-471.
[17] Gillick v West Norfolk and Wisbeck Area Health Authority and Another [1986] AC 112.
[18] Gillick v West Norfolk and Wisbeck Area Health Authority and Another [1986] AC 112.
[19] NHS Trust v T (Adult: Refusal of Medical Treatment) [2004] 3 FCR 297 at [53] refers to Re MB (An Adult: Medical Treatment) [1997] 2 FCR 541, 553-4.
[20] Secretary of the Department of Health and Community Services v JWB and SMB (1992) 175 CLR 218, 394.
[21] Secretary of the Department of Health and Community Services v JWB and SMB (1992) 175 CLR 218.
[22] Family Court of Australia, "A Question of Right Treatment: The Family Court and Special Medical Procedures for Children" (1998) at 4-5, 8-9.
[23] See for example, Marshall v Curry [1933] 3 DLR 260.
[24] Skene L. Law and Medical Practice, Rights, duties, Claims and Defences. 3rd edition, Australia, LexisNexis, 2008.
[25] [2016] FCWA 19.
[26] [2004] WASC 286.
[27] Minister for Health v AS [2004] WASC 286.
[28] (1994) FLC 92-471.
[29] (1997) FLC 92-748.
[30] [2018] VSC 519
[31] At [75]-[77]
[32] Dictionary to the Family Law Rules 2004.
[33] Re Alex: Hormonal Treatment for Gender Identity Dysphoria (2004) FLC 93-175.
[34] Between: L and GM Applicants and MM Respondent and the Director-General Department of Family Services and Aboriginal and Islander Affairs Respondent/Intervener [1993] FamCA 124 (Re Sarah).
[35] Secretary of the Department of Health and Community Services v JWB and SMB (1992) 175 CLR 218.
[36] (medical procedure) [2016] FamCA 7.
[37] (Special Medical Procedure) [2008] FamCA 1226.
[38] (Special Medical Procedure) [2008] FamCA 1226.
[39] Re Kelvin [2017] FamCA 78.
[40] [2013] FamCA 518.
[41] [2013] FamCAFC 110.
[42] [2017] FamCA 78.
[43] [2017] FamCA 78.
[44] [2018] FamCA 161.
[45] [2019] FamCA 112.
[46] (2011) FamCA 176.
[47] (2011) FamCA 176.
[48] Rule 4.09 of the Family Law Rules 2004.
[49] Section 68F(2) of the Family Law Act 1975.
[50] Rule 4.09(3) of the Family Law Rules 2004.
Jacky Campbell, August 2016
The High Court considered spousal maintenance and the term “financial resources” in Hall v Hall (2016) FLC 93-709. An earlier article discussing the decisions of the trial judge and the Full Court in detail and can be read here.
Overview
The High Court, in Hall, considered:
The majority judges were French CJ, Gageler, Keene and Nettle JJ, but there was a strong dissent by Justice Gordon.
The wife’s appeal to the High Court was from an order of the Full Court of the Family Court which discharged an interim maintenance order in her favour. Although the order was described by the trial Judge as having been made on an urgent basis under s 77, in subsequent proceedings the parties treated it as an interim order under s 74(1).
The High Court majority was critical of the delays in the proceedings, noting that an objective of s 97(3) FLA is that the proceedings are “not protracted” and an objective under r 1.04 of the Family Law Rules 2004 is that “each case is resolved in a just and timely manner”.
Prerequisites for a maintenance order
The High Court majority outlined the legislative prerequisites for making a spousal maintenance order under Pt VIII of the FLA.
Section 72(1) is the “gateway” to the operation of spousal maintenance. It provides that:
“[a] party to a marriage is liable to maintain the other party, to the extent that the first-mentioned party is reasonably able to do so, if, and only if, that other party is unable to support herself or himself adequately… having regard to any relevant matter referred to in [s] 75(2).”
The liability of a party to a marriage to maintain the other party is imposed by s 72(1), and is crystallised by the making of an order under s 74(1). Section 74(1) provides that:
“[i]n proceedings with respect to the maintenance of a party to a marriage, the court may make such order as it considers proper for the provision of maintenance in accordance with this Part.”
A court exercising the power conferred by s 74(1) is obliged by s 75(1) to take into account the matters referred to in s 75(2). This “comprehensive checklist” includes, relevantly for this case:
s 75(2)(b) – “the income, property and financial resources of each of the parties and the physical and mental capacity of each of them for appropriate gainful employment”
s 75(2)(o) – “any fact or circumstances which, in the opinion of the court, the justice of the case requires to be taken into account.”
The High Court distinguished between permanent orders, interim orders and urgent orders.
Prerequisites for discharging an order
There is also the power under s 83(1)(c) to discharge the order “if there is any just cause for so doing”. This imports a need for the court to be satisfied of circumstances which justify the court considering the threshold requirement again (Astbury & Astbury (1978) FLC 90-494). The court must find “just cause” on the basis of the wording of the Act (although these cases were not referred to by the High Court, see Wreford & Caley [2010] FamCAFC 21 at para 56 and Lutzke & Lutzke (1979) FLC 90-714). For the purpose of considering whether to discharge an order, the court is specifically required to have regard to ss 72 and 75 and the applicant for discharge of the order can re-open examination of the threshold requirement of s 72(1).
Circumstances of the parties
The parties were married for 12 years and had two children. The husband was a property developer and the wife was a medical practitioner. Their respective incomes were not discussed by the High Court, but it was accepted in the lower courts that the wife could not support herself adequately from her own earnings. At trial she was earning $300 per week.
The wife disclosed in her sworn documents in November 2013 that she was the owner of two luxury motor vehicles which had been purchased for her by her brothers. She also disclosed that she had an “interest” in the estate of her late father, the value of which was not known to her. Her father had died four years previously, having started the family business in which she had never had an active role. The business was run through a corporate structure controlled by her brothers. She did not have a copy of her father’s will and did not know the particulars of her father’s estate.
The husband deposed to his net worth as being $21 million and his taxable income as $80,340, with unspecified drawings “from various entities as and when needed”.
The trial judge ordered that the husband pay to the wife the sum of $10,833 per month by way of spousal maintenance pending the final determination of the proceeding.
The trial judge said that the absence of information about the nature and extent of any interest of the wife in the estate of her late father meant that no such interest could be take into account as a financial resource of the wife in determining the wife’s application for maintenance. The trial judge found that she was satisfied on the evidence as to the wife’s need for maintenance and the husband’s ability to pay.
The terms of the wife’s father’s will
After the delivery of the judgment, the husband attempted to subpoena the Will of the wife’s late father. These proceedings were reported as Hall & Hall [2016] FamCA 143. The husband was unsuccessful, but an affidavit was sworn by a solicitor acting for one of the brothers and filed in support of the brother’s opposition to disclosure of the Will. The solicitor said there were concerns for the personal safety of the family and for that reason an application for probate had not been made and the production of the Will was opposed.
The property dealt with in the Will included shares in companies within the V Group. The V Group was one of the largest business enterprises in South Australia. Under the Will, all of the father’s shares were given to the wife’s brothers and none were given to the wife apart from some which she had received prior to her father’s death.
One clause of the Will related to the wife. The wife’s father expressed the ”wish” that the wife should receive from the V Group a lump sum payment of $16,500,000 on the first to occur of a number of specified events. One of the specified events was that the wife and the husband divorced. The father also expressed a “wish” that the wife should receive from the V Group an annual payment of $150,000 until the date (if any) that the lump sum payment of $16,500,000 was made.
Application to discharge the maintenance order
Based on the disclosure by the wife’s brother’s solicitor as to the terms of the Will insofar as they related to the wife, the husband filed an application to discharge the interim maintenance order. He relied on the “benefit” of the annual payment which her deceased father had conferred on the wife.
In response, the wife filed an affidavit setting out that she had recently spoken to one of her brothers who had explained the contents of the Will to her. She stated that she had “not received any income or capital payment from my late father’s estate” but did not say whether or not she had requested payment from the V Group in accordance with the wishes expressed by her father in the Will.
The trial judge delivered judgment 3 months later, dismissing the husband’s application. This was reported as Hall & Hall (No.3) [2014] FamCA 406. The reasons made no reference to the evidence or the issue about whether or not the wife might be able to obtain the annual payment of $150,000 from the V Group.
Delays in appeal to the Full Court
The husband’s application for leave to appeal to the Full Court was lodged in July 2014. The application was heard in November 2014 and judgment in relation to both the application for leave and the appeal itself, was delivered in August 2015. The High Court majority said the delay was unexplained and on any view, the delay was unacceptable. Section 97(3) FLA states:
“In proceedings under this Act, the court shall proceed without undue formality and shall endeavour to ensure that the proceedings are not protracted.”
This was described by the High Court as an “objective” and was linked to r 1.04 Family Law Rules 2004, which states:
“The main purpose of these Rules is to ensure that each case is resolved in a just and timely manner at a cost to the parties that is reasonable in the circumstances of the case.”
Decision of the Full Court of the Family Court
At the hearing before the Full Court the wife adduced further evidence, being a letter from one of her brothers explaining that neither the $150,000 nor the payment of $16,500,000 were to be paid to the wife and that as executor the brother had no obligation to the wife in respect of these amounts. The letter re-emphasised the voluntary nature of the payments stated as wishes of the wife’s father.
The Full Court found that the trial Judge erred in failing “to consider, and indeed make any finding as to whether there was sufficient new evidence before her to discharge the interim spousal maintenance order” (at para 131 of the Full Court and para 29 of the High Court).
The Full Court found there was evidence that demonstrated that the wife was able to support herself adequately as she would have received the payment of $150,000 per annum from her brothers if she requested it. There was nothing in the evidence to suggest that any such request, if made, would have been denied. The Full Court considered that the fact that her brothers had provided her with luxury motor vehicles indicated that she had a good relationship with them.
The Full Court granted the husband leave to appeal, allowed the appeal and discharged the interim maintenance order retrospectively from the date the maintenance order was made – over one and a half years previously.
Appeal to the High Court
The wife appealed to the High Court on the following grounds:
(a) It was not open on the evidence to infer that the voluntary annual payment would have been made to her if she requested it.
(b) Even if it was established that the voluntary annual payment would have been made to her if she requested it, that did not constitute a proper basis for concluding that she was able to support herself adequately within the meaning of s 72(1). Her ability to obtain a voluntary payment by asking for it was not a “financial resource” within the meaning of s 75(2)(b) and the Full Court did not and could not form an opinion that it was a fact or circumstance which the justice of the case required to be taken into account so as to bring it within s 75(2)(o).
The husband contended that the annual payment of $150,000 was not voluntary but was an equitable obligation. The High Court found that it was unnecessary for it to address that argument.
The High Court majority rejected the failure of process argument. There was no ambiguity in the husband’s argument before the Full Court that the inference should be drawn that the annual payment of $150,000 would be given to the wife if she chose to ask her brothers for it. The inference was more readily drawn given the wife’s failure to adduce evidence about it. The wife was fully aware of the risks of running her case on the basis she did. The majority said (at para 44):
“Throughout the proceedings, at first instance and on appeal, the wife was on notice of the risk of a finding being made that she would have received the annual payment of $150,000 if she had asked her brothers for it. The fair inference is that she chose to run that risk, hoping that it would not eventuate and conscious that such evidence relevant to that finding as she might adduce would not assist her case.”
The finding was open
The Full Court majority found that it was open on the evidence before the Family Court for the court to find that the wife would have received the $150,000 annual payment if she asked for it. Although she had not received it since her father’s death, the reasons for this failure were wholly unexplored. That evidentiary gap was within the power of the wife to fill and her failure to lead evidence allowed the inference to be drawn that such explanation as she was able to provide would not have assisted her case.
The High Court majority described (at para 47) the affidavit of the brother’s solicitor and the letter from the brother as being “cleverly worded”. The documents were “most informative in what they do not say: that the Group … was inclined not to pay”.
As the brothers had received the benefit of their father’s testamentary largesse, the High Court majority said (at para 46) that:
“… the brothers were at least under a moral obligation to honour their father’s wish that the wife receive the payments from the Group”, to which he had referred in the Will. The Group undoubtedly had the wherewithal to make the payments, and there was no evidence to suggest amorality or personal animus on the part of any of the three brothers which might in turn suggest that they might not fulfil that moral obligation.”
The finding that the wife would have received the payment if she asked for it was relevant under both s 75(2)(b) and s 75(2)(o).
Moral Obligation
The emphasis by the High Court on the “moral obligation” of the wife’s brothers was curious, given the criticism expressed by the High Court majority in Stanford v Stanford (2012) FLC 93-518 about the Full Court of the Family Court’s finding that (at para 12 of the High Court):
“… the many years of marriage [of the parties] and the wife’s contributions demand that those moral obligations be discharged by an order for property settlement.”
The High Court majority said in Stanford (at para 52):
“Whether it was just and equitable to make a property settlement order in this case was not answered by pointing to moral obligations. Reference to “moral” claims or obligations is at the very least apt to mislead. First, such references appear to invite circular reasoning. On its face, the invocation of moral claims or obligations assumes rather than demonstrates the existence of a legal right to a property settlement order and further assumes that the extent of that claim or obligation can and should be measured by reference to the several matters identified in s 79(4) … Moreover, if the word “moral” was being used in this context with some wider meaning or application, it is important to recognise that it is used in a way that finds no legal foundation in the Act or elsewhere. It is, therefore, a term that may, and in this case did, mislead. The rights of the parties were to be determined according to law, not by reference to other, non-legal considerations.”
It is difficult to reconcile the attitude of the High Court to moral claims in Hall with those expressed in Stanford. Although the High Court was dealing with a property claim under s 79 in Stanford, and in Hall it was dealing with whether a maintenance order ought to have been discharged, the wording of the relevant legislative provisions in both cases made reference to it being “just” and there was a pathway for the court to follow in each case which did not include “moral” obligations of the parties or third parties.
What is a financial resource?
The term ”financial resources” was defined by the High Court, so as to extend to potential sources of financial support if the factual inquiry supported that the source could reasonably be expected to be forthcoming were the party to call on it. The High Court majority said (at paras 54-56):
“The reference to “financial resources” in the context of s 75(2)(b) has long been correctly interpreted by the Family Court to refer to “a source of financial support which a party can reasonably expect will be available to him or her to supply a financial need or deficiency” (Kelly & Kelly (No.2) (1981) FLC 91-108). The requirement that the financial resource be that “of” a party no doubt implies that the source of financial support be one on which the party is capable of drawing. It must involve something more than an expectation of benevolence on the part of another. But it goes too far to suggest that the party must control the source of financial support. Thus, it has long correctly been recognised that a nominated beneficiary of a discretionary trust, who has no control over the trustee but who has a reasonable expectation that the trustee’s discretion will be exercised in his or her favour, has a financial resource to the extent of that expectation (Kelly & Kelly (No.2) (1981) FLC 91-108).
Whether a potential source of financial support amounts to a financial resource of a party turns in most cases on a factual inquiry as to whether or not support from that source could reasonably be expected to be forthcoming were the party to call on it.
Here, on the Full Court’s finding of fact, the annual payment from the Group was a financial resource of the wife so as to be a matter within s 75(2)(b). The payment was available to her if she asked for it. The availability of the payment was the subject of specific provision in the father’s will. The making of the payment was at least a moral obligation of the wife’s brothers, who were in any case well-disposed towards her.”
The High Court majority found that the annual payment was also relevant under s 75(2)(o), saying (at para 58):
“Because it bore centrally on the ability of the wife to support herself adequately, the availability to the wife of the annual payment from the Group was also a fact or circumstance in respect of which it was open to the Family Court to form the opinion that the justice of the case required that it be taken into account.”
Dissenting judgment
Gordon J gave a strong dissenting judgment. He summarised the facts and matters on which the inference was drawn (at para 7):
“1. The wife had a “good relationship” with her brothers;
2. The father’s Will expressed a “wish” in relation to an annual payment;
3. The brothers had provided the wife with late-model luxury motor vehicles;
4. The wife had not requested that a payment be made in accordance with the “wish” in the father’s Will, and
5. The brothers had not rejected such a request and there was no suggestion that the brother who was the executor would object to such a voluntary payment.”
Matters which Gordon J said (at paras 72–78) counted against the drawing of the inference were:
He said (at para 76) that the brothers’ conduct did not support a finding that they would have caused the V Group to make a payment to the wife if requested.
“On the contrary, their conduct suggested an unwillingness to disclose the contents of the Will to the wife and an unwillingness to comply with their father’s stated wish in relation to the wife, their sister. In this respect, the wife’s position stands in stark contrast to the position of a beneficiary of a discretionary trust who has no control over the trustee but has a reasonable expectation, by reference to past distributions, that the trustee’s discretion will be exercised in their favour.”
Gordon J used the same definition of “financial resources” as the majority. He agreed that it was not confined to the present legal entitlements of the parties and extended to include “a source of financial support which a party can reasonably expect will be available to him or her to supply a financial need or deficiency”. (Kelly & Kelly (No.2) (1981) FLC 91-108; see also Kennon v Spry (2008) FLC 93-388). He disagreed with the High Court majority in the application of that proposition to the present circumstances, saying (at para 91):
“However, it cannot be said that the father’s wish (for an annual payment to the wife, which had not been effected by the brothers or the V Group in the more than four years since the father’s death) was a source of financial support which, if the wife requested, the wife could reasonably expect would be available to her to supply a financial need.”
He concluded that as the wife had no right to a payment, the wife asking for a payment was not more pressing and persuasive than her father’s formally recorded wish. The brothers had been unwilling even to provide the Will to the wife, so there was no basis to infer that the wife’s request would tip the balance in favour of the brothers making the payment.
Conclusion
The High Court majority in Hall possibly broadened the interpretation of a “financial resource” by finding that a “wish” expressed in a Will of a third party could amount to a financial resource and used to establish that a party to a marriage has the ability to support themselves and therefore is not entitled to maintenance from their spouse. The High Court majority was satisfied that the finding was open to the Full Court of the Family Court that the wife would have received the voluntary annual payment from her brothers if she asked for it. The moral obligation of the brothers was given weight.
The High Court majority drew an analogy between the rights of a discretionary beneficiary of a trust and the right of the wife to ask for a payment to be made to her pursuant to a wish expressed in Will that she receive annual payments.
By contrast, in a strong dissenting judgment, Gordon J rejected the broader interpretation of “financial resources” relied upon by the majority and the notion that the finding that the voluntary payment would have been made to the wife if she had asked for it. He distinguished her position from that of the beneficiary of a trust.
The application of Hall to future cases is difficult to discern. On the one hand, the majority said it was applying existing law as to the definition of a “financial resource”. On the other hand, the majority, if not broadening the definition of “financial resources”, applied it in somewhat surprising circumstances where there was little, if any, evidence that the wife had a reasonable expectation that the payment would be made if she asked for it.
The clearest message from the decision is that there are risks involved in running a case and not adducing evidence which might prove a point one way or another. In this case, the wife did not ask her brothers to make the voluntary payment and therefore could not and did not give evidence as to the response she received from her brothers to her request. Both the Full Court of the Family Court and a majority of the High Court were able to draw conclusions which were unfavourable to the wife because of the gap in the evidence.
Jacky Campbell, June 2019
Introduction
The Family Law Legislation Amendment (Superannuation) Act 2001 (“the FL Superannuation Act”) and associated regulations started on 28 December 2002. This paper looks at the practicalities of drafting orders and superannuation agreements, not valuation of superannuation interests and what percentage split should be made to the non-member.
Part VIIIB Family Law Act 1975 (Cth) (FLA) applies both to property settlements under Pt VIII between married couples and to Pt VIIIAB between de facto couples, except in Western Australia (although there are proposals for this to change). From 23 November 2018 Pt VIIIB was renumbered. This paper uses the new numbers for the sections except where the numbers appear in a quote, in which case the new number is inserted in square brackets.
This paper does not deal with the complexities of valuing superannuation, but refers to it briefly as it is the first step in the process of dealing with a superannuation interest by way of a court order or a financial agreement.
In most cases, parties only need to obtain a recent member’s statement to value their superannuation (reg 31(2) Family Law (Superannuation) Regulations 2001) (FLS Regulations). This is fairly accurate for most interests in accumulation funds.
Further steps are only required if:
There are various methods of valuing an interest. These are:
Nature, form and characteristics of superannuation
Generally, where the superannuation interests of both parties to family law proceedings are accumulation interests, few difficulties are encountered by the Family Law Courts in dealing with them. However, an accumulation interest in the growth or payment phase and a defined benefit interest in the growth or payment phase differ in several important respects. As a result, examining the nature, form and characteristics of a superannuation interest is particularly important when a defined benefit interest is involved.
Those differences include the method by which the ultimate benefit is calculated; the risk to the member inherent in each and, very importantly, the effect of a s 90XT(1)(a) FLA order (an order which allocates a base amount to the non-member spouse). As the Full Court said in Bulow & Bulow (2019) FLC 93-885 (at [18]):
“Each and all of those differences can, and very often do, have a dramatic impact upon the justice and equity of a proposed splitting order and, in turn, its place within just and equitable orders for settlement of property.”
The FLA provides for splitting orders to be made which take effect when splittable payments become payable — that is, when the member spouse satisfies a condition of release. The FLA does not provide for the underlying superannuation interests themselves to be split. That work is usually done by Pt 7A of the Superannuation Industry (Supervision) Regulations 1994 (SIS Regulations). The SIS Regulations allow the creation of a new superannuation interest in the name of the non-member spouse such that their interest is separated from the interest of the member spouse within the fund.
The Full Court pointed this out in Bulow (at [20]):
“Crucially, however, defined benefit funds are not regulated by Part 7A of the SIS Regulations. It is therefore fundamental to a consideration of any proposed splitting order that the Court consider the governing rules of such funds contained within their specific trust deeds. It is those rules which will determine the effect of any splitting order on the underlying interest within that particular fund. As an example, within a defined benefit fund the fund’s rules can dictate that a splitting order has significant effects on the formula by which a member’s ultimate entitlement is calculated.”
The Full Court discussed the distinction between defined benefit interests and accumulation interests (at [22]-[23], [25]):
“By reason of the matters just discussed, it is an error both to fail to consider the specific requirements and ramifications of the PSS Deed’s provisions and to assume that the effect of a s 90XT(1)(a) order upon the husband’s defined benefit interest is the same as it would be if the husband held an accumulation interest. It is also an error to assume that the effect of a splitting order for the non-member spouse is the same as it would be in respect of an accumulation interest.
The terms of the scheme-specific PSS Deed will dictate the variables by which the husband’s present and future benefit will be calculated subsequent to any mooted splitting order. So, too, the PSS Deed will dictate the nature, form and characteristics of the interest which the wife will acquire subsequent to any such order. The justice and equity of any proposed splitting order cannot be considered without reference to both. Axiomatically, those matters are crucially relevant considerations in the exercise of a trial judge’s discretion in the making of a splitting order …
The nature, form and characteristics of the interests held by each of the parties consequent upon the proposed splitting order; the future benefits for each party upon vesting; when the respective interests might vest and the form in which any benefits might (or must) be taken at that time, are all likely to be relevant in assessing the s 75(2) factors. As an example, in this case the husband asserts before this Court that the splitting order made by his Honour restricts the amount he can contribute from salary and, thereafter, his ultimate potential benefit.”
The husband had unsuccessfully sought to obtain expert evidence on the effect of a splitting order on his defined benefit interest. Although the parties each had expert evidence as to the value of the husband’s interest, the Full Court said (at [28]):
“Neither expert provided an opinion on the nature, form and characteristics of the husband’s superannuation interest nor how any splitting order sought by the wife (or any other splitting order) might impact upon that interest.”
The Full Court concluded that the court needed to have evidence directly relevant to a determination of one of the central issues.
In summary, the differences in the nature, form and characteristics of an accumulation interest in the growth phase or payment phase and a defined benefit interest in the growth or payment phase include:
The justice and equity of any proposed splitting order can’t be considered without reference to the nature, form and characteristics of the interest.
Relevant date
When valuing a superannuation interest, the relevant date is the date at which the value of the interest is determined under the FLS Regulations. It is usually either the date the request for a valuation (the SIF) is signed by the eligible person or it is the date it is received by the fund. In some cases, another date is nominated such as the date of cohabitation or the date of separation. More than one date can be nominated.
A split under the Family Law Act is a split of a payment. A splitting order does not affect the member’s interest in the fund, the split only occurs when the payment is made to the member. The FLA only operates in relation to ”payments”.
Splitting the superannuation interest itself cannot be ordered under the FLA. Splitting the interest itself occurs under the superannuation legislation and regulations, and under the Deed if the Deed permits it.
If a new interest is created for a non-member spouse, this occurs under Div 2.2 SIS Regulations. The trustee of a superannuation fund can ”split” an interest to create a new interest for the non-member or transfer assets to allow the non-member spouse to have an interest in another fund.
For an interest to be split, it must be both:
If splitting the interest is possible, the trustee must issue a payment split notice. The notice gives three options to the non-member:
The trustee can create a separate interest for the non-member as at the operative time while waiting for the return of the payment split notice (reg 7A.03B(1)) SIS Regulations.
The trustee must be served with:
There are 4 types of splitting orders but the most common are called type (a) and type (b) orders. In type (a) orders a lump sum is set aside within the member’s fund for the non-member. The lump sum is calculated on the basis of a dollar figure known as the “base amount”. The base amount is adjusted over time and the non-member’s interest grows independently of the member’s interest. The member can make contributions without affecting the base amount.
In type (b) orders the non-member is paid a certain percentage of each splittable payment. They are appropriate when superannuation is in the payment phase. The “payment phase” means that the member is receiving a superannuation pension or has met the conditions of release and is entitled to receive a pension or lump sum.
Before a splitting or flagging order is made there must have been procedural fairness to the trustee (s 90XZD). This means that the trustee had prior notice of the specific order sought and had the opportunity to be heard about the order before it was made. Notice of an intended order usually occurs by serving a copy of the proposed order on the trustee. If the terms of the proposed order change, further notice to the trustee is usually required. Procedural fairness must also be given in relation to superannuation provisions in financial agreements.
The FLA does not define “procedural fairness”. It appears that a trustee is required to be given reasonable notice of any intended orders relating to the superannuation fund and be given an opportunity to be heard in respect of them. If procedural fairness is not accorded there is an error of law justifying an appeal.
Generally, the phrase “procedural fairness” has a similar meaning to “natural justice” and “due process”. In a case dealing with administrative law not family law, the High Court held that there is a common law duty to act fairly in making decisions which affect rights, interests and legitimate expectations (Kioa v West (1985) 125 CLR 550, 584 per Mason J).
Orders made without notice to the trustee are voidable, so they are valid until they are set aside (Fatt & Fatt [2004] FMCA fam 254).
Although it was not an issue raised by the parties, the Full Court of the Family Court in Pandelis & Pandelis (2019) FLC 93-885 raised the problem that the trustee had not been given procedural fairness and required that the parties rectify this before fresh orders were made.
Court requirements
Rule 10.16 Family Law Rules 2004 provides:
“Notice to superannuation trustee
(1) This rule applies in a property case if a party intends to apply for a consent order which is expressed to bind the trustee of an eligible superannuation plan.
(2) The party must, not less than 28 days before lodging the draft consent order or filing the Application for Consent Orders, notify the trustee of the eligible superannuation plan in writing of the following:
(a) the terms of the order that will be sought to bind the trustee;
(b) the next court event (if any);
(c) that the parties intend to apply for the order sought if no objection to the order is received from the trustee within the time mentioned in subrule (3);
(d) that if the trustee objects to the order sought, the trustee must give the parties written notice of the objection within the time mentioned in subrule (3).
(3) If the trustee does not object to the order sought within 28 days after receiving notice under subrule (2), the party may file the application or lodge the draft consent order.
(4) Despite subrule (3), if, after service of notice under subrule (2) on the trustee, the trustee consents, in writing, to the order being made, the parties may file the Application for Consent Orders or lodge the draft consent order.
Note: Eligible superannuation plan is defined in section 90MD [now s 90XD] of the Act.”
Rule 14.06 Family Law Rules provides:
Notice to superannuation trustee
(1) This rule applies in a property case if:
(a) a party seeks an order to bind the trustee of an eligible superannuation plan; and
(b) the case has been listed for the first day before the Judge.
(2) The party must, not less than 28 days before the first day before the Judge, notify the trustee of the eligible superannuation plan in writing of the terms of the order that will be sought at the trial to bind the trustee, and the date of the trial.
(3) If the court makes an order binding the trustee of an eligible superannuation plan, the party that sought the order must serve a copy of the order on the trustee of the eligible superannuation plan in which the interest is held.
Note 1: Subrule 7.13(2) sets out how to prove service of a copy of an order.
Note 2: Eligible superannuation plan is defined in section 90XD of the Act.
Rule 24.07 Federal Circuit Court Rules 2001 provides:
“Service of application or order for superannuation interest
(1) This rule applies if, in an application, response or reply, a person:
(a) seeks a flagging order or splitting order in relation to a superannuation interest under Part VIIIB of the Family Law Act; or
(b) applies under section 79A or 90SN of that Act for an order to set aside an earlier order made in relation to a superannuation interest.
(2) The person must, immediately after filing the application, response or reply, serve a sealed copy of that document on the trustee of the eligible superannuation plan in which the interest is held.
(3) If the court makes a flagging order or splitting order or any other order in relation to the superannuation interest, the applicant must serve a copy of it on the trustee of the eligible superannuation plan in which the interest is held.
Completing the financial statement
Part J | Superannuation | |||||
You must attach a completed Superannuation Information Form for each superannuation interest if you are seeking an order for property settlement. | ||||||
GROSS VALUE | ||||||
45 | Interest in superannuation | NAME OF SUPERANNUATION PLAN 1 | $ | |||
TYPE OF INTEREST
Accumulation interest Partially vested accumulation interest Defined benefit interest Self managed fund Eligible annuity |
Retirement saving account Small superannuation account Percentage only interest Approved deposit fund |
|||||
NAME OF SUPERANNUATION PLAN 2 | $ | |||||
TYPE OF INTEREST
Accumulation interest Partially vested accumulation interest Defined benefit interest Self managed fund Eligible annuity |
Retirement saving account Small superannuation account Percentage only interest Approved deposit fund |
|||||
NAME OF SUPERANNUATION PLAN 3 | $ | |||||
TYPE OF INTEREST
Accumulation interest Partially vested accumulation interest Defined benefit interest Self managed fund Eligible annuity |
Retirement saving account Small superannuation account Percentage only interest Approved deposit fund |
|||||
TOTAL GROSS VALUE OF YOUR SUPERANNUATION
WRITE THIS ITEM 45 TOTAL AT ITEM 2D ON PAGE 2 OF THIS FORM |
$ | |||||
Operative time or date
The operative time or date determines when a trustee must start to recognise the interest of the non-member. The operative time is different from the relevant date. The operative time has a different meaning in different circumstances. It is defined in s 90XD FLA as:
(a) in relation to a payment split under a superannuation agreement or flag lifting agreement – the beginning of the fourth business day after the day on which a copy of the agreement is served on the trustee, accompanied by the other documents required under s 90XI.
(b) in relation to a payment flag under a superannuation agreement – usually either:
(i) the service time, if the eligible superannuation plan is a self-managed superannuation fund; or
(ii) otherwise, the beginning of the fourth business day after the day on which the service time occurs (both (i) & (ii) are under s 90XK(1)); or
(iii) if s 90XLA applies, the time that the payment to the trustee of the new ESP is made (s 90XLA(2)(c)).
(c) in relation to a payment split under a court order, the time specified in the order.
In relation to a superannuation agreement, the operative time is the beginning of the fourth day after the service of the agreement and any other relevant documents on the trustee (s 90XDA(a)).
The Full Court in Wilkinson & Wilkinson (2005) FLC 93-222 said that a splitting order should have an operative time. The parties agreed that this should be the date of the order. The court considered that it should generally be the date of valuation of the interest. This was because the member’s interest may continue to grow from the date of valuation to the date the orders are made. The majority’s approach is very inconvenient and perhaps less practical for the trustee, but fairer between the parties. In practice, the trustee will object if the operative time is before the date on which the order is served.
This term is not defined in the FLA but is used when splitting most interests. A set dollar figure is allocated to the non-member. This represents the non-member’s interest in the total value of the superannuation. Adjustments may be made to the base amount before the splittable payment occurs. A payment can also be split by allocating a percentage of the splittable payment to the non-member. The base amount should not be higher than the family law value.
Is the payment or interest splittable, unsplittable or not splittable?
The completed SIF will specify whether a payment is splittable. Section 90XE(1) defines a ”splittable payment” as any of:
(a) a payment to the spouse;
(b) a payment to another person for the benefit of the spouse. This covers the situation where the member ”rolls over” the superannuation interest into a new eligible superannuation plan;
(c) a payment to the legal personal representative of the spouse, after the death of the spouse;
(d) a payment to a reversionary beneficiary, after the death of the spouse;
(e) a payment to the legal personal representative of a reversionary beneficiary covered in (d), after the death of the reversionary beneficiary.
A ”splittable payment” no longer exists once the split has occurred (reg 14).
The terms ”unflaggable interest”, ”unsplittable interest” and certain payments which are ”not splittable payments” are defined in the FLS Regulations (s 90XE(2)).
An ”unflaggable interest” is a superannuation interest in the ”payment phase” (reg 10A). In practice, this will almost always be a pension.
An ”unsplittable interest” is a superannuation interest with a withdrawal benefit of less than $5,000 (reg 11).
Certain payments to the member are ”not splittable payments” (reg 12 to 14Q FLS Regulations). They are usually payments made to the member on the ”compassionate grounds” under reg 6.19A(1) SIS Regulations which include:
The SIS Regulations were changed to counter the problem of orders being over-ridden by binding death benefit nominations. Injunctions can still be useful, though.
Growth phase
A superannuation interest is in the growth phase if:
Superannuation not in the growth phase is described as being in the payment phase.
How a split works
According to Energy Super (www.energysuper.com.au) a split occurs as follows:
“Where a defined benefit has a family law split, the amount payable to the receiving partner is withdrawn from the member’s accumulation account first. Any remaining split is offset against the member’s defined benefit and accumulates with interest at the three year average crediting rate as a family law offset. On rare occasions where market returns are negative, the offset amount may decrease.
The balance of this offset is then deducted from the member’s benefit at the time the benefit is paid. However, if the defined benefit member has funds in an accumulation account, makes additional contributions, or rolls in other super benefits, they can request in writing to have some or all of the offset cleared at any time. With agreement from your employer, you can close your defined benefit account and transfer the remaining amount to an accumulation account. This effectively removes the exposure to the three year average crediting rate. However, you need to think about things like your age, salary, personal circumstances, insurance differences and the expected growth rate of your accumulation account. You will also need to consider the appropriate investment strategy for your accumulation account. You will not be able to transfer back to a defined benefit account at any time in the future, and your entire benefit will be subject to the net earning rates of the investment option your accumulation account is invested in.
Unrestricted non-preserved, restricted non-preserved and preserved benefits are shared between the parties in the same proportion to their share of the overall benefits.
The tax-free and taxable components of the superannuation benefit are calculated immediately before the family law split, and divided between the member and the receiving partner in the same proportion.
No tax is payable when a superannuation benefit is split, unless the receiving partner satisfies a condition of release and elects to receive the entitlement in cash.”
When the payment split is made, an interest will be created for the non-member spouse in a regulated superannuation fund or an Approved Deposit Fund (“ADF”). It can be done either at the non-member spouse’s request or at the trustee’s initiative. Part 7A of the SIS Regulations gives three options:
Part 7A of the SIS Act contains additional operating standards for regulated superannuation funds and ADFs (SISR reg 7A.02). Failure to observe these standards constitutes an offence (SIS Act s 34) and puts the complying status of the fund at risk.
The amount payable to the non-member spouse is calculated in accordance with reg 45A, 45B, and 45D(3) and (4) of the FLS Regulations. The FLS Regulations require that at the time of payment, the amount to be paid to the spouse is the base amount stipulated in the court order or superannuation agreement adjusted with interest from the operative time up to the payment date. The interest rate applied to the base amount is determined by the Australian Government Actuary and is published in the Commonwealth Gazette. The rate is 2.5% above the percentage change in the original estimate of full-time adult ordinary time earnings for all persons in Australia, as published by the Australian Bureau of Statistics during the year ending with the November quarter immediately before the beginning of the adjustment period.
The rates for the current and the previous two financial years are:
The actual scheme earning rate has no relevance in determining the interest rate to be applied. It is irrelevant if the scheme has negative earnings between the operative date and the payment date; interest is still paid on the base amount at the rate set by the Australian Government Actuary.
What is a flag?
A flag is a type of injunction on the trustee of a superannuation fund. The trustee cannot make any payments or transfers in relation to that interest if a flag is in place. A flag only applies if the interest is in the growth, not the payment phase. A flag can be imposed by agreement (s 90XL) or by order (s 90XU).
If a payment flag is in place, the trustee must notify the non-member and the member within 14 days of a splittable payment becoming payable (i.e. on satisfaction of a condition of release). The trustee cannot make a splittable payment unless the flag is lifted either by a court order or a “flag lifting agreement”. Splittable payments include most payments to a member. Payments for temporary incapacity or hardship and payments to children are not splittable payments.
A flag does not prevent the member making decisions about investment options and life insurance. The interest can, therefore, still be eroded by high insurance premiums or risky investment decisions.
A payment flag survives the death of either spouse.
A payment flag is mainly used when a condition of release is imminent and the value of the superannuation will not be clear until the superannuation is paid out. It is usually imposed on a defined benefit scheme, but can also be used with a partially vested accumulation interest (e.g. a scheme which provides incentives such as bonuses for employees). It can also be imposed on an interest in an accumulation fund if the member has or will soon meet a condition of release, to prevent either dissipation of the fund or the member electing to receive a pension rather than a lump sum.
The effects of a flagging order are set out in s 90XU(1) FLA. A flagging order:
The court may take into account, in deciding whether to make a flagging order:
A flag may be appropriate if:
(a) the member is close to or over a condition of release
(b) there is a chance that the non-member will not achieve a just and equitable settlement, e.g. the member elects to receive a pension rather than a lump sum
(c) the member may terminate employment and put the superannuation into a less accessible form e.g. deferred annuity.
Matters relevant to whether a flagging order should be made include:
But beware of not splittable payments and unsplittable payments, which are defined in regs 12 to 14Q and reg 11 respectively of the FLS Regulations.
O’Shea & O’Shea (1988) FLC 91-964
This case pre-dated the 2002 amendments, so a flagging order was not possible. Instead, the proceedings were adjourned under s 79(5) for 20 years. The wife had the 6 youngest of 7 children living with her. There was only $12,000 of non-superannuation. The husband was 39 years old and had superannuation entitlements of $90,000 after estimated tax. At age 53 he was entitled to $227,000 and considerably more at age 60.
BAR & JMR (2005) FLC 93-231
A flag was imposed pending a pension becoming payable at which time the pension payments would be split between the parties. The flag was expected to operate for 7 years but it may operate longer. Justice Young did not look at the effect of s 90MU(2) (now s 90XU(2)).
Zoller & Zoller [2012] FamCA 47
The wife lived in Australia. The husband lived in Germany, but was in the Caribbean at the time of the hearing. A substantial proportion of the parties’ property was in Australia, but the court was satisfied that there existed the possibility for a substantial part of the parties’ property to be withdrawn from Australia unilaterally by the husband. The husband was aware in general terms that the wife was bringing an application for property settlement proceedings. He was due to arrive in Australia in about two weeks. The trustee of the fund had received procedural fairness and did not seek to be heard. It agreed to abide by any court order.
The court was satisfied that there was no undue prejudice to the husband within r 5.12 Family Law Rules (which sets out the requirements of an application without notice), but relisted the matter to give the husband the opportunity to be heard. In the meantime a flagging order was made on an ex parte basis.
Silver & Woden [2016] FamCA 120
The husband was able to retire approximately one month after the hearing of the wife’s application for a flagging order. There had not yet been a valuation of a real property owned by the husband or of the husband’s interest in a company, but the wife argued that it was possible that the husband’s superannuation interest of $122,400 might be the only property available to meet her claim for a property settlement.
As the husband did not consent to any flagging or restraining order and would not give an undertaking not to dispose of his superannuation, the court found it appropriate to make a flagging order to preserve the property until the proceedings were finally determined.
Self managed superannuation funds (SMSFs)
Members of self managed superannuation funds (SMSFs) must also be trustees of the fund or directors of the trustee company of the fund. If both parties to the marriage are members of an SMSF, an added layer of complexity arises as both parties must continue to be involved in the trusteeship of that fund until the parties are no longer members of the same fund. This may affect decision making during the period between separation and settlement.
The underlying assets may be illiquid or “lumpy”, and a strategy may be required to ensure that the interest of one party is able to be transferred to another fund. Assets of the fund may need to be sold if cash for one member’s interest to be rolled over into an accumulation fund is required as that member doesn’t want to be in another SMSF.
If the SMSF’s financial statements show current values of the assets in the fund, these can be used to value the fund. However, the valuations in the financial statements are usually not current; publicly-listed shares may be at their purchase price or as at the previous 30 June, and real estate is usually at its purchase price. In addition, sales and purchases may have taken place, interest or dividends may have been earned and taxation or other expenses incurred since the financial statements were prepared. Valuations may be more costly with SMSFs as accountants and real estate valuers are often required. Expert actuarial advice may be required to consider issues associated with reserves, forgone benefits or unallocated contributions. Legal and accounting advice may be required to assist with the interpretation or construction of the trust deed, and to finalise the relevant resolutions of the trustee.
Care must be taken when dealing with SMSFs as some are non-compliant. If the SMSF is compliant, it is important to ensure that the fund maintains its complying status at all times. If the fund is non-compliant, independent advice may be desirable as to the work and costs required to make the fund compliant. One member may, in practice, have less knowledge of the SMSF and may not have practical control to ensure the SMSF is compliant.
Nevertheless, that member is jointly and severally liable for any tax and other penalties which may be imposed. If that member is leaving the fund, they will probably want an indemnity from the ongoing member. But an indemnity will not be enough if the ATO can’t recover from the ongoing member. The outgoing member will still be jointly and severally liable to the ATO for any tax and penalties which relate to the period when they were a trustee.
Professional advice should be sought as to how to deal with any potential tax penalties. See, for example, Linder & Linder [2013] FamCA 988, Gabbard & Gabbard [2010] FMCAfam 486 and Thurston & Loomis [2016] FamCA 318.
CGT concessions may apply to the transfer of assets in specie between superannuation funds. These are useful if a member rolling out their interest into another SMSF. The conditions which must be satisfied to attract CGT roll-over relief because of marriage or relationship breakdown between funds in circumstances where each party is keeping their own entitlement are as follows:
CGT roll-over relief may also be available to payment splits where the parties are not retaining their own interests if the requirements of the FLA, especially s 90XZA, or the SIS Regulations, are met.
Gabbard & Gabbard [2010] FMCAfam 1486
The husband dissipated nearly all of the assets of the SMSF without the wife’s knowledge or consent. In August 2007, there was $164,936.45 in the SMSF. By 12 January 2009, the balance was only $1,767.23. Federal Magistrate Henderson found that it was a priority that the fund be repaid the sum necessary to make it compliant. There had been two adjournments to enable the husband to do certain things including to reimburse the SMSF, but he did not do so.
The wife relied on the report of an expert setting out the actions required to make the SMSF compliant. These actions were:
Federal Magistrate Henderson referred to the SMSF’s trust deed and found that the wife could be appointed as the delegate of the trustee of the SMSF to do all acts necessary to make the fund compliant. She also appointed the wife as trustee to sell the real estate so that the wife could pay the amount necessary to the fund to make it compliant.
Callis & Callis [2014] FamCA135
The parties finalised property matters in December 2002. These orders were set aside in February 2013 under FLA s 79A(1)(b) and (c). The transitional provisions when the superannuation splitting legislation commenced, prohibited the parties from re-opening previous settlements by consent on the grounds of the introduction of the superannuation splitting regime. These parties were able to rely on other grounds to set them aside and a consent order for a superannuation split.
The base amount was determined by the parties to be the amount equal to the value of a real property in Suburb D, Queensland. That sum was to be met by a transfer of the Suburb D property to the wife’s superannuation fund.
All costs associated with the transfer were to be paid by the wife. Justice Cronin was surprised at this as the order left only one trustee liable for the costs, being the wife, rather than both trustees.
Thurston & Loomis [2016] FamCA 318
Justice Forrest was dealing with an SMSF with which there were substantial issues of non-compliance with legislative and regulatory requirements by the parties who were directors of the corporate trustee of the SMSF.
The parties had withdrawn most of the funds from the SMSF to pay for the development of real property registered in the name of one party and the rest to pay for personal purposes not related to the proper conduct of the fund. A jointly instructed independent accountant gave evidence which was summarised by Forrest J (at [4]) recommending that:
“… the withdrawals should be treated as loans to members of the fund as a prelude to taking remedial steps so as to reduce the impact of the regulatory consequences of the non-compliance, as far as is possible. Whilst … treating the withdrawals as loans to members does not in itself remedy the non-compliance because they are related party loans and breach the ‘in house asset’ rules of the Superannuation Industry (Supervision) Act 1993 (Cth) and the Superannuation Industry (Supervision) Regulations 1994 (Cth) … if the loans are repaid with interest calculated at the appropriate rate, having regard to guidance set by the Australian Tax Office (‘the ATO’), that the issues of non-compliance may be dealt with in a less punitive fashion by the ATO than they might if the non-compliance is otherwise not addressed.”
Justice Forrest ordered that funds held in two bank accounts which derived from the sales of real property acquired by the parties during the relationship should be used to repay the SMSF. He also ordered that the independent accountant report the matters to the ATO. He adjourned the delivery of his judgment until after the interim matters were dealt with and the parties and the judge had been advised of the remaining funds in the two accounts.
Tippett & Tippett [2017] FamCA 198
This is a useful case to refer to when preparing orders to effect a 50%/50% split of a self-managed superannuation fund.
The intention and effect of the orders was explained at paragraph 11 of the Orders:
“11. That in order to give effect to the superannuation splitting orders contained in Orders 8-10, the intent of which is agreed and acknowledged to divide all assets of the D Super Fund as to 50 per cent to the husband and 50 per cent to the wife in specie, to distribute any tax free components as to 50 per cent to the husband and 50 per cent to the wife and to achieve the appropriate percentage division of assets by reference to their cost base for capital gains tax purposes, upon the Trustee Company giving effect to the splitting order, the husband and wife in their capacities as Directors of the Trustee Company shall forthwith divide within the D Super Fund the assets of the D Super Fund and do all acts and things to attend to the following:
11.1. Transfer 50 per cent of all cash held by the fund to an account nominated by the wife; and
11.2. Transfer 50 per cent of each individual parcel of shares or equities as historically acquired by the D Super Fund (and presently held) to be transferred to a share trading account nominated by the wife, and the balance to the husband, and for avoidance of doubt such division and transfer to be carried out conformably with the following example:
Example: Assume that the D Super Fund holds 600 shares in X Limited; 200 purchased for $1.00 per share in 2000 (“the 2000 shares”); 200 purchased for $5.00 per share in 2002 (“the 2002 shares”) and 200 purchased for $10.00 per share in 2005 (“the 2005 shares”). The obligation imposed on the trustee shall not simply be to transfer 50 per cent of the shares in X Limited to the wife’s nominated fund, but to transfer 50 per cent of the shares comprising the 2000 shares, the 2002 shares and the 2005 shares.”
Defined benefit funds
Most superannuation interests are accumulation funds. There are rarely valuation difficulties with accumulation funds. Defined benefit funds are decreasing in number. The value of interests in defined benefit funds does not bear a direct relationship to the contributions made by the employer, employee or both, and to any earnings on investments.
The whole or part of the interest in a defined benefit fund is defined by reference to one or more of:
An interest in a defined benefit fund cannot always be split. The member’s spouse may have to meet a condition of release and seek access to the superannuation before the non-member’s interest can be released to the member. The non-member’s interest can only be withdrawn at that stage if the non-member meets a condition of release at the time the member accesses the superannuation. A member may be able to delay accessing their superannuation until age 75 or even later. This will delay the non-member receiving their share.
Many defined benefit funds have either amended their deeds or governing legislation to enable an immediate split or are looking at doing so. This reduces the cost and complexity for the fund of having the member and non-member each having separate “interests” in the one interest. It also removes the risk for the fund of allowing the member to deal with the interest in contravention of the splitting order, or of miscalculating the non-member’s interest many years later when the member meets a condition of release.
Overseas funds
Overseas superannuation funds are not covered by the FLA superannuation splitting scheme. This is very clear from s 90XD FLA as they are not within the definition of “eligible superannuation plan”. This has not, however, stopped parties from trying to value overseas funds using the methods allowed by Australian law.
An example of an overseas fund arose in Forster & Forster [2015] FamCA 57. The husband was retired and received a pension of US$3,733 per month from a United States government agency. The wife’s adversarial expert valued the pension by giving it a capital value using the valuation factors approved under the Family Law (Superannuation) (Methods and Factors for Valuing Particular Superannuation interests) Amendment Approval 2003.
Justice Benjamin rejected the valuation by the expert as he was not an expert in the law of the relevant United States government agency pension. Justice Benjamin treated the pension income as a valuable financial resource of the husband accumulated over about 28 years. The husband was married to the wife for about 10 years, being about 36% of the period of his employment.
The husband gave evidence that the wife had rights under United States law to seek a portion of the pension income. The wife’s evidence was that she did not intend to claim any part of any entitlement that may exist. Justice Benjamin accepted the evidence and said that if the wife acted contrary to that evidence, she was likely to impeach the orders he made.
Justice Benjamin divided the property (which did not include the United States pension) equally, which meant each party received about $260,000.
Another example of overseas superannuation funds arose in Preiss & Preiss [2017] FamCA 12. Neither party sought an alteration of the Australian or Israeli superannuation interests. The parties agreed that their contributions to the superannuation funds were equal. The trial judge said that there were grounds for an adjustment under s 75(2) FLA, but taking into account that the parties were a long way from retirement and the absence of evidence about the substance and form of the various superannuation interests, the judge was satisfied that no adjustment of superannuation interests should be made.
In relation to United States funds, the non-member spouse may be able to apply for the equivalent of a split of the member’s interest independently of any Australian orders and without the necessity of obtaining an order in the United States. It is an administrative process.
Separation declarations
There are two types of separation declaration under the FLA:
There are two sub-types of separation declarations that apply to superannuation splits in financial agreements, depending on the value of the superannuation interest:
2.1. Section 90XP – Where the member has superannuation interests with a withdrawal value that is less than the low rate cap amount ($205,000 for 2018/2019 and $210,000 in 2019/2020), the separation declaration needs to state that the spouses were married or in a de facto relationship but are separated at the declaration time. If either or both of the spouses have died, the declaration must state that the spouses were married or in a de facto relationship, but separated, at the most recent time when the spouses were alive. In this latter case, the declaration may be signed by the spouse’s legal personal representative. The withdrawal value of the member’s interests is determined by adding together the withdrawal benefits for each superannuation interest the member has in any eligible superannuation plan (reg 20 FLS Regulations).
2.2. Section 90XQ – Where the member has superannuation interests with a withdrawal value that is more than the low rate cap amount, a more formal declaration is required. This is because of the considerable tax advantages that are on offer. In such a case, the declaration must state that:
Where either or both of the spouses have died, the declaration may be signed by the spouse’s legal personal representative and must state that at the most recent time when both spouses were alive:
A person who makes a separation declaration under s 90XP or 90XQ knowing that it is false or misleading in a material respect may be guilty of an offence if the declaration is served on the trustee of a fund for the purposes of splitting a superannuation interest. The penalty is imprisonment for a period of up to 12 months (s 90XZG). However, a person is not guilty of the offence if a spouse to which the declaration relates died before the declaration was made.
When to use a superannuation agreement?
Reasons for using a superannuation agreement include:
Besides meeting the requirements for a financial agreement in Pt VIIIA or Pt VIIIAB FLA, a superannuation agreement must meet three other conditions which do not apply to court orders dealing with superannuation. These are:
Can superannuation be dealt with in a pre-nuptial agreement?
Despite s 90XH(1) providing that superannuation can be dealt with in a financial agreement, it may not be practical to deal with it in a s 90B, 90UB (pre-separation), 90C or 90UC agreement.
Section 90XH(1) says a superannuation interest does not have to exist when the agreement is made but s 90XJ(1)(a) requires the interest to be identified in the agreement. How can an unknown future interest be identified?
Section 90XI(1)(b) allows a superannuation split to occur if the agreement specifies a method for calculating the base amount. A formula can possibly be inserted in the agreement even if the future interests of the parties are unknown.
What about procedural fairness to the trustee? The Family Law Rules require this for orders but the Act is silent in relation to financial agreements. Trustees still require it though, so the proposed agreement should ideally be sent to the trustee before the agreement is executed. Although an unsplittable payment is a ground for agreements to be set aside under s 90K(1)(g), trustee refusal to implement is not within the definition of an unsplittable interest in Reg 11 FLS Regulations. As a superannuation split cannot be as clearly set out in a pre-nuptial or pre-cohabitation agreement or an agreement during cohabitation or marriage as in a post-separation agreement or court order, a trustee may be quite justified in refusing to implement it or the trustee may be unreasonable. This may be grounds for impracticability within s 90K(1)(c) but do lawyers need to advise clients of this risk?
It is probably theoretically possible to navigate these sections, but luck rather than legal skill may be required.
Is it possible to make a super-splitting order (to implement the provisions of a financial agreement) by way of enforcement under s 90G(2)? Probably not, as the order is being created rather than enforced. Is a superannuation split in a financial agreement within s 90KA? It is far easier to envisage the court making orders to transfer, say, shares of entities which were not in existence at separation (under a general provision requiring that a party transfer shares in all entities to the other) than creating a super-splitting order from scratch.
The implementation of superannuation split provisions in agreements entered into before separation has not been examined by the courts.
Common problems with superannuation splitting orders
Sample wording
ESS Super Agreements
Sample 1: where a base amount is to be specified
“That pursuant to section 90XJ(1)(c)(i) of the Family Law Act 1975, whenever a splittable payment becomes payable in respect of the superannuation interest of [name of member] in the Emergency Services Superannuation Scheme – [name of scheme]:
(a) [name of non-member spouse] shall be entitled to be paid an amount calculated in accordance with Part 6 of the Family Law ((Superannuation) Regulations 2001 using the base amount of $XXX*;
(b) there be a corresponding reduction in the superannuation interest of [name of member] to whom the splittable payment would have been made but for this Agreement.”
* base amount may not exceed the value of the member’s interest.
Sample 2: where a percentage split is to be specified
“That pursuant to section 90XJ(1)(c)(iii) of the Family Law Act 1975, whenever a splittable payment becomes payable in respect of the superannuation interest of [name of member] in the Emergency Services Superannuation Scheme – [name of scheme], the trustee shall pay to [name of non-member spouse] [insert percentage required]% of each splittable payment and there be a corresponding reduction in the entitlement [name of member] would have had but for this Agreement.”
Sample 3: operative time to be specified
“That the operative time for this Agreement is four business days after service of the Agreement on ESSSuper, accompanied by a [decree absolute/separation declaration].”
Sample 4: inclusion of clause for member to provide forms if a splittable payment becomes payable
“If as a result of termination of his/her employment [name of member] becomes entitled to a benefit prior to ESSSuper making a payment under section [insert clean break section of relevant Act], s/he shall provide to ESSSuper all such forms as shall be necessary to enable the trustee to determine the nature and quantum of the superannuation entitlement and any other related information it may reasonably require, within 7 days of that entitlement arising.”
Unisuper Orders
Sample 1: where a base amount is to be specified
“That pursuant to section 90XT(1)(a) of the Family Law Act 1975 (Cth), whenever a splittable payment becomes payable in respect of the superannuation interest of [name of member] in UniSuper:
(a) [non-member spouse] shall be entitled to be paid an amount calculated in accordance with Part 6 of the Family Law (Superannuation) Regulations 2001 (Cth) using the base amount of $…… (provided that such base amount shall not exceed the value of the interest determined under section 90XT(2)); and
(b) there be a corresponding reduction in the superannuation interest of [member] to whom the splittable payment would have been made but for the Order.”
Sample 2: where a percentage split is to be specified
“That pursuant to section 90XT(1)(b) of the Family Law Act 1975, whenever a splittable payment becomes payable from the superannuation interest held by [member] in UniSuper, the trustee shall pay to [non-member spouse] [insert percentage required]% of each splittable payment and there be a corresponding reduction in the entitlement [member] would have had but for the Order.”
Sample 3: inclusion of liberty to apply
“That each party and the trustee has liberty to apply on not less than three (3) business days’ notice.”
UniSuper Agreements
Sample 1: where a base amount is to be specified
“That pursuant to section 90XJ(1)(c)(i) of the Family Law Act 1975 (Cth), whenever a splittable payment becomes payable in respect of the superannuation interest of [member] in UniSuper:
(a) [non-member spouse] shall be entitled to be paid an amount calculated in accordance with Part 6 of the Family Law (Superannuation) Regulations 2001 (Cth) using the base amount of $…… (provided that such base amount shall not exceed the value of the member’s interest); and
(b) there be a corresponding reduction in the entitlement of [member] to whom the splittable payment would have been made but for this Agreement.”
Sample 2: where a percentage split is to be specified
“That pursuant to section 90XJ(1)(c)(iii) of the Family Law Act 1975 (Cth), whenever a splittable payment becomes payable in respect of the superannuation interest of [member] in UniSuper, the trustee shall pay to [non-member spouse] [insert percentage required]% of each splittable payment and there be a corresponding reduction in the entitlement [member] would have had but for this Agreement.”
Sample 3: operative time
“That the operative time for this Agreement is four business days after service of the Agreement on UniSuper, accompanied by a [certificate of divorce/separation declaration].”
Sample 4: statement regarding independent legal advice
“The parties acknowledge that before signing the Agreement, they have each had individual and independent legal advice from separate legal practitioners in relation to:
In the knowledge of that advice, the parties freely and willingly enter into this Agreement, and acknowledge that they have each received a copy of this statement.”
Conclusion
This overview of the making of superannuation splitting and flagging orders, and drafting superannuation provisions in financial agreements sets out some of the problems and issues which need to be considered when drafting these provisions. When dealing with funds which are not self-managed superannuation funds, the first step should always be to look at the website of the relevant fund and follow as closely as possible any preferred wording of the fund.
© Copyright – Jacqueline Campbell of Forte Family Lawyers and Wolters Kluwer/CCH. This paper uses some material written for publication in Wolters Kluwer/CCH Australian Family Law and Practice. The material is used with the kind permission of Wolters Kluwer/CCH.
[1] Adopted from "A Guide for Family Law Superannuation Splitting Agreements", ESS Super, May 2015
Jacky Campbell, November 2018
“Don’t it always seem to go
That you don’t know what you’ve got till it’s gone
They paved paradise
And put up a parking lot”
“Big Yellow Taxi” by Joni Mitchell
The Family Court of Australia (FCofA) was established in 1976 as a best practice model offering in-house alternative dispute resolution such as mediation and counselling (now described as “primary dispute resolution”) and court-based dispute resolution.
Internationally, the FCofA has been envied by lawyers and judges in other jurisdictions, the model copied, and its jurisprudence referred to in judgments. The ideal of a specialised “one-stop shop” for separating parties and their children when the FCofA commenced was in line with a worldwide movement (which is still ongoing) to establish specialised family law courts which focus on helping people to resolve their disputes.
The FCofA was established as a superior court in line with the jurisdiction exercised by the Supreme Courts of the States and Territories which dealt with the Matrimonial Causes Act 1959 and which it was replacing for this area of the law. The Federal Circuit Court of Australia (FCC), initially named the Federal Magistrates Court of Australia, was established in 1999. It deals with family law matters as well as other federal law matters, such as migration and bankruptcy. It is an inferior court and was set up to deal with matters which are less complex than the matters dealt with by the FCofA and the Federal Court, and to do this with simpler procedures than the superior courts.
The prospect of the FCofA disappearing as part of the Federal Government’s restructure of the family law courts has caused consternation and concern. What will it mean for parties in the family law system, lawyers and the courts?
The Attorney-General Christian Porter introduced the relevant Bills for the restructure into Parliament on 23 August 2018, and his original proposal was that the restructure or merger of the Family Court with the Federal Circuit Court occur from 1 January 2019. After demands for greater consultation were made by Parliament, lawyers, judges and the community, this timeframe is unlikely to be met. The closing date for submissions to the Senate Legal and Constitutional Affairs Committee was 23 November 2018.
Note: The views and opinions expressed in this article are those of the author. This article was first published on 7 November 2018, updated on 16 November 2018 and on 27 November 2018..
Summary of the changes in the FCFC Bills
The main changes are:
Background to the controversy about the FCFC Bills
There is broad agreement within the community and the legal profession that a restructure of the family law courts was inevitable. Establishing the FCC as a separate court to the FCofA (as the Federal Magistrates Court in 1999), rather than a separate division of the FCofA, was criticised at the time, and the criticism has continued – including in the reports referenced by the Attorney-General and available on his website:
www.ag.gov.au/LegalSystem/Courts/Pages/Structural-reform-of-the-federal-courts.aspx.
It is not easy to work out what all the proposed changes are and what impact they will have on parties. The difficulties in working out what else is proposed by the two Bills – the Federal Circuit Court and Family Court of Australia Bill 2018 (“FCFC Bill 1”) and the Federal Circuit Court and Family Court of Australia (Consequential Amendments & Transitional Provisions) Bill 2018 (“FCFC Bill 2”) arise from:
“Indicative of the essentially uncomplicated nature of the structural reform is the fact that the primary Reform Bill has only 20 new provisions and 18 substantially changed provisions to the current legislative situation which exists with the two courts.”
Unfortunately, the provisions referred to by the Attorney-General are not easily identifiable, which has hampered the community (including the legal community) in providing a response.
There has been considerable media coverage of the views of judges, the Chief Judge of the FCC (who is also the Deputy Chief Justice of the FCofA and will be the Chief of both courts from 10 December 2018), the Attorney-General, legal professional bodies and others. There have been numerous articles – particularly in the Australian Financial Review and The Australian – attacking and defending each of the three courts involved in the restructure. One of the most recent was a two-page spread in the Australian Financial Review on 26 October 2018, in which current and former Federal Court judges were criticised for their delays in writing judgments. There was even a league table for each Federal Court judge, listing the average number of days they took to write a judgment, the average words per day and the average paragraphs per day.
Chief Justice Allsop of the Federal Court of Australia issued a statement on 29 October 2018 defending his judges and objecting to the approach taken by the journalist, who he said had not included the context of the statistics which had been provided, which meant that “the result is both misleading and unfair”. The journalist also failed to take into account all of the work of the Federal Court and the judges, and that “productivity” cannot be “compiled from a narrow and less than accurate date set” capturing only one aspect of the work done. He said that the compilation of the list appeared to be “calculated simply to embarrass individual judges”. The Chief Justice of the FCofA and the Chief Judge of the FCC have been noticeably silent and not replied to the attacks on their judges by the Attorney-General and the media.
The FCofA, the FCC and the Federal Court are being pitted against each other and forced to defend their efficiency, complexity of their work, skill and expertise, in a manner which is inconsistent with the tradition of a judiciary independent of government, and is unhealthy and unhelpful to their future co-operation, whether the restructure goes ahead or not.
The reason given by the Federal Government to justify the restructure is increased efficiencies, with the implication of reducing costs. There is, however, no recent independent report examining the options for restructure and making a recommendation for this particular restructure based on evidence and submissions from stakeholders, including the community. The community as a whole has a far greater stake in the operation of the family law courts than any other courts in Australia, as ordinary people are more likely to come into contact with them during their lifetimes. In the absence of an independent frame of reference or background document detailing and explaining the changes to justify its restructure proposal, the Federal Government relies on a PwC report it commissioned entitled Review of the efficiency of the operation of the federal courts (“PwC report”). The PwC report can be downloaded from the Attorney-General’s website above.
The PwC report estimates that after the restructure an extra 8,305 matters could be resolved by the FCC and the FCofA each year (p.8), including an extra 3,410 matters just by having a “single court entity” with one point of entry (p.8 and 81). How this will occur is not fully explained.
The recommendations in the PwC report are based on a key assumption, that “in practice, both the courts hear matters of similar complexity” (p.3).
This key assumption has been disputed by current and former judges of the FCofA. Former Family Court judge Peter Rose AM QC, who served on the bench for 13 years, said the plan was “simplistic” and the figures being cited are “a classic example” of the saying popularised by Mark Twain: “There are three kinds of lies: lies, damn lies, and statistics” (“What the Family Court Shake-up Really Means for Families”, Sydney Morning Herald, 18 August 2018).
Contrary to the PwC report, the annual reports of the FCofA and the FCC also refer to differences in complexity between the courts (Family Court of Australia Annual Report 2017/2018 p.10; Federal Circuit Court of Australia Annual Report 2017/2018 p.20). In the Senate Estimates hearing on 23 October 2018, Mr Soden (who is the Chief Executive and Principal Registrar of the FCofA) confirmed this when he said:
“My expectation would be, and I think the Judges of the Family Court would correctly assert that the cases that they dealt with are in the more complex category. So I think, in other words, I think it’s fair to say that the Family Court and the Federal Circuit Court deal with complex cases, but the Family Court deals with very complex cases.”
Other criticisms of the assumptions, statistics and conclusions of the PwC report have been made by current and former judges of the FCofA, the Family Law Section of the Law Council of Australia, the Law Council of Australia, the NSW Bar Association and individual family lawyers. Some of the areas of concern about the PwC report are noted later in this article.
When the PwC report was prepared, the FCofA and the FCC were under considerable stress and were often unable to hear cases in a timely fashion. This remains the position. Whilst the number of judges appointed to the FCC has increased in recent years (but still not enough to cope with the workload), the number of FCofA judges has reduced. It is difficult to find actual numbers, but it is the writer’s estimate that the number of judges in the FCofA has fallen between 5 and 7 in the past decade Australia-wide, (and this is far more likely to be an under-estimate than an over-estimate). In Melbourne, the effect of this has been that there is no longer a regular Duty Judge List, causing delays in the hearing of interim and urgent matters and the necessity for triaging them by registrars. Interestingly, the PwC report favours the FCC model of listing all matters in the first instance before a judge for case management, but the FCofA does not have the present judicial capacity to do that, and the analysis by PwC leading to that recommendation is thin (PwC report, p.62, 84, 100, 104).
The Attorney-General, Christian Porter, in his 2018 State of the Nation address warned family lawyers:
“If you fail to engage in the process of reform and fix the system, if Parliament misses the opportunity and if we as lawyers and practitioners and members of the Australian legal community, miss this opportunity then it will necessarily be the case that the Australian people will make demands for even greater and more radical proposals and change.”
Precisely what the Attorney-General meant by this threat of consequences if family lawyers opposed his reform proposals is unclear, but there is widespread concern amongst family lawyers that his proposals will not “fix the system”, in accordance with his stated objective. In circumstances where the Attorney-General has said that the structural change in the FCFC Bills “is less radical than other alternatives because it does not abolish any existing Court”, but at the same time uses the structural reforms to support his policy of appointing fewer judges to the Family Court so that court will cease to exist, it is difficult to envisage any reform which could be more radical.
The Attorney-General, after praising the single court structure of the Family Court of Western Australia, quoted Justice Thackray (the Chief Judge of that court and until recently the Head of the Appeals Division of the Full Court of the Family Court until he was controversially removed), who recently said about the proposed restructure that:
“We should be wary of law reform driven by statistics produced by firms of accountants in the guise of measuring or quantifying the productivity of the courts.”
The Attorney-General commented about Justice Thackray’s views:
“So elegantly written is this sentence I had to read it three times to work out if it was criticising me or the PwC Report I commissioned.
In the end it seems to be dismissive of both.
Guise is an interesting choice of words because it means that Reports like the three I have recently released for the Senate Committee process are commissioned for a purported purpose (in this case measuring or quantifying productivity) but that stated reason conceals some true reason for commissioning these reports.
I can say when I commission such reports I do so because they can deconstruct known problems and tell us more about those problems to inform the development of better solutions for Australians.”
Disputes about the assumptions on which the FCFC Bills rely, the purpose of the PwC report and the objectives of the reforms are likely to continue. The Federal Government assesses the courts, as it does other federal departments and agencies, in an annual report prepared by the Productivity Commission, which uses different criteria than are used in the PwC report, which used the same “metrics” to measure the efficiency of the 2 courts (PwC report, p.58).
In their annual reports, the FCC and the FCofA do not use the statistics relied on in the PwC report as the sole measure of their success. For example, both courts assess themselves against the International Framework for Court Excellence, which looks at a broader range of indicators: equality (before the law), fairness, impartiality, independence of decision-making, competence, transparency, accessibility, timeliness and certainty. These matters are not considered in the PwC reports. Even if the PwC report is correct in its assumptions and recommendations to increase the efficiency of the family law courts, is the Federal Government in basing its restructure on that report, proposing the best system for parties?
The PwC report only looked at restructuring the FCofA and the family law operations of the FCC, and ignored the non-family law operations of the FCC. Ideally, any inquiry should look at all aspects of the operations of the FCC, which would necessitate how that work relates to the Federal Court’s operations.
Why are the FCFC Bills so controversial?
The FCFC Bills are controversial for reasons which include:
The former Attorney-General George Brandis commissioned “the first comprehensive review of the FLA since its commencement in 1976” by the Australian Law Reform Commission (“ALRC”) in September 2017 (“Terms of Reference”). The ALRC released an Issues Paper in March 2018 and a Discussion Paper, “Review of the Family Law System”, in October 2018. The Final Report is due to be delivered by 31 March 2019.To many stakeholders it seems logical to await the Final Report and consider its recommendations before undertaking major structural reform of the family law courts, and although the current Attorney-General appears resigned to a later start date for the restructure than 1 January 2019, he is still keen for the Bills to be passed late in 2018 or early in 2019, before the ALRC’s final report is released.
The ALRC’s Discussion Paper is over 350 pages, asks 33 questions and makes 124 proposals for changes to the family law system. Although the Terms of Reference did not specifically include the structure of the family law courts – astonishingly for a “comprehensive review”, particularly when a restructure is perhaps universally acknowledged as inevitable – there is a catch-all Term of Reference of “any other matters related to these Terms of Reference”. There is no express mention of the structure of the family law courts which has been long recognised as problematic, along with other important matters such as child support, matters of State and Territory responsibility, and the child protection system. The ALRC recognised that it was appropriate to consider these issues, saying in its Issues Paper:
“However, as these issues are so closely related to and frequently interact with the family law system, concerns about the intersections and cooperation between these systems are matters that the ALRC will consider in the course of this Inquiry.” (Australian Law Reform Commission, “Review of the Family Law System Issues Paper”, para 5)
The ALRC in its Discussion Paper did not consider or make express proposals about the proposed court restructure at all. Disappointingly, the ALRC may have missed an opportunity which may not arise again for many years, to undertake a comprehensive review of the whole family law system. The ALRC should be asked to remedy this deficiency (including its failure to address child support), and be given extra time to consult on these issues before releasing its final report.
Many of the proposals in the ALRC’s Discussion Paper relate to family violence – in fact 34 of the ALRC’s 124 proposals refer to family violence – which is given little, if any, attention by PwC.
4.1. The Federal Government asserts that appeals to single judges in the new Family Law Division of the Federal Court from the FCFC (Division 2) rather than the usual family law appeal bench of 3 judges will “free up considerable judicial resources to help reduce delays in family law appeal matters” (FCFC Bill 1, Ex Memo para 61). The three-member bench in the Full Court of the FCofA for appeals from the FCofA is set by the FLA (s 94). Appeals from the FCC or a Family Law Magistrate of the Family Court of Western Australia are also required by the FLA to be heard by the Full Court “unless the Chief Justice considers that it is appropriate for the jurisdiction of the FCofA in relation to the appeal to be exercised by a single judge” (s 94AAA(3)).
4.2. The Federal Government says that Federal Court appeals, unlike FLA appeals, are usually heard by single judges. This is overly simplistic (see s 20(2) Federal Court of Australia Act 1976). In addition, the legislative presumption in relation to appeals from the FCC is the reverse of the legislative presumption which applies to appeals under the FLA. Appeals from judges of the FCC or courts of summary jurisdiction are usually heard by a single judge unless a Federal Court judge considers it appropriate for an appeal to be heard by a Full Court (s 25(1AA) Federal Court Act 1976).
4.3. If the Federal Government wants family law appeals to be dealt with by single judges either consistently, or more frequently, it could amend s 94 FLA without such radical change as abolishing the FCofA and the Full Court of the FCofA, although there would be consequences of this change which are discussed below.
4.4. Appeals from the FCC to the Federal Court are primarily migration appeals. In 2017/2018, 80% of the Federal Court’s appellate workload – both the Full Court and single judges – was migration (Federal Court of Australia Annual Report 2017-2018). Arguably these types of appeals are simpler than most family law appeals, usually involve only one party and a Government Department, one piece of legislation and there is little room for discretion.
4.5. A 3-member bench provides the opportunity for parties to hear divergent views, but also to hear 3 judges agree that the trial judge exercised the discretion appropriately in their particular case. A single judge hearing an appeal from a single judge is rare in the common law world, including Australia, New Zealand, the United States and Canada. Usually, appeals are heard by 3 or 5 judges so if the decision of the single judge is over-turned, it so because more than a single judge disagrees with the original decision of a single judge. This helps to create certainty and the binding nature of precedent on which our legal system is built. There is a risk that single judge appeals may lead to more High Court appeals due to the discretionary nature of the family law jurisdiction.
4.6. Under the restructure, family law appeals will generally be heard by judges in the Federal Court who may not have family law expertise, and are even less likely to have the family violence expertise recommended by the ALRC in its recently released Discussion Paper (Proposal 10-8). The Federal Government has not produced evidence that having judges without skills and experience in family law hear family law appeals is a more efficient use of judicial resources than the current system. Chief Justice Pascoe of the FCofA emphasised the importance of family law expertise in the hearing of appeals (State of the Nation Address to the National Family Law Conference, 3 October 2018).
4.7. The Federal Government is relying on the judges of the Full Court of the Family Court to become trial judges of the FCofA, to give greater capacity for the FCFC (Division 1) to hear cases faster without appointing more judges to that Division (FCFC Bill 1, Ex Memo para 60). Since the FCFC Bills were proposed many of these judges have either retired or announced their intention to retire, so there will be very few extra trial judges in the FCFC (Division 1) to hear extra cases. The Federal Government has announced that it will not appoint any more judges to the new FCFC (Division 1) (“The Bitter Struggle to reform the Family Court”, Australian Financial Review, 17 August 2018), although the Attorney-General has suggested he may review that decision. The current intention of the Federal Government is that the FCofA, which will be the new FCFC (Division 1), will disappear and eventually be abolished.
4.8. The cost of operating the new Family Law Division of the Federal Court of Australia, to hear family law appeals, has not been factored in by PwC.
4.9. Eradicating the travel costs of the Full Court of the FCofA is said to be cost-saving, although the PwC report says it is only a modest percentage of the cost of the Full Court of the FCofA (5%). The PwC report compares the travel costs of the Full Court of the FCofA with the travel costs of FCC judges, but does not state that most travel of the former is interstate and of the latter is within a state. The PwC report has not taken into account that there may be travel costs for Federal Court judges hearing appeals after the restructure.
“It in no way would constitute either court absorbing the other, or either court being disbanded.” (FCFC Bill 1, Ex Memo para 57)
The FCFC will therefore be an administrative rather than a unified judicial court, with a single point of entry. The difference in costs of the two approaches and why there cannot be a true unified family law court as proposed in the Semple Report is not fully explained, except that the FCC is considered by PwC to be more efficient than the FCofA and the FCofA will be abolished anyway.
10.1. Whilst the existing FCC and FCofA have this power (e.g. r 19.10 Family Law Rules 2004), the codification of the power in a jurisdiction where parties are often highly emotional and may act irrationally, refuse to comply with orders and not follow advice, leaves legal practitioners open to defending applications for costs orders to be made against them personally in circumstances where such orders may not be justified.
10.2. There does not appear to have been consideration as to how legal practitioners can defend themselves against a proposed costs order. Their client is unlikely to waive legal professional privilege to enable the legal practitioner to explain that the conduct which was of concern was that of the client not the legal practitioner. It is difficult to see how a greater number of costs orders can be made against legal practitioners, without there being a failure to allow natural justice and due process.
10.3. If faced with the possibility of a personal costs order, legal practitioners may stop acting for parties at an earlier stage than otherwise, potentially resulting in more parties being unrepresented. Legal practitioners will also be more reluctant to take on matters shortly prior to a hearing when an unrepresented party may decide they need representation, leaving the court to more frequently deal with unrepresented parties than it already does. Increasing the numbers of unrepresented parties may impact on the ability of parties to obtain fair outcomes and be a further burden on the family law courts, by reducing the likelihood of settlement and increasing the length of trials, although there is very little research on this area
10.4. There is an underlying assumption that lawyers, not parties, are at fault for non-compliance and there is no discussion in the PwC report that a more effective option might be for costs orders which are rarely made against parties in family law matters for non-compliance with the Rules and court orders, to be more frequently made.
10.5. There are already processes and standards to ensure “desired behavioural practices” by legal practitioners, such as the duty of legal practitioners as officers of the court, the ethical rules set by State and Territory Governments and Law Societies including the Legal Profession Uniform Law (NSW) (see particularly s 295-298. This has also been adopted in Victoria. The other States and Territories have similar legislation but have not adopted the Uniform Law), and the disciplinary bodies of the States and Territories which can rule on allegations of unsatisfactory professional conduct and professional misconduct. There is no evidence of a gap to be filled in this area.
“The overarching purpose of the Family Law Practice and Procedure provisions is to facilitate the joint resolution of disputes –
(a) according to law; and
(b) as quickly, inexpensively and efficiently as possible.”
Parties are required to act consistently with the overarching purpose (s 49(1)) and legal practitioners must assist parties to comply with the duty (FCFC Bill 1, s 49(2)(b)).
The only concern arises because the Federal Government proposes that the Bills be passed before the ALRC delivers its Final Report. In its Discussion Paper, the ALRC proposes that parties be required to lodge a genuine steps statement at the time of filing an application for property and financial orders (ALRC Proposal 5-4). It is unclear how this will fit with the overarching purpose.
What did the PwC report get wrong?
The PwC report was prepared for the Attorney-General’s Department. Its Executive Summary states:
“The Review’s terms of reference required consideration of the differences in case allocation, case management rules and approaches, and Court Rules between the courts and how increased standardisation of the courts’ operations could result in time and cost efficiencies.
The efficiency opportunities, summarised on the following page, have been assessed by PwC through a high-level consideration of the following criteria. It is important to note that the potential efficiency gains are not intended as potential cost savings, but instead potential productivity gains for the courts to provide additional court capacity – i.e. implementing the opportunities could result in the ‘freeing up’ of court capacity to finalise more matters per annum.”
The Review took six weeks and resulted in a glossy document of over 100 pages interrupted by large and frequent redactions. There was limited consultation with stakeholders. PwC said that it concentrated the focus of the Review on “the Rules of the courts, case management rules and approaches, case allocation between and within the courts, and overarching process inefficiencies” (p.14).
PwC admitted that certain aspects were outside of its scope, including:
Arguably, those omissions are significant, particularly when the Attorney-General is using the PwC report to justify structural change which includes the abolition of a specialist court, the FCofA. PwC admits that a limitation of its report was that opportunities for time and efficiency costs have only been identified through:
Given time constraints of this Review, not all possible opportunities have been explored, nor have the potential implications of each opportunity been fully assessed. Furthermore, detailed solutions have not been developed.” (p.14)
PwC consulted with heads of jurisdiction, but not judges, and did not consult with family lawyers and legal bodies such as the Family Law Section of the Law Council of Australia and the Law Societies and Bar Associations of the States and Territories (PwC report, p.14).
The Federal Government’s arguments for the proposed structural reform rely almost solely upon the PwC report. However, large chunks of the PwC report are redacted (including two of eight opportunities identified for further consideration (p 59-60), parts of caseload (p 47), differences in judicial practice (p 48) and the Executive Summary (p 5). Why the Federal Government considered that redaction was necessary is not clear, but it does arouse suspicion that those parts weren’t favourable to the FCFC Bills, the abolition of the FCofA or both.
The unredacted parts of the PwC report have many examples of erroneous assumptions and conclusions including
1.1. A comparison of the complexity of the cases dealt with by the FCC and the FCofA was found to be difficult, or even impossible, but PwC still concluded that the variation in productivity of the courts could not be explained by a different level of complexity (p. 3, 47);
1.2. Applications for Consent Orders are excluded from the measure of matters finalised by the FCofA, but the Registrars who normally deal with these applications are fully included in the costs of the FCofA finalising other matters (p. 24, 28). Similarly, divorces are excluded from the FCC statistics, but its registrars are included in the costs. There is no attempt by PwC to compare the time taken to deal with each type of excluded matter of each court;
1.3. It is unclear as to whether matters finalised by consent are included in the FCofA statistics, for proceedings commenced other than by way of Applications for Consent Orders. They appear to be included in the FCC figures but may not be in those of the FCofA (p 28). It is simply not easy to discern how they have been dealt with;
1.4. Although finding that trials are approximately half as long in the FCC than in the FCofA, no consideration is given as to the reasons for this including the comparative complexity of the cases, what proportion of cases filed proceeded to judgment, the processes used by each court to resolve cases prior to trial, and how effective these processes are;
1.5. Assessing efficiency on the basis of numbers of matters finalised by a contested hearing is not consistent with the philosophy of the FLA, the FCC and the FCofA and with community expectations that parties should be encouraged to resolve their matters by consent, rather than through a final contested hearing. The courts themselves do not use this as the sole measure of success (or efficiency), and refer to measures set by the International Framework for Court Excellence;
1.6. The operating costs per finalisation of contested matters was assessed at one-third of the cost in the FCC compared to the FCofA (p 41), but this figure is simplistic as it does not take into account such factors as complexity, consent orders and whether FCC judges are currently underpaid for the work that they do;
1.7. In the FCofA, “parties do not come before a Judge until trial, and trial judges have not had a role in pre-trial activities” (p.5). This obvious error is confirmed by the diagram of the process in each court (p.17), which omits interim hearings in the FCofA as if they do not occur, but refers to them in the FCC process;
1.8. The recommended case management process, with a time to trial of 6 to 7 months from filing (p 62), is not suited to the many matters in both courts which need urgent interim orders, involve third parties, necessitate significant disclosure or require valuations of businesses, psychiatric assessments or family reports. Delays in litigation are not only caused by the lack of judicial availability, but also the nature of the cases. There is an assumption by PwC that most cases can speed along the same simplified case management pathway;
1.9. There is an assumption that the FCC’s case management system of having a first return date before a judge is a significant driver of a higher percentage of cases settling prior to trial (p.5, 7 and 87). There is no evidence for this link;
1.10. The FCofA has a lower percentage of ex tempore judgments than the FCC (3% compared to 11% of total judgments, p.6, and 15% compared to 60% of trial judgments, p.9) and therefore parties generally wait longer for FCofA judgments, but there is no analysis as to whether this relates to the greater complexity of cases or the length of trials, or both or neither. It appears that the courts do not have the statistics to work out the former, but Austlii could have been used to determine the latter. It is assumed that the Family Court could increase the ratio of ex tempore judgments and thus hear more matters (p.8 and 48). The variation in percentage of ex tempore judgments between the two courts is assumed to be because of a “variation in the practice/process between the courts” (p.31). Whilst arguably this may account for some of the difference, no consideration is given to the fact that trials are longer and cases generally more complex in the FCofA;
1.11. The delay in delivery of written judgments is greater in the FCofA than the FCC because of the higher proportion of reserved judgments (p.5, 6, 8, 35, 48, 88). Increased efficiencies are said to arise by fewer judgments being reserved because the judges will spend less time out-of-court writing them. Unfortunately, the PwC report provides no comparison of reserved judgment rates and delivery rates in other courts and whether the FCofA is out of step with other superior courts. Long delays in delivery of judgments is obviously unacceptable as it prolongs uncertainty for parties and their children. Each of the FCofA and the FCC had approximately 30% of reserved judgments outstanding for more than 6 months (p.88). There is no analysis of the reasons for this, but it is proposed that more judgments be delivered ex tempore, without considering the reasons for the delay in the delivery of judgments, whether more ex tempore judgments are practicable and whether this will have an unanticipated and costly outcome of appeal rates increasing.
5.1. Matters may become more complex as they proceed and thereby necessitate a transfer from the FCC to the FCofA. A single point of entry will not overcome the problem that the complexity of cases can change over time. This may arise from the intervention of third parties, the development or exacerbation of drug or alcohol use, family violence, sexual abuse allegations, deterioration in mental health and mental health episodes, bankruptcy, transactions to try to defeat orders, the discovery of assets which had not previously been disclosed, etc. The statistic used by PwC that transfers from the FCC to the FCofA occur, on average, after 11.1 months, is consistent with matters becoming more complex as they proceed and FCC judges realising that they do not have the capacity to handle the expected lengthy trials in their lists. Interestingly, given the Federal Government’s intention to make no further judicial appointments to the FCofA, there were 100 more matters transferred to the FCofA from the FCC in 2016-2017 than the other way around (p. 37);
5.2. Matters can become simpler as they proceed. For example, a case might start off in the FCofA with an application under the Hague Convention on the Civil Aspects of International Child Abduction, but if the parenting issues resolve, the property aspects might be relatively straightforward and more suited to the FCC;
5.3. The writer is aware that some parties take advantage of the simpler and cheaper method of filing proceedings in the FCofA (no affidavit is required), and the benefits of a Case Assessment Conference where the case receives the focussed attention of a registrar rather than a first listing in the busy duty list of a FCC judge. Parties hope that their cases might resolve at a Conciliation Conference or shortly thereafter, thus saving them the expense of affidavits. If the cases do not resolve by that stage, they may be transferred to the FCC if the case is not complex enough for it to stay in the FCofA. The statistic used by PwC that the average delay before a matter is transferred from the FCofA to the FCC of 4.6 months is consistent with the timeline of transfers often occurring after a Conciliation Conference;
5.4. Some cases are transferred from the FCC to the FCofA and back to the FCC for the sole purpose of picking up the jurisdiction of the FCofA. The picking up of Corporations Act 2001 jurisdiction, for example, as a reason for this double-bounce transfer was documented in such cases as Talbot & Talbot [2014] FamCA 128 and Beadline & Goodridge and Ors [2018] FamCA 737.
Chief Justice Pascoe said that he has seen a rise in violence, substance abuse and mental health issues during his time as a judge of both courts. He said:
“Over the years I have been a judge, I have seen a very significant rise in violence and family dysfunction. If this is the experience of the courts, then I am sure it is also the experience of the profession. The number of self-represented litigants has grown sharply, as has the presence of mental illness and substance addiction. All of these factors put children at risk.
It is a sad fact that the spectre of violence and harm is present in courts every day and adds a high level of stress to the work of the judges, who must be commended for their efforts to protect those who are vulnerable. We have seen some awful cases since I have been a judge: cases such that of Darcey Freeman, and the recent Edwards’ murders. These are matters that haunt us all and lurk in the shadows as we face new cases with allegations of violence and wonder which seemingly commonplace case may suddenly take a horrific turn.” (State of the Nation Address, National Family Law Conference, 3 October 2018)
The Australian Institute of Family Studies found in its research (the findings were summarised in “Separated parents and the family law system: What does the evidence say?” by Rae Kaspiew, 3 August 2016) that families who use the family law system are “troubled”:
“They are much more likely to have a history of family violence, concerns for their own or their children’s safety as a result of ongoing contact with the other parent, mental ill health, substance abuse, gambling, problematic social media or pornography use … of parents who use the family law courts, 85% report emotional abuse and 54% report physical violence.”
11.1. There is no evidence in the PwC report as to how often this occurs;
11.2. Both the FCofA and the FCC commonly over-list. This is reasonable for the reasons given in the PwC report. However, it can result in a waste of legal costs for the parties. An increase in over listing will increase the likelihood of parties attending court with their lawyers, being adjourned, and incurring wasted costs.
11.3. It seems unlikely that if a case settles that judges simply go home or otherwise take the rest of the day off. It is more likely that they will write judgments, read a court file for the next day and do other paperwork.
The Chair of the Family Law Section, Wendy Kayler-Thomson, commented on the PwC report in her State of the Nation speech given at the National Family Law Conference on 3 October 2018 (and reported in the Australian Family Lawyer Volume 27/2):
“Even if the raw data is correct, it is the interpretation of that data that is fundamentally flawed. Today is not a day for statistics, but most of us are incredulous at the claim that the Federal Circuit Court can take on the more complex work of the Family Court and dispose of those cases more quickly or efficiently. The suggestion that the Federal Circuit Court can take on more work without any more resources being allocated to it for judges, family report writers, registrars and other court staff is astounding.”
The NSW Bar Association proposed a different model, based on the recommendations of the Semple Report. This was a report commissioned by a previous Attorney-General and delivered in August 2008, entitled “Future Governance Options for Future Federal Family Law Courts in Australia – Striking the Right Balance”. It can be downloaded from the Attorney-General’s website above. The NSW Bar Association’s President, Arthur Moses SC, said that “a justice system is not to be judged on spreadsheets” and that instead “it is to be judged on the quality of justice delivered to people at the most vulnerable time in their lives”. He referred to the “crushing workload” of FCC judges, with each judge having approximately 500 matters in their case list. He expressed concern about the collapse into the FCC of the most complex FCofA matters (“What the Family Court Shakeup Really Means for Families”, Sydney Morning Herald, 18 August 2018).
What did the earlier reports say?
There have been 2 other recent reports by accountants on the family law courts: “Review of the performance and funding of the Federal Court of Australia, the Family Court of Australia and the Federal Circuit Court of Australia” by KPMG in 2014 and “High Level Financial Analysis of Court Reform Limitations” by Ernst & Young in 2015. The Attorney-General has put them on the attorney-General Department’s website. The PwC report also relies on data from the Productivity Commission’s Annual Report on Government Services. The latest report was progressively released in January/February 2018.
The Productivity Commission assesses all Australian courts under the broad objective of performance. “Performance” consists of 3 factors: equity, effectiveness and efficiency. “Effectiveness” is where quality and court file integrity are considered. It is not just how many widgets the courts create, but the quality and integrity of the widgets. The Federal Government only asked PwC to look at efficiency, not equity and effectiveness (PwC report, p 12).
The Productivity Commission relies on the national benchmarks for “backlog”, which is a measure of a court’s active pending caseload and a factor in determining efficiency. These benchmarks are set by the Federal Government and they are different for the FCC and the FCofA:
The PwC report did not refer to these different benchmarks, but assessed both courts against the same criteria and compared the courts with each other on the basis of the “key assumption” that both courts did work of the same complexity. It used the same “metrics” for both courts (PwC report, p 58).
The KPMG report includes many tables of data for the 2016-2017 financial year and earlier years. These tables have extensive notes of explanation and provisos which were not referred to in the PwC report, including:
There are assumptions and findings in the KPMG report which are inconsistent with those in the PwC report. For example, the KPMG report states:
The Ernst & Young report was produced to provide a high level financial analysis of savings and implementation costs associated with 4 federal court reform areas proposed by the Attorney-General’s Department. A significant part of the report was devoted to the amalgamation of court back office functions, which has now been implemented (and as the KPMG report acknowledges, the savings were not passed on as funds to the courts, but as savings for Government). The scope of the potential changes to the jurisdiction of the FCofA was not sufficiently defined to allow for any cost analysis to be done (Ernst & Young p 4).
Are there any jurisdictional issues with the proposed restructure?
The Semple Report dealt with (although it did not directly address) the constitutional issues associated with the court restructure it recommended. Although there were some discussions during the preparation of that report as to the possibility of a single Federal Court incorporating the Federal Court, the FCofA and the then Federal Magistrates Court, this was outside the terms of reference and was not considered in the Report (p.51).
The Federal Government has not disclosed what, if any, constitutional and jurisdictional difficulties there are with the currently proposed restructure. There appear to be some potential problems:
6.1. Possibly, the parens patriae jurisdiction, including special medical procedures. Both the FCC and the FCofA have welfare jurisdiction under s 67ZC FLA, but the extent to which this is broadened or assisted for the FCofA by the inherent jurisdiction of a superior court is unclear. Special medical procedures are currently dealt with by the FCofA, not the FCC, so the FCC’s powers have not been tested. The powers of the FCofA have been tested – e.g. the inability of the welfare power to bind third parties was decided by the High Court in Minister for Immigration and Indigenous Affairs v B (2004) CLR 365; (2004) FLC 93-174.
6.2. Jurisdiction under the Corporations Act 2001. The FCFC Bill 2 amends that Act to substitute the FCFC (Division 1) for the FCofA, but does not give the existing Corporations Act jurisdiction exercised by the FCofA to the FCFC (Division 2).
Chief Justice Pascoe recognised the importance of a superior court exercising Family Law Act jurisdiction:
“There is a clear need for a superior court in family law to deal with matters such as complicated financial cases that involve complex trust and corporate structures; allegations of extreme child abuse; international cases that involve conflicts of laws; adoption and abduction; and those that are on the cutting edge of developments in technology, medicine and psychology. These require the attention and precedent-setting decisions of a superior court.” (State of the Nation Address, National Family Law Conference, 3 October 2018)
Can the Federal Government make the FCFC (Division 2) into a superior court?
In theory, any issues about the FCofA being a superior court could be overcome by the Federal Government legislating to make the FCFC (Division 2) a superior court. Some superior courts are inherently superior, such as the State and Territory Supreme Courts. Others, like the FCofA and the Federal Court are superior by statute.
The Federal Government is, though, unlikely to want to make the FCFC (Division 2) into a superior court as this will undoubtedly create pressure from the judges of that court to increase salaries and change their pension arrangements, which are much less than those of superior courts.
Conclusion
The Federal Government plans to continue to reduce funding to the Family Court and not replace judges, many of whom are retiring shortly. The concerns expressed in the PwC report and by the Attorney-General about the numbers of matters transferred between courts are not likely to be addressed by the restructure proposals if combined with a reduction, rather than an increase in the number of Family Court judges. The number of matters transferred to the FCC from the Family Court is likely to increase, as the Family Court will be increasingly unable to deal with its traditional work. By pushing more cases to the FCC, particularly more complex matters and lengthier trials, FCC judges will be under even more pressure, unless the Federal Government greatly increases the numbers of judges and registrars in the FCC.
The PwC report was prepared in haste – in only 6 weeks. It is a glossy “overview” which does not annexe the tables of data and demonstrate the level of analysis of data of the Productivity Commission, KPMG and Ernst & Young reports. Although the Attorney-General has placed the KPMG and Ernst & Young reports on the Attorney-General Department’s website, there is no evidence that PwC referred to them. In fact, the many contradictions between the PwC report and the other reports suggest to the contrary. The PwC report states that it relied on the Productivity Commission data, although it makes adjustments to the data based on assumptions not borne out by that report or the other reports. It is difficult to deny the necessity for some reform to the structure of the family law courts, but it is a missed opportunity for the Federal Government to try to push through structural reform without relying on actual data and without looking at the possible consequences of the particular structural reform it is proposing. The problem of two courts exercising FLA jurisdiction occurred for political reasons. It is now seen as a mistake. It will also be a mistake to try to fix the problem without proper research and consideration of the options. The PwC report itself said that it had not explored all possible opportunities, assessed all potential implications of each opportunity and recommended that further testing and design was required (PwC report, p.7).
Many of the assumptions in the PwC report are incorrect. The absence of a recent investigation or review of options, or even a proposal to implement the recommendations of the decade-old Semple Report which involved consultation with stakeholders, mean that the proposed restructure and the abolition of the FCofA are being considered in a vacuum without any genuine assessment of the advantages and disadvantages for parties. Ordinary people, already affected by the cuts to resourcing of the FCofA in particular, will be further detrimentally affected by “efficiencies” which are implemented ostensibly for their benefit. Any serious restructure or reform of the family law courts should be based on research and evidence that it will produce better outcomes for parties, not simply designed as a way to save money.
The underlying implication of the FCFC Bills, the PwC report and the Attorney-General’s comments is that FCofA judges are lazy and need to work harder. There is no evidence of this. Putting extra pressures on the judges of both courts who work in a difficult and complex area of the law with people who have complex problems and are at a low-point of their lives is unreasonable and unfair without proper, or indeed any, evidence that they are not working hard. Judges don’t need to create more widgets: the community expects their judges to ensure that the process is fair and produces the best outcomes for parties and their children.
Australians will notice that Australia no longer has a specialist family court. In the short term to medium term, they may have to go to Queensland to find the last remaining FCofA judge to determine a particular matter which requires FCofA expertise or superior court jurisdiction. The FCFC (Division 2) will probably have more difficulty accommodating the larger and more complex cases which the FCofA currently deals with. The expertise of the FCofA in dealing with Hague Child Abduction and medical treatment cases will be lost and take time to re-build. Parties with foreign elements to their cases may have fewer options for the enforcement of orders in an increasingly mobile world. The loss of the respect currently given by overseas courts to judgments of the FCofA will not be easily given to an inferior court.
Without proper thought and checking of the possible repercussions from the loss of a superior specialist court exercising FLA jurisdiction, the true costs and consequences of the court restructure may not be known until the FCofA is barely operational or no longer exists.
© Copyright – Jacqueline Campbell of Forte Family Lawyers and Wolters Kluwer/CCH. This paper uses some material written for publication in Wolters Kluwer/CCH Australian Family Law and Practice. The material is used with the kind permission of Wolters Kluwer/CCH.
Jacky Campbell, May 2019
In a post Thorne v Kennedy [2017] HCA 49; (2017) FLC 93-807 landscape, it has never been more important to draft financial agreements with precision, fairness and full disclosure. This paper concentrates on the drafting essentials to minimise the risk of a financial agreement being found not to be binding or being set aside. It covers:
1. Ensuring compliance with the relevant sections of the Family Law Act
The basics
Before starting to draft a financial agreement, re-read s 90G(1) and (1A) (or the de facto equivalents of s 90UJ(1) and (1A)), s 90K (or 90UM noting that the de facto equivalent is differently worded) and s 90KA (s 90UN). This makes sure that the requirements and the wording are fresh while drafting. Sections 90G and 90G(1A) set out when an agreement is binding. Section 90K sets out when an agreement can be set aside and s 90KA deals with the enforceability of financial agreements.
The agreement also needs to comply with one of s 90B, 90C, 90D, 90UB, 90UC or 90UD, or be a termination agreement under s 90J or 90UK, so it is important to re-read the relevant section and check that the agreement covers matters that are within that section. There are subtle but important differences between them. As an example, s 90B states:
(1) If:
(a) people who are contemplating entering into a marriage with each other make a written agreement with respect to any of the matters mentioned in subsection (2); and
(aa) at the time of the making of the agreement, the people are not the spouse parties to any other binding agreement (whether made under this section or section 90C or 90D) with respect to any of those matters; and
(b) the agreement is expressed to be made under this section;
the agreement is a financial agreement . The people may make the financial agreement with one or more other people.
(2) The matters referred to in paragraph (1)(a) are the following:
(a) how, in the event of the breakdown of the marriage, all or any of the property or financial resources of either or both of the spouse parties at the time when the agreement is made, or at a later time and before divorce, is to be dealt with;
(b) the maintenance of either of the spouse parties:
(i) during the marriage; or
(ii) after divorce; or
(iii) both during the marriage and after divorce.
(3) A financial agreement made as mentioned in subsection (1) may also contain:
(a) matters incidental or ancillary to those mentioned in subsection (2); and
(b) other matters.
(4) A financial agreement (the new agreement) made as mentioned in subsection (1) may terminate a previous financial agreement (however made) if all of the parties to the previous agreement are parties to the new agreement.
By contrast financial agreements under Pt VIIIAB, which deal with de facto relationships, cannot contain “other matters” or deal with property and financial resources acquired after separation. A table setting out the types of agreements (except termination agreements) and the matters they can deal with is set out below:
With respect to Pt VIIIAB agreements, a de facto relationship within the FLA is required for the agreement to be effective. If it is a s 90UB agreement, the planned de facto relationship needs to commence or the agreement will not operate. The parties must be ordinarily resident in a participating jurisdiction (i.e. not Western Australia or overseas) when they make the agreement (s 90UA). In Darrow & Malden and Ors [2017] FamCA 497, the parties separated in 1993, and entered into the agreement in 2011, but did not “opt in” to the FLA. In Teh & Muir [2017] FamCA 138, the parties were never in a de facto relationship. The applicants engaged in unconscionable conduct and took advantage of the respondent’s dementia.
When is an agreement binding?
An agreement is binding if it complies with s 90G(1) (or s 90UJ(1)):
“Subject to subsection (1A), a financial agreement is binding on the parties to the agreement if, and only if:
(a) the agreement is signed by all parties; and
(b) before signing the agreement, each spouse party was provided with independent legal advice from a legal practitioner about the effect of the agreement on the rights of that party and about the advantages and disadvantages, at the time that the advice was provided, to that party of making the agreement; and
(c) either before or after signing the agreement, each spouse party was provided with a signed statement by the legal practitioner stating that the advice referred to in paragraph (b) was provided to that party (whether or not the statement is annexed to the agreement); and
(ca) a copy of the statement referred to in paragraph (c) that was provided to a spouse party is given to the other spouse party or to a legal practitioner for the other spouse party; and
(d) the agreement has not been terminated and has not been set aside by a court.”
The original version of s 90G required the wording of the advice required (not the same wording as the advice required by the current s 90G(1)(b)) to be a term of the financial agreement (Black & Black (2008) FLC 93-357). This is no longer the case, but a clause stating the advice has been provided, repeating the wording s 90G(1)(b), is usually included.
To mitigate the strict technical interpretation of s 90G following Black & Black and make it more difficult for financial agreements to be set aside, remedial sections were introduced into Pt VIIIA and Pt VIIIAB relieving against the consequence of an agreement not meeting the requirements of s 90G(1)(b), (c) and (ca) (or s 90UJ(1)(b), (c) and (ca)). Section 90G(1A)–(1D) allows certain agreements which do not comply with s 90G(1) to be “saved”. Section 90UJ is similarly worded.
The effect of s 90G(1A) is that an agreement, provided that it is signed by all parties, which does not meet all the other requirements of s 90G(1) may be saved “if a court is satisfied that it would be unjust and inequitable if the agreement were not binding on the spouse parties”. In considering this, any changes in circumstances after the agreement was executed are irrelevant. Of course, agreements entered into between 14 January 2004 and 4 January 2010 have the difficulty of interpretation of the transitional provisions identified in Hoult & Hoult (2013) FLC 93-566 and Parker & Parker (2012) FLC 93-499.
Avoiding an agreement being set aside
An agreement which is otherwise binding can be set aside on any of the grounds in s 90K (s 90UM). Section 90K provides that:
“(1) A court may make an order setting aside a financial agreement or a termination agreement if, and only if, the court is satisfied that:
(a) the agreement was obtained by fraud (including non-disclosure of a material matter); or
(aa) a party to the agreement entered into the agreement:
(i) for the purpose, or for purposes that included the purpose, of defrauding or defeating a creditor or creditors of the party; or
(ii) with reckless disregard of the interests of a creditor or creditors of the party; or
(b) the agreement is void, voidable or unenforceable; or …
(c) in the circumstances that have arisen since the agreement was made it is impracticable for the agreement or a part of the agreement to be carried out; or
(d) since the making of the agreement, a material change in circumstances has occurred (being circumstances relating to the care, welfare and development of a child of the marriage) and, as a result of the change, the child or, if the applicant has caring responsibility for the child (as defined in subsection (2)), a party to the agreement will suffer hardship if the court does not set the agreement aside; or
(e) in respect of the making of a financial agreement — a party to the agreement engaged in conduct that was, in all the circumstances, unconscionable; or
(f) a payment flag is operating under Part VIIIB on a superannuation interest covered by the agreement and there is no reasonable likelihood that the operation of the flag will be terminated by a flag lifting agreement under that Part; or
(g) the agreement covers at least one superannuation interest that is an unsplittable interest for the purposes of Part VIIIB.
(1A) For the purposes of paragraph (1)(aa), creditor , in relation to a party to the agreement, includes a person who could reasonably have been foreseen by the party as being reasonably likely to become a creditor of the party.
(2) For the purposes of paragraph (1)(d), a person has caring responsibility for a child if:
(a) the person is a parent of the child with whom the child lives; or
(b) a parenting order provides that:
(i) the child is to live with the person; or
(ii) the person has parental responsibility for the child.”
Other things to remember:
2. The Independent Legal Advice clause
Section 90G(1)(b) (and s 90UJ)(1)(b) is worded similarly) requires that each spouse party to the agreement is given independent legal advice from a legal practitioner about:
The advice must be given by an Australian legal practitioner (Ruane & Bachmann-Ruane and Anor [2009] FamCA 1101; Murphy & Murphy [2009] FMCAfam 270).
Burden of proof
The nature of and burden of proving independent legal advice was considered by the Full Court of the Family Court in Hoult & Hoult (2013) FLC 93-566. Justice Thackray’s clear explanation (at [60]-[63]) has been generally accepted:
“In my view, the onus of establishing that an agreement is binding falls upon the party asserting that fact because the legislation provides that an agreement is binding “if, and only, if” the prescribed matters are established. It follows that the party relying upon the agreement must establish the existence of all those matters, including the giving of the requisite legal advice to both parties.
I recognise the potential forensic difficulty faced by a party who seeks to uphold a Financial Agreement when the other party claims not to have received the prescribed legal advice. However, the fact there is difficulty in proving something within the knowledge of only the other party and their solicitor does not mean the legal burden of proof passes to the party who seeks not to be bound by the agreement.
Importantly, however, I consider that once the party seeking to rely upon the agreement produces in evidence the certificate signed by the other party’s solicitor, there is a forensic obligation on the other party to adduce evidence which would disprove, or at least throw into doubt, the inference or conclusion to be drawn from the certificate (especially when read with the recital in the agreement to the same effect).
This forensic obligation is properly conceptualised as the burden of introducing evidence and should not be confused with the burden of proof as a matter of law and pleading. For a discussion of the difference see Purkess v Crittenden [1965] HCA 34; (1965) 114 CLR 164 especially at 167-168 per Barwick CJ, Kitto and Taylor JJ and 170-171 per Windeyer J.”
Nature of the advice
How comprehensive and accurate must the advice be? If a party seeks to establish that the advice was not given despite the prima facie evidence of a signed Statement of Independent Legal Advice, what must that party show?
There are different judicial views as to the nature of the advice that must be given. The following views may not all be current, but illustrate the most recent approaches taken by the courts:
“providing such advantages, if any, and such disadvantages, if any, as are apparent to the legal practitioner providing the advice.”
“The point at issue in this case is that the legal advice was not only incorrect as to the fairness of the agreement, it was wrong as to the major and pivotal effect of the agreement, namely that the wife was surrendering her rights to seek any order under Pt VIII of the Family Law Act. That is a substantially different circumstance to one where the party entering an Agreement understands that the agreement may be important in proceedings between the parties under Pt VIII of the Act as opposed to excluding the courts [sic] ability to consider any application under that Part.”
The agreement was not set aside on this ground (but on other grounds), as the husband was not aware of the wife’s erroneous advice. If he had been aware, perhaps there might have been a finding of unconscionable conduct rather than non-compliance with the advice requirement. Pascot & Pascot [2013] FamCA 945.
“A practitioner providing the required advice might, of course, feel more comfortable, or consider it prudent, to have a list of assets and liabilities so as to give the client examples of the permutations that might be possible and what may, or may not, be seen as ‘advantages’ or ‘disadvantages’ as a result. In addition, it might well be that advice which can be seen to be comprehensive in terms of a solicitor’s duties, or that which is desirable in light of s 90G’s ramifications, might have many components to which a list of assets and liabilities might pertain. The issue is not what prudence or practice might dictate, but what s 90G requires of any advice.”
The Full Court allowed the appeal. One of the grounds was that Murphy J should have concluded that the solicitor’s certificate, particularly when read in conjunction with the recital in the agreement, should have been treated at least as prima facie evidence of compliance with s 90G. It was remitted for re-trial.
“It is difficult to see how that role could be fulfilled in even a 50 minute interview, as it would require detailed instructions being taken as to the assets and liabilities of the marriage, the husband’s current position, and the history of the relationship before even looking at the agreement. I therefore consider that I do not need to make a finding on the exact length of time Mr Young spent alone with the husband … as even on Mr Young’s evidence, it was not in my view long enough to take comprehensive instructions and give detailed and comprehensive advice about the agreement.”
Judge Small, in contrast to Murphy J in Hoult, considered that a list of assets and liabilities was necessary to give advice. Justice Aldridge in Abrum also disagreed with Justice Murphy.
“Nonetheless, when s 90G(1)(b) speaks of “rights” it must be speaking of the entitlement to bring a case under s 79 and the factors that weigh in favour of that person’s case under ss 79(4) and 75(2) otherwise it would have limited meaning.
In order to give advice about the effect of an agreement on the rights of a party, that is their rights under the Act in relation to property, a legal practitioner must establish what those rights are at the time the advice is provided. This is because s 90G(1)(b) requires advice to be given on the effects of the agreement upon the rights of that party and the advantages and disadvantages of the agreement. If their rights are not known then it is impossible to advise as to the effect of the agreement on them.
It is unhelpful to advise a person that a financial agreement might adversely affect his or her rights if those rights are not identified. A party must know more than some unknown or undefined right is being given up. He or she must have some idea, at least in general, of his or her present entitlements or rights (to use the words of the section) with which he or she may compare the provisions of the proposed financial agreement. It is only in that way that there can be actual advice about the effect of the agreement on those present rights.
It is quite clear that a person may choose to enter into an agreement where he or she may very well be much worse off than if he or she were left to rely on their rights under s 79 of the Act. Thus, there is a requirement for specific legal advice to be given. That is the safeguard the legislature imposes when it permits the parties to deal with their property by agreement and without possible interference from a court.
Accordingly, the advice must be real and meaningful. It must be directed to the parties’ circumstances and their present rights.
Proper identification of a parties’ rights can only be done by identifying the property of the parties then held and a consideration of the parties contributions (financial and non-financial) to the acquisition of that property and to the welfare of the children. Any other relevant factors under s 79(4), including s 75(2), would then need to be considered. Only by doing so can advice be given that complies with the terms of s 90G(1)(b).
In the present case Mr Lodge did not obtain any list of the parties’ property and liabilities. He did not seek to ascertain what financial and non-financial contributions the parties had made to that property or to the welfare of the children. He did not explore any of the other s 79(4) matters and the s 75(2) factors with the wife. In those circumstances he was entirely ignorant of the rights of the wife and could not give her therefore any advice about her rights. Mr Lodge did not suggest that he did so.
Similarly, advice about the advantages and disadvantages for a party making the agreement must involve a consideration and weighing of what would be their rights but for entering the agreement and those advantages and disadvantages after having entered the agreement. No doubt each would have its advantages and disadvantages and they need to be compared.”
Independence of advice
The circumstances in which the legal advice given by a legal practitioner lacks independence is unclear. Obviously, each party must have their own legal practitioner and they cannot be from the same law firm. Circumstances in which the advice may arguably considered to be tainted is if the legal practitioner is:
The cases dealing with financial agreements under the FLA have confirmed the independence of the advice in at least the first three of the above four situations. For example, in Adame & Adame [2014] FCCA 42 the husband paid for two of the three legal practitioners seen by the wife. The first two refused to sign the Certificate of Independent Legal Advice. The third legal practitioner signed the Certificate of Independent Legal Advice on behalf of the wife, but was located and instructed by the husband and the file was opened in his name and emails were sent to his address. The husband had not provided the legal practitioner with the wife’s email address. The independence of the legal practitioner was accepted by Judge Jarrett who was satisfied that, contrary to the wife’s evidence, the agreement was signed by the wife without the husband being present. However, Judge Jarrett found that the advice did not meet the requirements of s 90G(1) on another ground, because the legal practitioner who gave the advice required by s 90G(1)(b) was not the legal practitioner who signed the certificate. The legal practitioner who signed the certificate said he did not give the advice required under the FLA (despite signing the certificate) and that he was only concerned with the “commercial terms” of the agreement and whether those terms reflected the parties’ intentions. The fact that the file wasn’t opened in the wife’s name wasn’t an issue, but in other circumstances it may be a more important factor.
In Logan & Logan [2012] FMCAfam 12, Terry FM found that the wife had independent legal advice although there were strong indications that it was not. Arguments against the advice being independent despite the Federal Magistrate’s finding that it was, were:
After 23 years of marriage the wife received 15% of the pool, but in upholding the agreement, the court seemed to be swayed by a finding that the wife was not under any special disability, felt guilt about ending the marriage and that the initial approach to the legal practitioner was made by the wife.
On appeal in Logan & Logan (2013) FLC 93-555, the duress and unconscionable conduct grounds were not pursued by the wife. The Full Court allowed the wife’s appeal as the trial judge mis-applied the burden of proof. Following Hoult & Hoult (2013) FLC 93-546, the onus of proof lay on the party seeking to establish that a financial agreement is binding. The husband could rely upon the Certificate signed by the wife’s solicitor and the forensic obligation was then thrown to the wife to adduce evidence to disprove or at least throw into doubt the inference or conclusion drawn from the Certificate. In this case, there was evidence to displace the inference. The Full Court did not decide if that evidence was sufficient, but ordered a re-trial.
The wife unsuccessfully argued that her legal advice was not independent in Balzia & Covich [2009] FamCA 1357. She was taken by the husband to see the legal practitioner and she asserted that the legal practitioner was mainly her husband’s legal practitioner. Justice Collier accepted that the husband was told to go away on the first occasion the wife saw the legal practitioner and that the husband had his own legal representation. The agreement was found not to be a valid agreement on other grounds.
In Vance & Vance [2012] FMCAfam 599, Baumann FM was satisfied that the wife received independent legal advice in circumstances where:
Federal Magistrate Baumann found that the legal practitioner was independent and was not required, nor was he able to assess all the future financial permutations that this couple’s financial journey could take. He agreed with Murphy J in Hoult (at [63]) that the legislation does not prevent parties from being “perfectly free to make a bad bargain”.
Federal Magistrate Baumann concluded (at [48]):
“I am satisfied that Mr King was both independent and a legal practitioner … I see nothing in a requirement prescribed by the relevant section to impose any obligation on the legal practitioner to have either specialist or other qualifications in family law. The section requires, by inference, some knowledge of this area of law otherwise it would be hard to be satisfied that the practitioner could be able to articulate the ‘advantage and disadvantages’ of the agreement or the effect of the agreement on the rights of the party being advised. Mr King did have some experience in family law over many years.”
In Moreno & Moreno [2009] FMCAfam 1109, the issue of the limitations placed on the wife’s legal advice by the husband was not considered in the judgment. Federal Magistrate Demack noted that the husband told the wife he would only pay for one hour’s advice. The wife was advised that it was not to her financial advantage to sign the agreement. The legal practitioner recognised the reasons she might do so anyway. In the face of sensible advice (which the wife did not follow) and the fact that the agreement was set aside on other grounds, the limitation placed by the husband on legal advice was not an important factor. However, in other circumstances it might arguably have assumed greater importance.
In Weldon & Asher [2014] FCWA 11, Thackray J found that the husband had independent legal advice in circumstances where:
In Guest & Rasevic [2016] FamCA 91, the parties both saw the wife’s legal practitioner for the execution of the agreement. They thought that the husband had waived his right to independent legal advice. The wife conceded that the agreement was not binding after initially seeking that it be found to be binding under s 90G(1B).
More recently in Purdey & Millington [2018] FCCA 213, the wife had limited English and there was no interpreter when she was given advice. The husband’s legal practitioner suggested a legal practitioner for the wife. There was a dispute as to who made the appointment for the wife to see the legal practitioner, but the trial judge found that the husband probably made the appointment and that he was present when the wife saw the legal practitioner. The agreement was held not to be binding. Judge Jones found that the evidence before the court was sufficient to throw into doubt the inference which could be drawn from the wife’s legal practitioner’s statement attached to the financial agreement certifying that the wife was given independent legal advice, for the following reasons:
In the circumstances it was not appropriate for the agreement to be held binding under s 90G(1A).
Proving compliance with s 90G(1)
Although s 90G(1) does not require the Statements of Independent Legal Advice to be annexed to the agreement (as required in the first version of s 90G(1)), the better view is that they should be so, as to ensure that they stay together and that there is clarity about which agreement the advice was given.
Lawyers should be cautious about how they prove compliance with s 90G(1)(c) and (ca) (and s 90UJ(1)(c) and (ca)). Some lawyers draft a one page receipt or acknowledgement where the party acknowledges receipt of the advice, receipt of the Statement of Independent Legal Advice from their lawyer and receipt of the Statement of Independent Legal Advice from the other legal practitioner at the same time. Sometimes, receipt of a copy of the full executed agreement is also acknowledged. Section 90G(1) requires the parties to receive the Statements of Independent Legal Advice of each other, but not a fully executed copy of the agreement. A signed acknowledgement of receipt of the Statements of Independent Legal Advice of both legal practitioners and the fully executed agreement is good practice, but not a legislative requirement.
An example of a receipt is:
I Joseph Robert Williams acknowledge that the Section 90B Financial Agreement (“Agreement”) between me and Alice Louise Davis (“Alice”) dated the 15th day of May 2019 was signed by me and Alice and that:
2.1 The effect of the Agreement on my rights; and
2.2 The advantages and disadvantages, as the time that the advice was provided to me of making the Agreement.
3.1 The effect of the Agreement on my rights; and
3.2 The advantages and disadvantages, as the time that the advice was provided to me of making the Agreement.
4.1 The effect of the Agreement on her rights; and
The advantages and disadvantages, as the time that the advice was provided to her of making the Agreement.
Dated the day of 2019
SIGNED by the said )
Joseph Robert Williams )
in the presence of: ) …………………………………………..
There are several different steps in complying with s 90G(1) and, although some can occur at the same time, they cannot all occur at the same time unless both parties and their lawyers meet to sign the Agreement and Statements and exchange the statements. If there is not a joint meeting, it is better to either divide the receipt into 2 separate receipts or acknowledgements or have the receipt or acknowledgement signed by the party who signed first after the final step has occurred.
If Joseph signs first, Joseph can only acknowledge 2 and 3. Alice then signs the agreement and can sign a receipt in the above terms. Joseph then can acknowledge receipt of the signed agreement and 1 and 4.
Of course, a written acknowledgement or receipt of the advice does not mean that a court cannot go behind that acknowledgement, just as it can go behind a statement of independent legal advice, e.g. Hoult & Hoult (2013) FLC 93-546 and Logan & Logan (2013) FLC 93-555. The acknowledgement and the Statement of Independent Legal Advice are prima facie evidence that the events occurred.
In Fevia & Carmel-Fevia (2009) FLC 93-411 one party did not receive a copy of the agreement until 7 years after it was executed. In Suffolk & Suffolk [No 2] [2009] FamCA 917 it was 4 years. These cases were decided when s 90G(1) required one party to have an original of the agreement and the other a copy. There was no temporal requirement in the provision, but the courts seemed to be prepared to read it in. In Purdey & Millington [2018] FCCA 213, the fact that the wife was not given a copy of the agreement shortly after she had signed it (although it was no longer a legislative requirement) was a factor in finding the agreement not binding under s 90G(1A). Non-provision or delayed provision of a copy of the executed agreement in a timely fashion seems to be problematic and understandably so.
3. Drafting to show full disclosure
Disclosure isn’t a requirement for financial agreements but it does help to ensure it is not set aside.
There are several ways to deal with disclosure of each party’s financial position:
Whatever approach is taken, it should be clear from the recitals how or if the parties have provided disclosure.
Difficulties can arise when one or both parties have a number of entities. The entities need to be referred to precisely, and not just as “the husband’s entities” or “the Marshall group”. The difficulties are exacerbated in agreements entered into before or during a relationship, as the way a business operates may change, particularly where one of the parties is involved in a business with other family members. The operations of the business may be moved from one entity to another, or a trust may be interposed, directorships and shareholdings may change and new entities formed. How can they still be quarantined?
In Acker & Acker [2014] FamCA 891, the wife alleged that the agreement was obtained by fraud, by reason of non-disclosure by the husband of a material matter. He disclosed “what were described as beneficiary interests in wholly discretionary trusts the wife foreshadows that she will contend at all material times the property of the trusts was actually in the whole or at least partial ownership of the husband” (at [10]). There is no reported decision as to the outcome. Both parties agreed that the Family Court matter could not be determined until a tax dispute was resolved by the Administrative Appeals Tribunal. The husband in this case probably considered that he had provided proper disclosure of his interests in the trusts in the financial agreement, but he still ended up in court after separation with the nature of his interests in dispute.
The disclosing party can’t disclose a non-existent entity and it is difficult to protect an entity which doesn’t yet exist. A party’s interest in an entity at the end of the relationship may be different to the interest when the agreement was executed.
Superannuation may be a problem in pre-separation agreements, because of the difficulties of identification of the fund and giving procedural fairness, working out a split, naming the fund and ensuring the terms are enforceable. (See s 90XJ).
Tax can also be problematic in pre-separation agreements. It is impossible to predict if parties or entities will have significant liabilities and what tax consequences there may be in the future if property is to be transferred, particularly as tax law sand the parties’ circumstances may change. Often the best that can be done is to advise the client that it is impossible to predict the future and that possible tax consequences on disposition and transfer should be considered when making decisions about the acquisition of property during the relationship.
If the intention of the parties is that the weaker party will not have any tax consequences from the agreement or from their involvement in the stronger party’s entities, then this should be clear in the agreement, and appropriate indemnities given.
Checking instructions
It is important to remember that although full and frank disclosure is not a requirement for a financial agreement, establishing that there has been such disclosure is done to ward off a potential application to set aside a financial agreement under s 90K(1) or s 90UM(1).
Mistakes can be made by clients when giving instructions as to their financial positions, so it may be sensible to protect your client by:
Post-separation, lawyers are likely to do title searches and ASIC searches, but that are also important pre-separation.
There are pros and cons for detailed disclosure being provided by parties entering into a financial agreement. On the one hand, by parties providing full details of their financial positions, if there are any errors, it may be easier for the other party to successfully apply to set the agreement aside for non-disclosure, misrepresentation or other grounds under s 90K. On the other hand, if the parties do not provide full details of their financial positions in the agreement, it may be more difficult to defend an application for the agreement to be set aside for non-disclosure of a material matter.
4. Drafting for clarity and to avoid uncertainty
A financial agreement is a contract. To draft a contract, it is necessary to look at what the client wants to achieve. The following questions must be considered first:
Both the agreement and any letters of advice should be easy for the client to read and understand. The agreement also needs to be enforceable as a contract, not as a set of orders. The clauses of the agreement should be drafted as a contract and not just copied from orders. The style is different and if the terms of the agreement are drafted in the same form as orders they may not be enforceable as they may lack clarity and certainty. Precedent clauses can help with the first draft of an agreement. The draft must be checked carefully and altered to fit the precise and unique facts of the particular case.
Care should be taken in using precedent agreements. Collier J in J & J [2006] FamCA 442 was critical of the use of precedent agreements without sufficient thought as to whether or not it was appropriate. Collier J concluded at [34]:
“However I am left in the position of having a very uncomfortable suspicion that the precedent that has been used has not been properly amended. I am further left unable to state with any certainty what was actually done and what was actually explained to each of the parties and the manner in which the document was actually executed and witnessed.”
In Squibb & Graham [2018] FCCA 1906, the trial judge considered that the agreement had the hallmarks of having been downloaded from the internet, but it was rectified to refer to the FLA and instead of referring to s 90KA, to refer to s 90B as being the type of agreement.
Matters to be covered
What clauses should be included in an agreement? As a starting point:
1.1 Define the excluded property;
1.2 Are there any circumstances where the financially weaker party will receive some of the otherwise quarantined property?
2.1 Who retains the house or will it be sold?
2.2 When will the other party vacate the home?
2.3 How will property be valued?
2.4 The arrangements for any sale;
2.5 How will the net proceeds of sale be distributed?
2.6 How will liabilities be dealt with (including tax)?
3.1 If so, how?
3.2 How will procedural fairness be given?
3.3 Who will retain any self-managed superannuation fund and clauses to give effect to this? What if parties don’t have one when the agreement is entered into but create one later?
3.4 The operative time for a payment split is the beginning of the 4th business day after the day on which a copy of the agreement is served on the trustee accompanied by the other documents specified in s 90XI(1).
4.1 Is the right to spousal maintenance ousted?
4.2 Will one party receive maintenance for a fixed period?
4.3 How will the requirements of s 90E be met?
4.4 Can the requirements of s 90F be met?
Uncertainty and incompleteness
A contract may be held void for uncertainty or incompleteness if the intention of the parties cannot be determined objectively. The terms “uncertainty” and “incompleteness” are defined as:
Uncertainty
Points to note about uncertainty include:
Clauses and agreements otherwise void for uncertainty may be saved by:
Kostres & Kostres (2009) FLC 93-420
The Full Court found that an agreement was void for uncertainty. The agreement was entered into two days before the marriage. At the time, both parties mistakenly believed that the husband was an undischarged bankrupt. They did not tell their lawyers this. The parties’ mistaken belief about the husband’s status led to them acquiring assets in the wife’s name rather than in the parties’ joint names. Both parties sought that words be “read into” clause 6 of the agreement.
The Full Court was not satisfied that it could read words into the agreement. The agreement was particularly difficult to interpret as it used terms which were ambiguous or did not reflect the wording of the FLA, such as “acquired”, “assets”, “joint funds” and “from their own moneys”.
Parke & Parke [2015] FCCA 1692
This case involved two clauses in a financial agreement which created ambiguity and uncertainty. Pursuant to one clause, the wife’s half interest in a real property was excluded property which she retained in the event of a separation. However, pursuant to another clause the wife was required to transfer her 50% share to the parties’ son X within 60 days of a separation. A complicating factor which was not foreseen, at least by the husband when the agreement was entered into, was that X refused to accept a transfer of the wife’s half interest in the property and the agreement did not have a default provision setting out what was to occur in the event that X refused to accept the transfer.
The trial judge, Howard J, found that the clauses were essential terms of the agreement because they dealt with what was to happen in the event that the parties separated and the clauses could not be severed from the agreement. He set the agreement aside. The husband’s appeal was discontinued by the husband’s legal personal representative after the husband’s death.
Example:
An example of an attempt to quarantine the husband’s initial contributions, being his interest in a family group of entities, didn’t work. The agreement didn’t anticipate that the home would be put in the wife’s name for asset protection reasons. The agreement stated:
The matter settled on the basis that the wife kept the home because:
Incompleteness
An agreement is void for incompleteness if the parties failed to reach agreement on an essential term. Important points to note about incompleteness are:
Incompleteness and the limitations of the doctrine of rectification were discussed in Fevia & Carmel-Fevia (2009) FLC 93-411; [2009] FamCAFC 816, where it was unclear whether an annexure was part of the agreement. The agreement was incomplete. In Fevia, Murphy J quoted from Sindel v Georgiou [1984] HCA 58; (1984) 154 CLR 661 where the High Court said (at [13]):
“Rectification is a remedy which cures the erroneous expressions of the parties’ true intentions in a contract which is already binding. It is not a remedy which brings a contract into existence in a situation in which the parties have not by their own acts arrived at the concluded contract.”
Garvey & Jess [2016] FamCA 445
Justice Carew rejected the argument of the wife that the financial agreement was void for uncertainty as the parties only had an “agreement to agree”. The agreement provided that in the event of a breakdown of the relationship, the parties would “equally divide the joint assets”.
Justice Carew said (at [340) in relation to financial agreements generally:
“It is important, in my view, to have regard to the context in which agreements of this kind are entered into. They are not commercial agreements but arise as a result of a personal relationship which at the time of making is presumably a happy one. Parties to such agreements aim to avoid dispute as to how their assets should be divided if their relationship breaks down at some future time which may be decades away. The future circumstances of the parties cannot possibly be known at the time of entering into such an agreement.”
She concluded (at [41], [44):
“In my view, the deed is not void for uncertainty because:
a. The deed evinces an intention:
i) to be legally bound;
ii) to oust the jurisdiction of the court pursuant to Part VIII;
iii) to divide the assets in the proportion provided for in the deed.
It is not an ‘agreement to agree’.
b. While the term ‘joint assets shall be equally divided’ is an essential term, it is not uncertain nor is it incomplete because on the application of the objective test of a reasonable bystander, the term would be construed to mean that whatever assets they own jointly when the marriage breaks down are to be divided equally whether in specie or upon sale;
c. At the time of making the agreement the parties could not possibly have known what assets they may own at the relevant time and therefore it could not be said that the failure to allocate a mechanism for implementing the essential term of equally dividing the joint assets would have caused the husband or the wife to have refused to have entered into the deed because at that time they could not have known what mechanism would have been appropriate e.g. it was argued on behalf of the wife that the agreement should have stated who was to retain which asset or class of asset – in my view, such a suggestion would prove an impossible task when the nature and value of assets in the future could not be known at the time of entering into the agreement…
Applying the principles identified above, the term I would imply is to the effect that the parties will do all things necessary to give effect to the terms of the deed and in the event of dispute, a court may determine the method of implementing the terms of the deed. Such a term would be reasonable, would give business efficacy to the deed, “goes without saying”, is capable of clear expression and does not contradict any express term of the deed.”
This decision is unaffected by the appeal in Jess & Garvey (2018) FLC 93-827.
Plain English
Using plain English is important. Parties should be given what they are paying for: an agreement and an advice letter that they can read, understand, abide by, refer to at a later date and enforce if necessary. Traditional legal wording rarely achieves these objects.
Complicated words and sentence structure may be acceptable in some cases. It will depend upon the parties. Matters to consider in assessing the complexity of language which is appropriate for the parties include:
Guidelines for writing plain English
Some principles for making documents and letters easier to understand include:
Superfluous term | Simpler term | Superfluous term | Simpler term |
in the event that | if | cease | stop |
subsequent to | after | provide | give |
prior to | before | request, require | ask |
despite the fact that | although | retain | keep |
not able | unable | is entitled to,
has the option of |
may
|
does not include
|
excludes, omits
|
is required to | must |
not … unless, except | only if | in respect of,
in relation to, in connection with, with respect to, as to, concerning |
about, for
|
not … until | only when | does not have any force or effect | has no force, has no effect |
attained the age of
65 years |
at least 65 years old,
65 years or over |
in accordance with | under |
commence | begin/start | in consequence of,
as a result of |
because of |
expiration,
termination |
end | is void or of
no effect |
has no effect |
for the duration of | during | notwithstanding the fact that | despite |
subsequent | later | on behalf of, for and on behalf of | for |
ascertained in accordance with
the formula |
calculated | otherwise than | except |
exceeds | is more than | pursuant to,
by virtue of |
under, because of |
alter, amend | change | shall be deemed
to be regarded |
is taken to be,
treated as |
any act or thing
done, step taken, or decision made |
anything done | any act, matter
or thing |
anything |
attain | reach | exclusively | only |
the provisions of
this agreement |
in this agreement | mutatis mutandis | with appropriate changes |
utilise | use |
The above guidelines are in part drawn from the following publications:
Using FLA terminology
Terminology used in the FLA is referred to at point 6 of the Guidelines for Writing Plain English above. Examples of terms which a court has found difficult to interpret because they were ambiguous or did not reflect the wording of the FLA are:
5. The pros and cons of a complex agreement
A simple agreement is easier to draft, but it may be too simple to cover all possible contingencies. To avoid the risk of an agreement being set aside because of one of these contingencies, many agreements include a recital to confirm that the parties have considered those contingencies.
An example of a recital of drafting for contingencies is:
Before executing this Financial Agreement, each party has had regard to the possibility that one or both of them may be subject to a change of circumstances including any or all of:
A formula which gives cascading entitlements with the effluxion of time, the number of children or some other factor, are more complex to draft and implement.
The reason for including a cascading formula is to more closely match the increased property entitlements of a party under s 79 (or s 90SM) in longer relationships where there will almost certainly have been greater contributions (parenting, homemaking, financial and non-financial) of the financially weaker party to at least partially offset the greater initial financial contribution of the financially stronger party, than in a short relationship. If the agreement does not adequately provide for the other party in the event of one of the contingencies, then there may be a greater risk of the agreement being set aside or, at the very least, an application being made with all the associated financial and emotional stress. It may be better to provide for the contingency, but more complex and lengthy agreements are more likely to have inconsistencies in their drafting.
Simpler agreements set out clearly the respective entitlements of the parties, with perhaps a payment or transfer of property calculated as a percentage of certain property or a defined lump sum. If giving a percentage, the property of which the party receives a percentage needs to be described.
Sometimes, agreements are drafted so as to oust the jurisdiction of the court to deal with property but allow maintenance claims to still be made. Of course, the weaker party must still establish a need for maintenance, but allowing the weaker party the right to apply for maintenance may mean that the agreement can be more simply drafted and is not as much at risk of being considered a bad bargain (and set aside if there are vitiating factors, such as undue influence), than if the right to apply for spousal maintenance is ousted.
Ousting the right to apply for spousal maintenance may be ineffective in any event. Section 90F(1) provides that a financial agreement cannot exclude or limit the power of a court to make a maintenance order if s 90F(1A) applies – which states:
“This subsection applies if the court is satisfied that, when the agreement came into effect, the circumstances of the party were such that, taking into account the terms and effect of the agreement, the party was unable to support himself or herself without an income tested pension, allowance or benefit.”
What then is the relevant time when “the agreement came into effect” for the purposes of s 90F(1A)?
Section 90DA provides that in relation to s 90B and s 90C financial agreements, an agreement comes into effect in relation to provisions dealing with property and financial resources when a separation declaration is made.
The ability to make a financial agreement dealing with spouse maintenance is set out in s 90B(2)(b) and s 90C(2)(b), which are not referred to in s 90DA.
It appears that a provision asking for the ability to apply for maintenance to be ousted is determined at the time the agreement is entered into, and is therefore more likely to be effective. Exceptions are some agreements entered into during a relationship when the parties already have children or, as in Raleigh, where the wife gave birth 8 days later.
Including a right to seek maintenance may help establish that the parties did consider possible contingencies, such as childbirth, care of children, injury and ill-health, and not merely state these possibilities in a recital may help uphold the agreement.
However, a financially weaker spouse with the primary care of the children who is in employment, may not be able to make a successful maintenance claim. This means that more consideration should always be given to ensuring that the weaker party is not left with an extraordinary small share of the property (in s 79 terms), so that there is less motivation to attack the agreement.
Another option is to include a sunset clause so that the agreement no longer operates if the parties, for example, have a child. The difficulty with these is that they have not been tested and non-compliance with s 90J(1) may be a problem. Section 90J(1) states:
“(1) The parties to a financial agreement may terminate the agreement only by:
(a) including a provision to that effect in another financial agreement as mentioned in subsection 90B(4), 90C(4) or 90D(4); or
(b) making a written agreement (a termination agreement ) to that effect.”
A termination provision included in the original agreement may be ineffective if the requirements of s 90J(1) are not met. Therefore, to achieve the same outcome, a financial agreement can be drafted carefully with two parts:
A requirement that the parties review an agreement if they have a child is almost certainly unenforceable if the intention is that the parties are forced to enter into a new agreement in different terms, it may encourage the parties to do it, but cannot force them to do it.
6. Drafting to demonstrate fairness in the terms – dealing with the test for “bad bargain”
Since Thorne v Kennedy there is more concern among legal practitioners that the agreement not result in a “bad bargain” for one of the parties. There is, of course, no requirement that the terms of a financial agreement meet the “just and equitable”, “proper” and “appropriate” standards under s 79. It is rarely the case that both parties will be advantaged by the agreement. One party is almost always disadvantaged by the agreement.
However, if an agreement gives the weaker party entitlements which are close to the range of their entitlements, then that party is less likely to seek to set aside the agreement and less likely to succeed.
What is a bad bargain?
In Fewster & Drake [2016] FamCAFC 214; (2016) FLC 93-745, the Full Court was looking at s 90K(1)(d) and said (at [65]):
“It is to be recalled that, subject to compliance with the statutory requirements, people are free to enter such binding financial agreements as they see fit. There is no statutory provision which enables a binding financial agreement to be set aside merely because it is unfair: Hoult & Hoult [2013] FamCAFC 109; (2013) FLC 93-546 at 87,283 and 87,296 – 87,298.”
In relation to the hardship required by s 90K(1)(d), the Full Court said that s 90K(1)(d) required (at [68]):
“something more than unfairness. In In the Marriage of Whitford [1979] FamCA 3; (1979) FLC 90-612 (“Whitford”) at 78,144-78,145 the Court said that hardship is:
…akin to such concepts as hardness, severity, privation, that which is hard to bear or a substantial detriment…
…
In ordinary parlance, hardship means something more burdensome than “any appreciable detriment’”. We consider that in subsec. 44(4) the word should have its usual, though not necessarily its most stringent, connotations.”
In Higgins & Moruba [2018] FamCA 467, Thornton J said (at [80]):
“The Court in Fewster & Drake made it clear … that individuals are free to enter into binding financial agreements as they see fit and there is no statutory provision which enables one to be set aside merely because it is unfair. The wife’s argument, that there is hardship because she would obtain a different outcome under a s 79 application under the Act compared to the binding financial agreement is therefore not relevant to the Court’s consideration of whether there is hardship. Therefore, the order the wife seeks for full disclosure is not justified on this basis.”
The finding of a bad bargain will not be made in isolation of a vitiating factor, such as fraud, undue influence or unconscionable conduct, so in drafting, negotiating and executing an agreement it is important that legal practitioners and their clients avoid falling foul of vitiating factors. For example, ensuring that there is a trail of correspondence between lawyers negotiating the terms of the agreement, that the stronger party does not advocate “sign this agreement or there will be no marriage” and that there is ample time for the terms of the agreement to be considered before the wedding, are strongly recommended.
7. The problem of false recitals
Recitals are statements at the beginning of a contract which set out preliminary matters, such as factual background and the reasons for the contract.
The false recitals which are most commonly problematic include:
As the plurality in the High Court said, this statement was made (at [20]) despite the wife’s “extremely limited personal means”. The plurality made no findings on whether the s 90F declaration was effective, as submissions were not made with respect to it – either in the Full Court of the Family Court or in the High Court – but the plurality appeared to express doubt as to whether the wife was bound by her “acknowledgement”. The High Court drew the attention of the parties to the issue, but because of the way the case was presented it was significant only (at [20]) “as a matter of contextual construction”, which suggests that the incorrect statement may have assisted the plurality to reach the conclusions it made that there had been undue influence and unconscionable conduct.
8. Drafting to demonstrate no disadvantage or duress – is this a relevant consideration?
Recitals or clauses confirming that neither party has been subject to duress, undue influence or unconscionable conduct are often included in financial agreements. The problems with these clause include:
A better approach is to try to remove the possibility of these vitiating factors being established. From Thorne v Kennedy we know that an agreement is more likely to be upheld if:
9. Drafting lessons from Thorne v Kennedy
Following the High Court judgment in Thorne v Kennedy, whilst there are many uncertainties, there are some drafting lessons:
1.1 Whether the agreement was offered on a basis that it was not subject to negotiation;
1.2 The emotional circumstances in which the agreement was entered including any explicit or implicit threat to end a marriage or to end an engagement;
1.3 Whether there was any time for careful reflection;
1.4 The nature of the parties’ relationship;
1.5 The relative financial positions of the parties; and
1.6 The independent advice that was received and whether there was time to reflect on that advice.
10. Other drafting tips
The following checklist is not intended to be comprehensive, but lists a few tips to make sure that that things don’t go wrong:
Conclusion
Drafting financial agreements which are truly binding is not an easy task. The longer and more complex the agreement, the more that can go wrong.
Thorne v Kennedy has not changed the fact that agreements which follow the wording of the FLA, and give the weaker party enough so it is not a “bad bargain”, are more likely to be binding and not set aside. One party will always be disadvantaged by the agreement, but Thorne v Kennedy alerted lawyers to the fact that a bad bargain may be an indication of a vitiating factor.
© Copyright – Jacqueline Campbell of Forte Family Lawyers and Wolters Kluwer/CCH. This paper uses some material written for publication in Wolters Kluwer/CCH Australian Family
Jacky Campbell, May 2019
Post Thorne v Kennedy (2017) FLC 93-807, family lawyers and clients have reconsidered the worth of financial agreements under the Family Law Act 1975 (FLA). At the outset, it is impossible to guarantee to clients that financial agreements are binding and will not be set aside. Lawyers can, however, take steps to reduce the risks. There are also pro-active measures that can be taken to protect an agreement which is under attack or may be under attack. This paper covers:
Recent cases are discussed under the above headings.
What goes in?
“The matters referred to in paragraph (1)(a) are the following:
(a) how, in the event of the breakdown of the marriage, all or any of the property or financial resources of either or both of the spouse parties at the time when the agreement is made, or at a later time and before divorce, is to be dealt with;
(b) the maintenance of either of the spouse parties:
(i) during the marriage; or
(ii) after divorce; or
(iii) both during the marriage and after divorce.”
The phrase “dealt with” is defined in s 90A as including the meaning given by s 90F(2). Section 90F(2) states:
“To avoid doubt, a provision in an agreement made as mentioned in subsection 90B(1), 90C(1) or 90D(1) that provides for property or financial resources owned by a spouse party to the agreement to continue in the ownership of that party is taken, for the purposes of that section, to be a provision with respect to how the property or financial resources are to be dealt with.”
There is no all-inclusive definition of “dealt with” in the FLA and little, if any, judicial authority on the phrase with respect to financial agreements. Presumably, it allows provisions to deal broadly with property and financial resources, not just quarantine, transfer or sell. It may be broader than the phrase “or otherwise deal with” which is often used in orders if there is not a preceding list of words such as “sell, mortgage or encumber” and limit its meaning. Options to purchase are amongst the other ways property can be “dealt with”.
The breadth of matters which can be covered by s 90B agreements is extended by s 90B(3), which states:
“A financial agreement made as mentioned in subsection (1) may also contain:
(a) matters incidental or ancillary to those mentioned in subsection (2); and
(b) other matters.”
There is very little case law on the meaning of the phrases “incidental or ancillary” and “other matters” in the context of financial agreements, but there is authority in different contexts.
Incidental or ancillary
In the context of s 90 FLA, Gibbs CJ in Gazzo v Comptroller of Stamps (1981) FLC 91-101 looked at the meaning of “incidental or ancillary to the subject matter”:
The cases below suggest that if a “matter” is sufficiently autonomous, important in its own right, multifaceted, self-contained, etc., then it is not ancillary or incidental. Further, if a matter is only remotely or indirectly ancillary and incidental to the specified matter, this is not enough. Matters which are merely subservient or subordinate to the specified matter, but not remotely or indirectly, are more likely to be ancillary and incidental. Many of the cases focus on whether a purpose or use is incidental or ancillary to another use or purpose, rather than looking at “matters”.
In Rothmans v Australian Broadcasting Tribunal [1985] FCA 91 the Full Court of the Federal Court adopted with approval the definition of “incidental” in the Oxford English Dictionary (at [29]):
(1) Occurring or liable to occur in fortuitous or subordinate
conjunction with something else; casual . . .
(2) Casually met with . . . .
In R v Holmes; Ex Parte Public Service Association (NSW) [1977] HCA 70; (1977) 140 CLR 529 Gibbs J set out the test (at [17]) that it must be incidental or ancillary in a “remote and indirect way”.
In R v McMahon; Ex parte Darvall (1982) 151 CLR 57; [1982] HCA 56, the High Court determined the activities of universities were not ancillary or incidental to industry on the basis that the role of the modern university was so: autonomous; important in its own right; and multifaceted, that its activities could not be considered ancillary or incidental to industry (at 456).
In Enoka & Ors v Shire of Northampton (1996) 15 WAR 483 the fact that a panel beating business could be said to be self-contained and not merely subservient to a service station on the premises deemed it was not ancillary or incidental to the service station.
In City of Swan v Taylor [2005] WASCA 88 Johnson J held (at [67]) that the determination of whether a particular land use is “incidental to” another land use “requires the identification of a predominant use and a determination of whether the proposed use is consequent on such a use or naturally attaching, appertaining or relating to such a use.”
It isn’t possible to predict how “incidental or ancillary to” will be interpreted in the context of financial agreements. The Explanatory Memoranda and the Minister’s Second Reading speech did not refer to the phrase.
Other Matters
The phrase “other matters” only applies to agreements entered into after 21 November 2008 under Pt VIIIA and not agreements entered into under Pt VIIIAB. Sections 90C and 90D are similarly worded to s 90B. However, sections 90UB, 90UC and 90UD, which are for de facto relationships, do not include reference to “other matters”. “Other matters” is broader than “matters ancillary or incidental to”, but there is no judicial authority on what is covered by the phrase in relation to financial agreements.
Bloomfield & Grainger [2018] FamCA 36
The parties and their lawyers overlooked the fundamental and preliminary point of the subject matter of the agreement in the long-running Bloomfield & Grainger litigation which commenced in 2014 and ended in 2018.
There were many hearings at which no issue was taken as to whether or not the litigation was about a financial agreement. In Bloomfield & Grainger [2018] FamCA 36, Justice Hogan finally determined that the agreement in question was not a financial agreement, because it did not deal with the subject matter set out in s 90C Family Law Act 1975, although it purported to be an agreement under s 90C.
The parties’ intention was to transfer the wife’s interest in the property to the husband prior to the wife’s imminent bankruptcy. In summary the agreement provided:
After executing the agreement the transfer of the property was effected and the husband relied on the financial agreement to obtain an exemption from stamp duty. Notably, the agreement did not provide for how the T Street property would be dealt with in the event of a breakdown of the marriage, but only how it would be dealt with immediately upon the execution of the agreement.
Whilst a financial agreement under s 90C may deal with incidental or ancillary or other matters, it must deal with one or both of the matters in s 90C(2).
Justice Hogan held that the agreement was not a financial agreement as defined by s 90C FLA because it did not deal with either:
The effect of this finding was that the transfer of the wife’s legal and beneficial interests in the property was not done pursuant to a financial agreement. The agreement did not need to be set aside to attack the transaction. A remedy under the relation back provisions of the Bankruptcy Act 1966 could have been sought by the trustee in bankruptcy without the agreement being set aside. Four years of litigation was unnecessary.
Child maintenance and child support
Child maintenance and child support are not specifically referred to as matters which can be covered by a financial agreement. They appear to be able to be covered under both Pt VIIIA and Pt VIIIAB agreements as being within “matters incidental or ancillary to” as:
A provision of a financial agreement that relates to the maintenance of a spouse party to the agreement or a child or children is void unless the provision specifies:
(a) the party, or the child or children, for whose maintenance provision is made; and
(b) the amount provided for, or the value of the portion of the relevant property attributable to, the maintenance of the party, or of the child or each child, as the case may be.”
Section 90UF is similarly worded for de facto relationships.
What goes out?
1. Property acquired after divorce or separation:
1.1 Agreements entered into after divorce under s 90D cannot cover property of the parties acquired after divorce. Sections 90B and 90C are similarly worded. Section 90D(2)(a) expressly states that the agreement can cover “how all or any of the property or financial resources that either or both of the spouse parties had or acquired during the former marriage is to be dealt with”.
1.2 Agreements with respect to defacto relationships cannot cover property or financial resources of the parties acquired after separation (s 90UB(2)(a), 90UC(2)(a), 90UD(2)(a)).
1.3 Divorced parties who want to deal with property acquired after divorce will need to obtain s 79 orders to deal with that property rather than use a financial agreement. They can still use a financial agreement to oust rights to apply for spousal maintenance. Likewise, separated de facto parties who want to deal with property acquired after separation will need to obtain s 90SM orders for property, but can still use a financial agreement to oust rights to apply for spousal maintenance.
1.4 If the parties enter into a s 90D or s 90UD financial agreement without realising the problem, the repercussions are:
2. Lifestyle clauses – These may be able to be included as “other matters” in Pt VIIIA agreements. If so they cannot be included in Pt VIIIAB agreements. If they are within “matters incidental or ancillary to” they can be included in both Pt VIIIA agreements and Pt VIIIAB agreements, depending upon the subject matter of the clause. Prior to the referral of powers over financial matters after the breakdown of de facto relationships to the Commonwealth, in Hagenfelds v Saffron (1986) DFC 95-025 Powell J of the Supreme Court of New South Wales (at p 75,322) considered whether lifestyle terms in agreements between de facto parties were void for uncertainty. He said in dicta that:
“I would have held that promises ‘(to be) the de facto wife of the defendant’ and ‘(to) provide for the plaintiff’s material needs … at a high material level’ were too vague and uncertain to give rise to legal objectives.”
Whether or not the FLA allows lifestyle clauses in Pt VIIIA agreements but, more importantly, there may be enforceability problems. If they can’t be enforced, then they should not be included as they may put the whole agreement at risk of being set aside.
An example of a lifestyle clause arose in Parke & Parke [2015] FCCA 1692. The parties separated after a lengthy de facto relationship where the wife was subject to considerable family violence. They reconciled and agreed to marry.
They married 2 days after entering into a financial agreement which contained the following clause:
“8. Both parties agree that they will not engage in any physical, emotional or financial abuse of the other and that they will each participate in relationship counselling and mediation in the event of there being any difficulties in the relationship.”
The agreement was made in 2001 and the parties separated for the second time in 2013. The wife sought that the agreement be set aside on various grounds which were successful, but she also sought that it be rescinded because the husband had breached clause 8. The trial judge accepted that the husband had breached that clause, but said (at [200]):
“Given that the respondent remained married to the applicant notwithstanding the applicant’s breach of clause 8 of the agreement – I am of the view that it is too late for the respondent to seek to rescind the contract on that basis after the end of the marriage. I consider that the respondent has waived her right to rescind on that basis.”
The husband appealed, but he died before the appeal was heard and his estate abandoned the appeal ([2016] FamCAFC 248). So, the Full Court did not have the opportunity to consider (even in dicta) whether clause 8 was an unenforceable clause. The trial judge was satisfied that the wife would not have entered into the agreement and married the husband unless she was assured of strict performance with clause 8. In these circumstances, the wife may have been able to rely on misrepresentation by the husband or unconscionability by him in the making of the agreement in an application to set the agreement aside. The difficulty of course is that the wife would have to prove that the husband knew when he entered into the agreement that he would breach that clause.
Similar causation difficulties arise with clauses which require, for example, fidelity, sharing of household labour, no swearing, no gambling, no weight gain, the frequency of visits to the in-laws, frequency of sex, and the up-bringing of children, such as choice of religion.
Whilst one view is that lifestyle clauses are not enforceable, it is possible to draft an agreement which gives different financial outcomes in the event of a separation, depending upon whether a party abided by the lifestyle clause.
However, just because clauses are valid doesn’t mean that they are easily enforced. In many cases, the complexity of proving compliance or non-compliance (particularly if there is a significant financial penalty for non-compliance) will result in lengthy litigation and thus not succeed in bringing about one of the outcomes which the agreement was intended to achieve – avoidance of litigation. There may also be reluctance by a court faced with the task of making a finding as to whether there has been infidelity, for example. Not since the Matrimonial Causes Act 1959 was replaced by the FLA have courts had to hear evidence about whether or not there has been infidelity. Courts may decide on public policy grounds, that they are not prepared to do so, given that making such determinations is not required under the FLA and they may believe they have more important issues to determine in other cases.
3. Maintenance provisions payable by a third party during the marriage are of no force and effect (s 90DB(1)). Maintenance provisions cannot cover de factos during their relationship anyway.
4. Where a separation declaration is needed:
4.1 Provisions in s 90B and s 90C agreements which are for “other matters” or “matters incidental or ancillary” are of no force and effect until the marriage breaks down (s 90DB(2)). Lifestyle clauses are therefore not enforceable during a marriage.
4.2 The same applies in relation to “matters incidental or ancillary” in s 90UB and 90UC agreements (s 90UG).
4.3 Provisions in financial agreements which deal with how property and financial resources are dealt with in the event of a breakdown of a marriage are of no force and effect until a separation declaration is made (s 90DA(1)). The situation is similar for de facto relationships (s 90UF). So, agreements cannot include provisions for how property and financial resources are dealt with during the marriage or de facto relationship.
5. Maintenance clauses if a party is unable to support themselves without an income-tested benefit as they will be of no force and effect (s 90F and 90UI).
6. Uncertain terms are void – The competing principles which arise when part of an agreement appears to be uncertain include:
6.1 Courts are reluctant to strike down an agreement which parties intend to be binding. Difficulties of interpretation and ambiguity do not necessarily render a contract void for uncertainty. Courts endeavour to uphold contracts wherever possible (Upper Hunter CDCv Australian Chilling & Freezing Co Ltd (1968) 118 CLR 429 at pp 436–437 per Barwick CJ).
6.2 Courts try to objectively ascertain the parties’ intentions (Upper Hunter CDCv Australian Chilling & Freezing Co Ltd.
Clauses and agreements otherwise void for uncertainty may be saved by:
6.3 Applying an external standard such as the standard of reasonableness (e.g. Kingv Ivanhoe Gold Corp Ltd (1908) 7 CLR 617);
6.4 If the parties have acted on the agreement, their actions may clarify the uncertainty;
6.5 Severing the uncertain part from the contract if it is not an essential part (Life Insurance Co of Australia Ltdv Phillips (1925) 36 CLR 60; Whitlock v Brew (1968) 118 CLR 445).
In Kostres & Kostres (2009) FLC 93-420, the Full Court found that an agreement was void for uncertainty. The agreement was entered into two days before the marriage. At the time, both parties mistakenly believed that the husband was an undischarged bankrupt. They did not tell their lawyers this. The parties’ mistaken belief about the husband’s status led to them acquiring assets in the wife’s name rather than in the parties’ joint names. Both parties sought that words be “read into” clause 6 of the agreement.
The Full Court was not satisfied that it could read words into the agreement, saying (at [124], [129]–[131]):
“The principle that words ‘may generally be supplied, omitted or corrected, in an instrument, when it is clearly necessary to avoid absurdity or inconsistency’ is a well-recognised principle in the law of contract (see Fitzgerald v Masters [1956] HCA 53; (1956) 95 CLR 420 at 426; Westpac Banking Corporation v Tanzone Pty Limited & Ors [2000] NSWCA 25).
While, for the purpose of construing the agreement a court should, as in the context of a commercial agreement, apply an objective test of a reasonable bystander to the construction of an agreement, it cannot give meaning to an agreement whose terms are so imprecise or ambiguous the parties’ intent cannot be discerned. …
The differing arguments of the legal representatives in this case as to how the terms ‘acquired’, ‘assets’, ‘joint funds’ and ‘from their own moneys’ should be construed brings into sharp focus the ambiguities in those terms found in the drafting of clause 6 of the agreement.
We think it is particularly relevant that this agreement, which the parties entered into with the intention of dealing with their property and financial resources during their marriage and if it broke down, did not reflect the terms of the section (s 79) which it sought to bypass. Clause 6 does not refer to ‘contributions’, either financial or non-financial, nor does it, except in clause 6(d), refer to ‘property’ or ‘financial resources’. These terms are ones which are well known and the subject of a considerable body of case law as to their interpretation.”
Parke & Parke [2015] FCCA 1692 involved two clauses in a financial agreement which created ambiguity and uncertainty. Pursuant to one clause, the respondent’s half interest in a real property was excluded property which she retained in the event of a separation. However, pursuant to another clause the respondent was required to transfer her 50% share to the parties’ son X within 60 days of a separation. A complicating factor which was not foreseen, at least by the applicant when the agreement was entered into, was that X refused to accept a transfer of the respondent’s half interest in the property and the agreement did not have a default provision setting out what was to occur in the event that X refused to accept the transfer. The trial judge found that the clauses were essential terms of the agreement because they dealt with what was to happen in the event that the parties separated. He set the agreement aside, as the clauses could not be severed from the agreement. The husband’s appeal was discontinued by the husband’s legal personal representative after the husband’s death.
A financial agreement was set aside for uncertainty in Gibbs & Gibbs [2015] FamCA 630. Justice Hogan said (at [8]–[9]):
“I am not persuaded that the uncertainty of terms as expressed in the Agreement touches upon only aspects or claims which could be severed so as to preserve the existence of the Agreement.
I think, instead, that essential terms (for example: matters such as ‘matrimonial property’; what happens to property acquired after marriage but before dissolution — to use only two examples) of the Agreement are vague.”
In Garvey & Jess [2016] FamCA 445, Carew J rejected the argument of the wife that the financial agreement was void for uncertainty as the parties only had an “agreement to agree”. The agreement provided that in the event of a breakdown of the relationship, the parties would “equally divide the joint assets”
Checklist of clauses for drafting an agreement
Recitals
1.1 Occupations; and
1.2 Incomes
7.1 Initial contributions;
7.2 Inheritances received or likely to be received
Operative Parts
Boilerplate Provisions
Remember that these will not all be the same in each agreement
Schedules
Annexures
Other questions to consider include:
An explicit duty of disclosure is not set out in the FLA in relation to financial agreements. The duty is almost a negative one – if a party does not disclose their financial circumstances, the agreement is at greater risk of being set aside under s 90K(1)(a) or s 90UM(1)(a) or perhaps s 90K(1)(e) or s 90UM(1)(h).
A duty of disclosure may arise in relation to financial agreements in various ways:
Rule 13.04(1) requires that in any financial case there be a “full and frank disclosure of the party’s financial circumstances”. This suggests that silence and failure to disclose material facts amount to statutory fraud upon the court or the other party.
However, r 13.04 only applies to “a financial case” which is defined in the Dictionary to the Family Law Rules so as not to include the making of a financial agreement, but only proceedings to set one aside under s 90K or s 90UN. Justice Murphy said in Hoult & Hoult [2011] FamCA 1023 (at [126]) that there was an argument that financial agreements ought to embrace the fundamental principle in the Family Court’s Rules, namely the duty of full and frank disclosure. In any event, the FLA specifies that fraud for the purposes of s 90K(1)(a) can be constituted by material non-disclosure.
There are several ways to deal with disclosure of each party’s financial position:
Whatever approach is taken, it should be clear from the recitals how or if the parties have provided disclosure.
Difficulties can arise when one or both parties have a number of entities. The entities need to be referred to precisely, and not just as “the husband’s entities” or “the Marshall group”. The difficulties are exacerbated in agreements entered into before or during a relationship, as the way a business operates may change, particularly where one of the parties is involved in a business with third parties. The operations of the business may be moved from one entity to another, or a trust may be interposed, directorships and shareholdings may change, part of the business sold, a new business acquired or developed, and new entities formed. The disclosing party can’t disclose a non-existent entity and it is difficult to protect an entity which doesn’t yet exist. A party’s interest in an entity at the end of the relationship may be different to the interest when the agreement was executed.
In Acker & Acker [2014] FamCA 891, the wife alleged that the agreement was obtained by fraud, by reason of non-disclosure by the husband of a material matter. He disclosed “what were described as beneficiary interests in wholly discretionary trusts” whilst the wife foreshadowed that she would contend “at all material times the property of the trusts was actually in the whole or at least partial ownership of the husband” (at [10]). There is no reported decision as to the outcome. Both parties agreed that the FLA dispute could not be determined until a tax dispute was resolved by the Administrative Appeals Tribunal. The husband in this case probably considered that he had provided proper disclosure of his interests in the trusts in the financial agreement, but he still ended up in court after separation with the nature of his interests in dispute.
Superannuation may be a problem in pre-separation agreements, because of the difficulties of identification of the fund and giving procedural fairness, working out a split, naming the fund and ensuring the terms are enforceable. Sections 90XH and 90XJ are hard to reconcile.
Tax can also be problematic in pre-separation agreements. It is impossible to predict if parties or entities will have significant liabilities and what tax consequences there may be in the future if property is to be transferred, particularly as tax laws and the parties’ circumstances may change. Often the best that can be done is to advise the client that it is impossible to predict the future and that possible tax consequences on disposition and transfer should be considered when making decisions about the acquisition of property during the relationship. If the intention of the parties is that the weaker party will not have any tax consequences from the agreement or from their involvement in the stronger party’s entities, then this should be clear in the agreement, and appropriate indemnities given.
Checking instructions
It is important to remember that although full and frank disclosure is not a requirement for a financial agreement, establishing that there has been such disclosure is done to ward off a potential application to set aside a financial agreement under s 90K(1) or s 90UM(1).
Mistakes can be made by clients when giving instructions as to their financial positions, so it may be sensible to protect your client by:
Post-separation, lawyers are likely to do title searches and ASIC searches, but that are also important pre-separation.
There are pros and cons for detailed disclosure being provided by parties entering into a financial agreement. On the one hand, by parties providing full details of their financial positions, if there are any errors, it may be easier for the other party to successfully apply to set the agreement aside for non-disclosure, misrepresentation or other grounds under s 90K. On the other hand, if the parties do not provide full details of their financial positions in the agreement, it may be more difficult to defend an application for the agreement to be set aside for non-disclosure of a material matter.
The problem of disclosure may also arise in relation to the advice requirement under s 90G and 90UJ. In Abrum & Abrum [2013] FamCA 897, Aldridge J was not satisfied that the wife had received the requisite advice because the legal practitioner did not ask for, make or see a list of the parties’ assets and liabilities. There were numerous other issues with the advice to the wife, but the failure to take instructions as to the parties’ financial positions led to a concern that if the advice was given by a legal practitioner where there was inadequate disclosure, the advice might not be “real or meaningful”. Justice Aldridge said at [38]-[43]):
“Nonetheless, when s 90G(1)(b) speaks of “rights” it must be speaking of the entitlement to bring a case under s 79 and the factors that weigh in favour of that person’s case under ss 79(4) and 75(2) otherwise it would have limited meaning.
In order to give advice about the effect of an agreement on the rights of a party, that is their rights under the Act in relation to property, a legal practitioner must establish what those rights are at the time the advice is provided. This is because s 90G(1)(b) requires advice to be given on the effects of the agreement upon the rights of that party and the advantages and disadvantages of the agreement. If their rights are not known then it is impossible to advise as to the effect of the agreement on them.
It is unhelpful to advise a person that a financial agreement might adversely affect his or her rights if those rights are not identified. A party must know more than some unknown or undefined right is being given up. He or she must have some idea, at least in general, of his or her present entitlements or rights (to use the words of the section) with which he or she may compare the provisions of the proposed financial agreement. It is only in that way that there can be actual advice about the effect of the agreement on those present rights.
It is quite clear that a person may choose to enter into an agreement where he or she may very well be much worse off than if he or she were left to rely on their rights under s 79 of the Act. Thus, there is a requirement for specific legal advice to be given. That is the safeguard the legislature imposes when it permits the parties to deal with their property by agreement and without possible interference from a court.
Accordingly, the advice must be real and meaningful. It must be directed to the parties’ circumstances and their present rights.
Proper identification of a parties’ rights can only be done by identifying the property of the parties then held and a consideration of the parties contributions (financial and non-financial) to the acquisition of that property and to the welfare of the children. Any other relevant factors under s 79(4), including s 75(2), would then need to be considered. Only by doing so can advice be given that complies with the terms of s 90G(1)(b).”
The agreement was not set aside for other reasons. The position taken by Aldridge J in Abrum is, however, contrary to the position taken by Murphy J who was the trial judge in Hoult & Hoult (2011) FLC 93-489. Justice Murphy considered that whilst it might be prudent for a legal practitioner giving advice about a financial agreement to have a list of assets and liabilities, it was not a requirement of s 90G.
Besides fraud, there are other possible grounds for an agreement to be set aside where disclosure has been inadequate, such as unconscionable conduct, misrepresentation and mistake. It is beyond the scope of this paper to discuss these principles.
Following the High Court judgment in Thorne v Kennedy, there are lessons for legal practitioners negotiating and drafting financial agreements:
1.1 Whether the agreement was offered on a basis that it was not subject to negotiation;
1.2 The emotional circumstances in which the agreement was entered including any explicit or implicit threat to end a marriage or to end an engagement;
1.3 Whether there was any time for careful reflection;
1.4 The nature of the parties’ relationship;
1.5 The relative financial positions of the parties; and
1.6 The independent advice that was received and whether there was time to reflect on that advice.
Whilst Thorne v Kennedy considered undue influence in particular, there is likely to be further development of the case law in relation to undue influence, unconscionable conduct and duress. The High Court was not required to consider whether “lawful act” duress is a vitiating factor nor whether unconscionable conduct in s 90K(1)(b) was the same as in s 90K(1)(e).
There was a useful discussion of the concepts of “unconscionability” in s 90K and whether there is a distinction between unconscionability under s 90K(1)(b) and (e) in Weldon & Asher [2014] FCW 11. Some of the points made by Thackray J were:
Professor Dal Pont in Equity and Trusts in Australia 5th Ed observed at 9.170 that had s 51AA “been intended to apply to unconscionable conduct generally, it could have ended with the word ‘unconscionable’”. As Thackray J pointed out, this is “precisely what has occurred with s 90K(1)(e)”.
As the husband did not adduce sufficient evidence to satisfy s 90K(1)(b), Thackray J thought it proper to consider (at [94]) whether s 90K(1)(e) had “some independent application and that relief might therefore potentially be available in circumstances where equity would not intervene”.
Justice Thackray concluded (at [95]):
“However, given what I perceive to be the manifest differences in factors underpinning commercial contracts and those underpinning agreements between prospective spouses, it may well be entirely appropriate for the grounds for relief to be “just a little” wider than those applying in the commercial sphere, as the Democrats intended.”
If faced with the possibility that a financial agreement will be attacked, which your client wants to enforce or otherwise withstand attack, is there anything that can be done to pre-empt the attack?
1.1 This is stating the obvious, but the earlier the search starts for evidence the better. Look for diaries, emails, text messages, letters and other documents which may show:
1.1.1 The states of mind of the parties;
1.1.2 The nature of the negotiations about the agreement;
1.1.3 The surrounding circumstances;
1.1.4 That s 90G(1) or 90UJ(1) was complied with.
1.2 Obtain statements from family members and close friends as to their recollections.
1.3 Obtain the file from the legal practitioner who signed the Statement of Independent Legal Advice on behalf of your client.
There may be circumstances where the respondent to an application to set aside an agreement or an application that it be held not to be binding, may prefer that this occur. It is important before deciding to oppose one or both of these applications, that the respondent has advice as to their rights and entitlements under the FLA if the agreement was set aside. The respondent to what they would be under the FLA, perhaps with greater knowledge than the applicant of the respondent’s financial circumstances, may be better off if the agreement was set aside or found not to be binding. Alternatively, their entitlements may be so close under the FLA to those under the agreement, that the costs of litigation mean that opposing the application is not worthwhile.
An agreement may be able to be implemented, or only partially implemented, without a formal application to the Court. If the agreement has been implemented the other party may be estopped from applying to set it aside so it may be sensible for your client to take steps to implement the agreement. For example, in Chalker & Laine [2011] FMCAfam 506 the parties acted on the agreement for 5 or 6 years before the husband took action to have it found not to be binding. The court found it was unjust and inequitable if the agreement was not held to be binding under s 90G(1A).
Similar contractual principles to estoppel which may apply and may prevent the agreement being enforced are:
Whilst applying to enforce the agreement might bring on a formal application to set it aside, there may be strategic reasons to do this. For example, the application might be made before the other party has properly resolved their legal position so as to be able to rely on an Anshun estoppel. It may be better to be proactive so that the weaker party has less time to sort out their case and obtain funding for litigation. See Anshun estoppel below.
The court has a discretion under s 90K(1) and 90UM(1) to set aside a financial or termination agreement. It may refuse to do so even where a ground under s 90K(1) and 90UM(1) is established. The first part of the section reads that a court “may make an order setting aside a financial agreement or a termination agreement if, and only if, the court is satisfied” of a particular circumstance.
Factors which might influence a court not to exercise its discretion to set aside are probably similar to the factors which could influence a court as to whether or not to order revocation of a contract. The following examples arose in or were considered in cases dealing with the revocation of s 87 maintenance agreements which are no longer available under the FLA:
There is very little case law where a ground to establish the setting aside of a financial agreement was established, but the court exercised its discretion not to set the agreement aside. Arguably, Nyles & Nyles [2011] FamCA 565 is an example, although it is also an example of where the applicant was found not to have relied on the non-disclosure. Justice Mushin held (at [194]-[195]):
“The wife failed to make a full and frank disclosure in accordance with the requirements of the law. Further, in some instances she has acted fraudulently within the meaning of that word in the relevant legislation. Accordingly, the husband has established a prima facie ground for the setting aside of both the consent orders and the BFA.
However, the husband did not rely on either the wife’s failure to make a full and frank disclosure or any misrepresentation, whether fraudulent or otherwise, made by her. At all relevant times, he had competent and experienced family law solicitors acting for him and was also represented by senior counsel with a highly specialised practice in family law. The ultimate advice received by the husband was the letter dated 9 March 2004 which was extremely detailed, articulate and most competently written. The husband chose to ignore that advice.”
In Abrum & Abrum [2013] FamCA 897, Justice Aldridge found that the agreement did not meet the s 90G(1) requirements because:
(a) The wife was not given the advice required by s 90G(1)(b);
(b) The certificates did not comply with s 90G(1)(b);
(c) A copy of the agreement was not given to the wife until five years after it was signed and five months after separation;
(d) A copy of the statement required to be given by s 90G(1)(ca) was not given to the wife until the copy of the agreement was given. Although the FLA does not give a time-frame, Aldridge J considered that the better view, but not a concluded view, was that a prompt exchange was necessary.
The wife’s entitlements under the agreement were limited to 5/44ths of the value of a waterfront property transferred by the husband’s parents to the husband at under-value.
Justice Aldridge said that the lack of proper advice to the wife was significant and constituted a very substantial failure to comply with s 90G(1)(b). However, he found that the agreement was binding, persuaded by the following factors (at [103]–[104]):
“On the other hand, it is clear that the gift of the property would not have occurred but for the wife entering into the Binding Financial Agreement along with the Deed of Family Arrangement and the Contract to Make Mutual Wills. These agreements not only involved the parties to the marriage but the paternal grandparents. It is more likely than not that the gift would not have taken place without those agreements being entered into. The husband’s parents acted to their detriment in reliance on the Binding Financial Agreement.
Also to be taken into account is the fact that the agreement does not oust all of the wife’s property rights but only those against this specific property. This carries less weight in this case because the evidence does not suggest that there were other assets of substance, or of the magnitude of the waterfront property, available against which property orders could otherwise be made. The only asset to which the evidence referred as being owned in February 2007 was the Suburb E property.”
Justice Aldridge did not look at the unfairness of the bargain for the wife (which a court might have felt justified in doing post Thorne v Kennedy despite the majority in Hoult saying it was irrelevant), but was persuaded by the fact that the parties acted in reliance on the agreement and in accordance with its terms and that the husband’s father had also complied with the agreement by transferring a waterfront property at gross undervalue, thereby effecting a gift of 39/44ths of a waterfront property of $1.7 million to the husband and the husband’s parents moved out of that property. Third parties, being the husband’s parents, acted to their detriment in reliance on the financial agreement. It was unjust and inequitable for the agreement not to be binding.
Even if the court finds that an agreement is binding and/or that it should not be set aside, the court still has a discretion as to whether to enforce the agreement and the court “may order that the agreement, or a specified part of the agreement, be enforced as if it were an order of the court”. Section 90KA(c) states that the court “may order that the agreement, or a specified part of the agreement, be enforced as if it were an order of the court”.
In Fan & Lok [2015] FamCA 816 the wife’s deceased estate sought to enforce a financial agreement. In earlier proceedings, The Estate of the late Ms Fan & Lok [2015] FamCA 300, the husband was unsuccessful in his applications to either have the agreement set aside or have it found not to be binding. The two decisions raised the question of the distinction between seeking that an agreement be set aside or declared not to be binding and an application opposing its enforcement. This arises particularly where there is a determination in the earlier proceedings that it would be unjust and inequitable for the agreement not to be binding.
The power of the court to enforce orders is discretionary rather than absolute, and the husband sought that the court exercise its discretion in his favour.
Although not expressly referred to in the judgment, the court is directed by s 90G(2) and 90UJ(4) that it “may make such orders for the enforcement of a financial agreement that is binding on the parties to the agreement as it thinks necessary”, reinforcing the discretionary nature of enforcement in s 90KA.
A pre-nuptial financial agreement (under s 90B) provided that in the event of separation a property at suburb C was to be sold and the proceeds used to discharge a mortgage for which one of the security properties was a property in the name of the wife in suburb G. The wife died shortly after separation. The husband arranged for the suburb C property to be transferred into his sole ownership by right of survivorship.
The applicant was the executrix of the wife’s estate and was one of the wife’s children. She sought orders to enforce the agreement.
In the first case, the husband sought to set the agreement aside. He unsuccessfully argued that either the agreement was impracticable to be carried out or that there had been a material change in circumstances.
The certificates of advice set out that the parties received advice in relation to a s 90B agreement when in fact it was a s 90C agreement. Rees J did not deal with the argument that the agreement may have still been valid (eg Wallace & Stelzer (2013) FLC 93-566), but exercised her discretion under s 90G(1A)(c) and made a declaration that it would be unjust and inequitable if the agreement was not binding on the husband.
In the second case, the husband sought that the application for enforcement be dismissed. He submitted that the court should exercise its wide discretion and find that it was not just and equitable to enforce the financial agreement by requiring him to sell his property at suburb C as the agreement envisaged that he would retain that property.
Justice Rees noted that the contention made by the husband, that it was not just and equitable to enforce the terms of the agreement, was the subject matter of the determination she had made in the earlier proceedings. She found (at [22]) “. . . that res judicata estoppel arises in relation to the submission that it is not just and equitable to enforce the agreement”.
In case she was wrong about issue estoppel, Rees J dealt with the husband’s other arguments and dismissed them.
Justice Rees found that she could enforce the agreement. She considered that an order which provided for the sale of the suburb C property, in the event that the husband failed to comply with his obligation to pay the amount owing under the mortgage, was available to the court in the exercise of its wide powers pursuant to s 90KA. If she was wrong about this, she was also satisfied that the court had an inherent power, as stated by the Full Court of the Family Court in Molier & Van Wyk (1980) FLC 90-911, to impose consequential provisions for the sale of the suburb C property to ensure that the orders made requiring the husband to discharge the mortgage were carried into effect.
In addition, Rees J relied on r 20.05(a) of the Family Law Rules 2004 which expressly provides that the court may make an enforcement order, in relation to an obligation to pay money, for the seizure and sale of real property.
In Jess & Garvey (2018) FLC 93-827, the Full Court considered whether Anshun estoppel applied where the wife had not raised causes of action at an early stage in proceedings issued by the husband to enforce a s 90B financial agreement. The agreement was signed and the parties married in 2006.
After the parties’ separation in 2015, the wife’s solicitors reserved the wife’s position with respect to the financial agreement. On 11 March 2016, the husband filed an Application in a Case seeking that the financial agreement be enforced as if it were an order of the court and specifically sought orders as to how the agreement should be enforced. The husband’s solicitors wrote to the wife’s solicitors, and this was considered to be important by the Full Court (at [95]):
“In the event that your client contends that the agreement is one other than one binding upon the parties, this is not a matter that your client has sought to put in issue to date, notwithstanding prior requests seeking to ascertain your client’s position. If your client contends, would you advise by reply both as to the same and provide particulars as to the legal and/or financial basis for any such contention.”
On 12 April 2016, the wife filed a Response to the husband’s Application in a Case, seeking that the husband’s application be dismissed or, in the alternative, if the court determined to enforce the agreement, that it be enforced in a particular manner as set out in the wife’s Response.
At the hearing of the parties’ respective applications on 27 May 2016, the wife’s position was that there was no agreement, because the purported agreement was void for uncertainty. No other grounds were raised by the wife as to why the agreement should not be enforced. This aspect of her Response was dismissed.
Five months later, on 1 November 2016, the wife filed an Amended Initiating Application seeking:
“That pursuant to s 90K of the Family Law Act (Cth), or alternatively pursuant to s 90KA, the Court order that the Financial Agreement entered into between the parties on 3 August 2006 be set aside or alternatively a declaration be made that the said Financial Agreement is not valid, enforceable or effective.”
In the alternative, she sought that the agreement be enforced in a particular manner. The wife was ordered to provide particulars of the grounds on which she sought that the agreement be set aside or declared to be not valid, enforceable or effective. They were:
a. Section 90K(1)(d) – there has been a material change in circumstances since the agreement was entered into and as a result the children or the respondent will suffer hardship if the agreement is not set aside;
b. Section 90K(1)(b) or (e) – the agreement should be set aside as a result of unconscionability at the time of entering into the agreement;
c. Section 90K(1)(a) – the agreement should be set aside as a result of the non-disclosure of a material matter amounting to fraud;
d. The agreement was abandoned;
e. The agreement was a sham.
The husband sought that the wife’s Amended Initiating Application be summarily dismissed. Justice Carew in Garvey & Jess [2017] FamCA 783 dismissed the wife’s application to set aside the agreement or declare it to be not valid, enforceable or effective. Justice Carew found “much force” in the husband’s argument that it was “too late for the [wife] to raise fresh grounds upon which to attack the financial agreement” (at [43]) and said, at [71]:
“The [wife], despite ‘notice, invitation and opportunity’, elected to limit her [previous] challenge to the financial agreement to one of uncertainty. The [husband] invited the [wife] as early as August 2015 to indicate her position in relation to the financial agreement. Her position, both in her filed Response to the Application in a Case and articulated by her Queen’s Counsel at the hearing on 27 May 2016 made her position abundantly clear, namely, if she lost on her argument as to uncertainty the next step would be how the agreement should be enforced and the [wife] had set out the order she would seek in that event.”
There were no special or exceptional circumstances which would cause the application of the Anshun principle to be unjust.
The wife had two arguments on appeal:
The Full Court found (at [121]) that the manner in which the wife framed her case in May 2016 was that there was no impediment to the agreement being enforced as a “financial agreement” under the FLA. In fact, she advanced the very opposite position; she argued that it should be enforced, if it was not void for uncertainty. The Full Court agreed with the trial judge (at [122]) “that the wife had ‘notice, invitation and opportunity’ to argue her case that the agreement should not be enforced” in the 2016 proceedings. The Full Court held (at [123]):
“Thus it was not open to the wife to subsequently pursue a claim to set aside the agreement for reasons that could, and should have been put before the court previously, in the context of determining the issue of enforceability.”
The issue before the court in May 2016 (at [125]) was whether the agreement should be enforced, and the wife had been put on notice by the husband that she should bring forward all arguments that went to that issue, and plainly that included any claim to set aside the agreement pursuant to s 90K (and/or s 90KA). The court had also ordered that the wife respond to the application for enforcement, and the wife clearly had the opportunity to present all her arguments as to why the agreement should not be enforced. Nevertheless, she chose to limit her challenge to a claim that the agreement was void for uncertainty, and she went further and set out how the agreement should be enforced if it was not void for uncertainty. Moreover, shortly after filing her Response the wife filed an Initiating Application predicated upon the financial agreement being enforceable and seeking an adjustment of any property of the parties not caught by the financial agreement.
The Full Court (at [127]) held that the claims pursuant to s 90K and/or s 90KA were –
“so connected with the subject matter of the first proceeding as to have made it unreasonable in the context of that first proceeding for the claim not to have been made or the issue not to have been raised in that proceeding”.
The relevance of an earlier order being “interlocutory” as opposed to “final” is to differentiate between when an issue had been finally determined between the parties and when it has not. In this case, the Full Court held (at [134]) that the issue of the enforceability of the agreement was finally determined.
An application for special leave to appeal to the High Court was refused in Jess & Garvey [2018] HCASL 202 on the ground that the appeal did not “enjoy sufficient prospects of success”.
The lessons from Jess & Garvey are:
An Anshun estoppel was applied in Caitlin & Caitlin [2017] FamCA 818, which was an application to enforce a financial agreement.
In Selkirk & Caporn and Anor [2016] FCWA 26 Walters J was dealing with a s 86 maintenance agreement. These can no longer be made but the decision was only in 2016 and raises relevant issues. It provided for the payment of child maintenance, but the parties were able to apply for a child support assessment. The wife took steps to register the s 86 deed with the Deputy Child Support Registrar and the parties treated this registration as recasting the obligation to pay child maintenance as a child support obligation.
Although Justice Walters considered that the majority of the elements of res jusdicata estoppel had been established, he was not persuaded that he should apply the doctrine. He was satisfied “that the child maintenance provisions of the Section 86 Deed were never validly recast as child support obligations.” (at [350]).
In relation to an Anshun estoppel, Walters J said (at [361], [362], [365]):
“I recognise the potentiality of serious injustice arising as a result of an inappropriate application of Ashun estoppel, and that it should only be applied “in the clearest of cases”. I am satisfied, however, that the husband could have and should have raised (and pressed) in the earlier proceedings the questions or issues to which I have referred above, namely:
a. the validity and enforceability of the child maintenance provisions of the Section 86 Deed; and
b. whether those provisions were ever validly recast as enforceable child support obligations.
It does not matter whether the husband failed to raise these questions or issues as a result of negligence, inadvertence or even accident. They were so relevant to the subject matter of all the various proceedings in this Court in which the husband was a party over the years (and, indeed, to the subject matter of the proceedings in the Federal Magistrates Court of Australia before the Lucev FM, as his Honour then was) that it would have been plainly unreasonable not to raise them for consideration by the relevant judicial officer. Indeed, they were intimately connected with the subject matter of the various proceedings. In my opinion, all parties would have had an expectation that the husband would raise these questions or issues to enable them to be determined within and as an integral part of whichever proceeding he was then involved. That the husband may have assumed (erroneously) that the child maintenance provisions of the Section 86 Deed had been validly recast as enforceable child support obligations is of no consequence. He has had ample opportunity over many years to raise the relevant arguments….”
Justice Walters referred to the discretion he had as to whether or not to apply the principles of Ashun estoppel once he had found it was established. He took into account the long history of the litigation in the Family Court and the Federal Magistrates Court and the lack of a satisfactory explanation for failing to press the questions or issues earlier.
If a threat is made against a financial agreement, should a party defending a financial agreement provide disclosure which might fill in the gaps in the other party’s knowledge? It is possible that the party defending a financial agreement is not required to provide financial disclosure, unless and until the agreement is set aside. However, there is contrary authority.
The situation is similar to where there is a challenge to the jurisdiction of a court in relation to a de facto relationship. The Full Court of the Family Court held in Norton & Locke (2013) FLC 93-567 that it did not have the power to grant an interlocutory injunction under s 114(2A) of the FLA as a “de facto financial cause” had not been established which was (at [42]) “dependent upon the establishment of facts central to jurisdiction which are bona fide in dispute and which have not been established”.
Norton & Locke was followed in Holden & Wolff (2014) FLC 93-621. The Full Court held that the trial judge erred in requiring the appellant to file an updated financial statement and provide financial disclosure before determining whether or not there was a de facto relationship which ended after 1 March 2009 as a jurisdictional fact. The only disclosure required was that relevant to the determination of the issue of whether there was jurisdiction.
So, what is the situation where there is an application to set aside a financial agreement? In Higgins & Moruba [2018] FamCA 467 the wife sought broad disclosure akin to an application under s 79. She relied on Fewster & Drake (2016) FLC 93-745 in support of her argument for full disclosure. Justice Thornton rejected the wife’s submissions about the extent of disclosure required by the husband because she did not accept the interpretation of the wife’s counsel of Fewster & Drake. Counsel for the wife in Higgins submitted that the court, in determining hardship under s 90K(1)(d), was required to embark on a comparison between the likely outcome of an application under s 79 and the circumstances in existence in the absence of such an application.
Justices Aldridge and Kent said in Fewster & Drake (at [67]):
“We turn now to the second aspect of this challenge. The concluding words of s 90K(1)(d) are ‘if the court does not set the agreement aside’. Logically and inevitably those words require the court to undertake some comparison between the position of the child, or the person with caring responsibility, if the agreement remains in place and the position of that child or person if the agreement is set aside. It is only by doing so that the court can place itself in a position to determine whether there will be hardship if the agreement is not set aside. The primary judge did not undertake such a comparison.”
The wife asserted in Higgins & Moruba that the hardship to her was:
Justice Thornton concluded (at [81], [82], [84], [85]) that:
“I accept the submission of counsel for the husband that neither the terms of the legislation nor the judgment in Fewster & Drake provide authority for the proposition that either a detailed examination of the financial circumstances of the husband or an assessment of the likely outcome of any potential s 79 application under the Act is required for the determination of an application to set aside a financial agreement on the basis of s 90K(1)(d) of the Act.
In the event that this interpretation is not correct, in my view the husband has made the concession that his wealth is in excess of $20 million which should be sufficient for the court to make some comparison….
Further in her Summary of Argument document filed 20 February 2017 the wife submitted that the only way to undertake the comparison of the positions required by the Full Court in Fewster & Drake was to establish the current legal and equitable interests of the parties, to establish a “pool” and to then attempt to demonstrate the comparison that underpins the claim for hardship.
The interpretation contended for by the wife would defeat the major purpose of Part VIIIA of the Act which is to enable parties to avoid extended litigation as to their s 79 entitlements under the Act by entering into financial agreements, unless and until such agreements are set aside. I accept the submission of counsel for the husband that the test under s 90K(1)(d) of the Act is concerned with whether a hardship will be suffered, and not whether the party with caring responsibility for the child will be in a worse position than that in which she would have been but for the existence of the financial agreement. The interpretation contended for by the wife has the effect of substituting such a test for the one which in fact appears in the statute.”
In Frederick & Frederick (2019) FLC 93-900 the Full Court accepted that some disclosure by the husband was necessary as to his current financial position so that there could be a comparison between the wife’s entitlements under the agreement and what they would be if the agreement was set aside. The Full Court rejected the wife’s argument that the husband was required to call evidence as to the current values of his assets, but he was required to do what he had done, which was to disclose his assets and his view of their worth. He had done this in a financial statement.
There is, however, no clear determination by the Full Court of the Family Court on disclosure and there may be circumstances where the case of the party seeking to set aside the agreement is so clearly flawed that the voluntary provision of disclosure by the respondent may assist in convincing the applicant not to issue proceedings under other grounds in s 90K(1) besides s 90K(1)(d).
It may also be important to consider whether or not disclosure may be required in another proceeding (e.g. enforcement proceedings) or in a child support dispute which may be able to be used by the applicant despite the Harman rule (Harman v Secretary of State for the Home Department [1983] 1 AC 280; Hearne v Street [2008] HCA 36; (2008) 735 CLR 125). See also Pedrana & Pedrana & Anor [2012] FamCA 348 and [2015] FamCA 134, where documents disclosed in financial proceedings in the Family Court were allowed to be disclosed to the Child Support Registrar. Strategic steps may need to be taken with respect to the other matter (eg settling it) so that the applicant does not obtain documents which might be used against the respondent in the financial agreement proceeding but which are not subject to the duty to disclose in the proceeding.
Interlocutory applications in relation to limited and relevant disclosure can be made, but what about the applicant’s ability to seek litigation funding? Will the applicant have the funds to make an application in relation to the financial agreement? If the applicant has scarce resources, will they be prepared to make a risky application to the Court?
In Teh & Muir (2015) FLC 93-680; Abati & Cole [2014] FamCA 60 and Commissioner of Taxation & Hong [2016] FamCA 438 the courts were prepared to make orders to preserve certain assets pending the determination of issues concerning the validity of the agreement. Justices Finn and Strickland said (at [29]) in Teh & Muir:
“It has long been recognised that while the Family Court is exercising its power (which if not expressly provided for in the Act, must necessarily be implied) to determine whether or not it has jurisdiction in a particular case, it can be appropriate for it to preserve the status quo (in this case the disputed half share of the sale proceeds) by the grant of an interlocutory injunction (see R v Ross-Jones; Ex parte Green (1984) 156 CLR 185 at 202, and Yunghanns & Yunghanns and Ors (1999) FLC 92-836).”
In Chatterjee & Woodby-Chatterjee [2016] FamCA 486, an order for the sale of the former matrimonial home was made in circumstances where the wife conceded that she could not retain it. The sale was made on conditions which the husband’s father had an opportunity to consent to or object to, including the payment of $50,000 to the wife from the net proceeds of sale.
A later order was made in Chatterjee & Woodby-Chatterjee [2017] FamCA 537 for $70,000 under s 117(2) FLA for litigation funding “to ensure a level playing field”.
At the trial, reported in Chatterjee & Woodby Chatterjee and Anor [2018] FamCA 930, it was found that the wife’s entitlements were not sufficient for the second order to be enforced. The husband’s father had a cost order against the wife in the Court of Appeal of the Supreme Court of New South Wales, following a successful appeal against an order that was in the wife’s favour. By the time of the trial, the wife had debts which were greater than the balance of her entitlements under the financial agreement.
The outcome illustrates the risk of making partial property orders or litigation funding orders which may not be able to be claimed back (Zschokke & Zschokke (1996) FLC 92-693). It is likely that the 2 earlier Chatterjee cases were incorrectly decided.
Making an order to give a party access to funds, thereby depleting the pool, is very different from preserving the pool, but even if the applicant is entitled to those funds under the terms of the agreement, the applicant cannot seek to enforce their rights under the agreement and, at the same time, seek to have the agreement set aside or found not to be binding. If the applicant has sought to implement the agreement, this can be a bar to it being set aside.
Whilst not a separate step to take, this is an important matter to consider. Can your client obtain an advantage if privilege is waived by the other party? Legal professional privilege protects communications between a lawyer and a client. Disclosure is not required if the dominant purpose of the advice is for use in existing or anticipated legal proceedings. The privilege is that of the client and the privilege can be expressly or impliedly waived.
The risk of inadvertently waiving legal professional privilege is high in applications to set aside financial agreements, particularly those made on the grounds that:
“(a) the agreement was obtained by fraud (including non-disclosure of a material matter); or …
(b) the agreement is void, voidable or unenforceable; or …
(c) in respect of the making of a financial agreement — a party to the agreement engaged in conduct that was, in all the circumstances, unconscionable …”
Traditionally, there were two types of waiver: disclosure waiver and issue waiver. “Disclosure waiver” arises if a part of a privileged communication has been disclosed. “Issue waiver” is when the holder of the privilege has put the contents of a privileged communication in issue. The tests for each category are the same (Commissioner of Taxation v Rio Tinto Ltd [2006] 151 FCR 341).
Disclosure waiver arises when a party refers to the advice they received. Examples of financial agreement cases where disclosure waiver occurred include Bell & Bell [2009] FMCAfam 595 and Bilal & Omar (2015) FLC 93-636.
Issue waiver arises where the state of mind of the party when the financial agreement was executed has been put in issue, such as the party being under undue influence.
In either case, it may be useful for the party seeking to defend the agreement to call for the file of the legal practitioner acting for the other party when the agreement was entered into. If court proceedings are on foot, the full file including file notes, can be subpoenaed. If proceedings are not on foot, the legal practitioner will not have to hand over file notes.
These applications are difficult and need to be cautiously undertaken. Section 45A(1) and (2) of the FLA allow the court to make a summary decree in favour of one party, in relation to the whole or part of a proceeding, if satisfied that a party has no reasonable prospect of successfully:
In determining whether a defence or proceeding has no reasonable prospect of success, proceedings need not be hopeless or bound to fail (s 45A(3)).
A court can, as under the previous s 118, “dismiss all or part of proceedings at any stage if it is frivolous, vexatious or an abuse of process” (s 45A(4)).
The Family Law Rules 2004 provide in r 10.12 that a party may apply for summary orders in relation to an application or a response where:
(a) the court has no jurisdiction
(b) the other party has no legal capacity to apply for the orders sought
(c) it is frivolous, vexatious or an abuse of process, or
(d) there is no reasonable likelihood of success.
An alternative to r 10.12 is r 10.13 which allows a party to apply for a decision on any issue, if the decision may:
“(a) dispose of all or part of the case;
(b) make a trial unnecessary;
(c) make a trial substantially shorter; or
(d) save substantial costs.”
See also r 13.07-13.10 of the Federal Circuit Court Rules 2001.
The principles governing an application for summary relief were stated by Kirby J in Linden v The Commonwealth (No 2) (1996) 80 ALJR 541 at 544–5 (references omitted) and quoted in Korsky & Bright [2007] FamCA 245:
“The approach to be taken by the court to the Commonwealth’s application for summary relief is not in doubt:
Applications for security for costs are even less likely to be successful than applications for summary dismissal. Impecuniosity is a factor to be considered, but not the only factor. The court must find that it is “just” under s 117(2) to make an order. The court does not want to stifle litigation, but also wants to prevent abuses of process. The court needs to take into account the matters set out in s 117(2A):
“In considering what order (if any) should be made under subsection (2), the court shall have regard to:
(a) the financial circumstances of each of the parties to the proceedings;
(b) whether any party to the proceedings is in receipt of assistance by way of legal aid and, if so, the terms of the grant of that assistance to that party;
(c) the conduct of the parties to the proceedings in relation to the proceedings including, without limiting the generality of the foregoing, the conduct of the parties in relation to pleadings, particulars, discovery, inspection, directions to answer questions, admissions of facts, production of documents and similar matters;
(d) whether the proceedings were necessitated by the failure of a party to the proceedings to comply with previous orders of the court;
(e) whether any party to the proceedings has been wholly unsuccessful in the proceedings;
(f) whether either party to the proceedings has made an offer in writing to the other party to the proceedings to settle the proceedings and the terms of any such offer; and
(g) such other matters as the court considers relevant.”
The matters to be considered were listed in Luadaka & Luadaka (1998) FLC 92-830 (at [59]):
“(1) the circumstances of those behind the proceedings and whether it is reasonable for those persons to satisfy an order for security;
(2) the bona fides and prospects of success of the proceedings;
(3) whether the plaintiff is impecunious and whether the defendant’s conduct has caused or contributed to this impecuniosity.
(4) whether the plaintiff is in effect a defendant because, for example, it has been forced to litigate to halt self-help measures by the defendant;
(5) whether it will be oppressive to order security for costs or such an order will prevent the plaintiff from pursuing the proceedings;
(6) whether the proceedings raise a matter of public importance;
(7) whether there has been an admission, offer or payment into court;
(8) whether there has been any delay in bringing the application for security which has occasioned prejudice;
(9) the cost of enforcement;
(10) the costs of the proceedings.”
In Atkins & Atkins (Security for Costs) [2015] FamCAFC 66; (2015) FLC 93-646 and Bhatt & Acharya [2018] FamCAFC 230, as well as the matters in s 117(2A), the following matters were required to be considered under s 117(2A)(g):
“(a) the financial circumstances of each of the parties to the proceedings;
(b) whether any party to the proceedings is in receipt of assistance by way of legal aid and, if so, the terms of the grant of that assistance to that party;
(c) the conduct of the parties to the proceedings in relation to the proceedings including, without limiting the generality of the foregoing, the conduct of the parties in relation to pleadings, particulars, discovery, inspection, directions to answer questions, admissions of facts, production of documents and similar matters;
(d) whether the proceedings were necessitated by the failure of a party to the proceedings to comply with previous orders of the court;
(e) whether any party to the proceedings has been wholly unsuccessful in the proceedings;
(f) whether either party to the proceedings has made an offer in writing to the other party to the proceedings to settle the proceedings and the terms of any such offer; and
(g) such other matters as the court considers relevant.”
See also Woodby-Chatterjee & Chatterjee (No 2) [2018] FamCAFC 265, noting that security for costs orders are more commonly made in appeals than in trial litigation.
Prior to the trial in Chatterjee & Woodby-Chatterjee and Anor [2018] FamCA 930, the husband’s father was successful in Supreme Court proceedings against the husband and the wife and had obtained a significant costs order against the wife. Those proceedings established that the wife’s entitlements under the financial agreement were modest.
In Abrum & Abrum [2013] FamCA 877 a financial agreement was saved under s 90G(1A) as if it was not held to be binding, because the husband’s parents acted to their significant detriment in reliance upon the parties entering into the financial agreement.
A financial agreement is a contract. To draft a contract, it is necessary to look at what the client wants to achieve. The following questions must be considered first:
The agreement also needs to be enforceable as a contract, not as a set of orders. The clauses of the agreement should be drafted as a contract and not just copied from precedent orders. The style is different and if the terms of the agreement are drafted in the same form as orders they may not be enforceable as they may lack clarity and certainty. Precedent clauses can help with the first draft of an agreement but the draft agreement must be checked carefully and altered to fit the precise and unique facts of the particular case.
Matters to be covered
What clauses should be included in an agreement? As a starting point:
1.1 Define the excluded property;
1.2 Are there any circumstances where the financially weaker party will receive some of the otherwise quarantined property?
2.1 Who retains the house or will it be sold?
2.2 When will the other party vacate the home?
2.3 How will property be valued?
2.4 The arrangements for any sale;
2.5 How will the net proceeds of sale be distributed?
2.6 How will liabilities be dealt with (including tax)?
3.1 If so, how?
3.2 How will procedural fairness be given?
3.3 Who will retain any self-managed superannuation fund and clauses to give effect to this? What if parties don’t have one when the agreement is entered into but create one later?
3.4 The operative time for a payment split is the beginning of the 4th business day after the day on which a copy of the agreement is served on the trustee accompanied by the other documents specified in s 90XI(1).
4.1 Is the right to spousal maintenance ousted?
4.2 Will one party receive maintenance for a fixed period?
4.3 How will the requirements of s 90E be met?
4.4 Can the requirements of s 90F be met?
Using FLA terminology
The terms used in the FLA should be used where possible. Examples of terms which a court has found difficult to interpret because they were ambiguous or did not reflect the wording of the FLA are:
The pros and cons of a complex agreement
A simple agreement is easier to draft, but it may be too simple to cover all possible contingencies. To avoid the risk of an agreement being set aside because of one of these contingencies, many agreements include a recital to confirm that the parties have considered those contingencies.
An example of a recital of drafting for contingencies is:
Before executing this Financial Agreement, each party has had regard to the possibility that one or both of them may be subject to a change of circumstances including any or all of:
A formula which gives cascading entitlements with the effluxion of time, the number of children or some other factor, is more complex to draft and implement.
The reason for including a cascading formula is to more closely match the increased property entitlements of a party under s 79 (or s 90SM) in longer relationships where there will almost certainly have been greater contributions (parenting, homemaking, financial and non-financial) of the financially weaker party to at least partially offset the greater initial financial contribution of the financially stronger party, than in a short relationship. If the agreement does not adequately provide for the other party in the event of one of the contingencies, then there may be a greater risk of the agreement being set aside or, at the very least, an application being made with all the associated financial and emotional stress. It may be better to provide for the contingency, but more complex and lengthy agreements are more likely to have inconsistencies in their drafting.
Simpler agreements set out clearly the respective entitlements of the parties, with perhaps a payment or transfer of property calculated as a percentage of certain property or a defined lump sum. If a percentage, the property of which the party receives a percentage needs to be described.
Sometimes, agreements are drafted so as to oust the jurisdiction of the court to deal with property but allow maintenance claims to still be made. Of course, the weaker party must still establish a need for maintenance, but allowing the weaker party the right to apply for maintenance may mean that the agreement can be more simply drafted and is not as much at risk of being considered a bad bargain (and set aside if there are vitiating factors, such as undue influence), than if the right to apply for spousal maintenance is ousted.
Including a right to seek maintenance may help establish that the parties did consider possible contingencies, such as childbirth, care of children, injury and ill-health, and not merely state these possibilities in a recital may help uphold the agreement.
However, a financially weaker spouse with the primary care of the children who is in employment, may not be able to make a successful maintenance claim. This means that more consideration maybe should be given to ensuring that the weaker party is left with a greater share of the property than otherwise, so that there is less motivation to attack the agreement.
Another option is to include a sunset clause so that the agreement no longer operates if the parties, for example, have a child. The difficulty with these is that they have not been tested and non‑compliance with s 90J(1) may be a problem. Section 90J(1) states:
“(1) The parties to a financial agreement may terminate the agreement only by:
(a) including a provision to that effect in another financial agreement as mentioned in subsection 90B(4), 90C(4) or 90D(4); or
(b) making a written agreement (a termination agreement ) to that effect.”
A termination provision included in the original agreement can therefore be effective but advice must be given on the agreement as a termination agreement as well as, for example, a s 90B agreement. If advice is not given on the termination agreement under s 90J(2), the termination agreement part of the agreement will not be binding. To achieve a similar outcome, a financial agreement could also be drafted carefully with two parts:
A requirement that the parties review an agreement if they have a child is almost certainly unenforceable if the intention is that the parties are forced to enter into a new agreement in different terms. It may encourage the parties to do it, but does not force them to do it.
The problem of false recitals
Recitals are statements at the beginning of a contract which set out preliminary matters, such as factual background and the reasons for the contract.
The false recitals which are most commonly problematic include:
As the plurality in the High Court said, this statement was made (at [20]) despite the wife’s “extremely limited personal means”. The plurality made no findings on whether the s 90F declaration was effective, as submissions were not made with respect to it – either in the Full Court of the Family Court or in the High Court – but the plurality appeared to express doubt as to whether the wife was bound by her “acknowledgement”. The High Court drew the attention of the parties to the issue, but because of the way the case was presented it was significant only (at [20]) “as a matter of contextual construction”, which suggests that the incorrect statement may have assisted the plurality to reach the conclusions it made that there had been undue influence and unconscionable conduct.
May 2019
© Copyright – Jacqueline Campbell of Forte Family Lawyers and Wolters Kluwer/CCH. This paper uses some material written for publication in Wolters Kluwer/CCH Australian Family Law and Practice. The material is used with the kind permission of Wolters Kluwer/CCH.
Jacky Campbell, February 2019
The Australian Taxation Office recently appealed to the High Court of Australia on the question of whether there was power under the Family Law Act 1975 (FLA) for the husband to be substituted for the wife in relation to a tax debt owed by the wife of over $250,000 plus interest.
In Commissioner of Taxation for the Commonwealth of Australia v Tomaras & Ors (2018) 93-874, 5 members of the High Court, in 3 separate judgments, unanimously upheld the decision of the Full Court of the Family Court that tax debts are able to be dealt with under s 90AE(1)-(2) FLA. The Commissioner of Taxation was seeking to rely on Crown immunity to support its argument that there was no power for tax debts to be transferred between spouses under the FLA. However, neither the High Court nor the Full Court of the Family Court ruled on whether the power should be exercised in the particular circumstances of the case.
My earlier articles consider the earlier cases. The Full Court decision is discussed further in my article “Verbiage or substance? High Court to examine Family Court’s ability to assign tax debts”. The application for special leave to appeal to the High Court is discussed in “Escaping tax debts? Is this the brave new world of Pt VIIIA Family Law Act?”
What does the legislation say?
The wife was seeking orders under Pt VIIIAA, FLA which empowers the family law courts to make orders and injunctions which bind third parties if certain prerequisites are met. In particular, the wife relied on s 90AE(1)(b), which allows the court to direct a creditor to substitute one debtor for another. Section 90AE(1) provides:
“In proceedings under s 79, the court may make any of the following orders … (b) an order directed to a creditor of one party to a marriage to substitute the other party, or both parties, to the marriage for that party in relation to a debt owed to the creditor.”
Section 90AE(2) specifically allows the court to make any such order that:
(a) directs a third party to do a thing in relation to the property of a party to the marriage; or
(b) alters the rights, liabilities or property interests of a third party in relation to the marriage.”
Section 90AE(3) sets out the requirements for making an order under s 90AE(1) and (2):
“The court may only make an order under subsection (1) or (2) if:
(a) the making of the order is reasonably necessary, or reasonably appropriate and adapted, to effect a division of property between the parties to the marriage; and
(b) if the order concerns a debt of a party to the marriage – it is not foreseeable at the time that the order is made that to make the order would result in the debt not being paid in full; and
(c) the third party has been accorded procedural fairness in relation to the making of the order; and
(d) the court is satisfied that, in all the circumstances, it is just and equitable to make the order; and
(e) the court is satisfied that the order takes into account the matters mentioned in subsection (4).”
The matters which the court is required to take into account under s 90AE(3) are listed in s 90AE(4):
“(a) the taxation effect (if any) of the order on the parties to the marriage;
(b) the taxation effect (if any) of the order on the third party;
(c) the social security effect (if any) of the order on the parties to the marriage;
(d) the third party’s administrative costs in relation to the order;
(e) if the order concerns a debt of a party to the marriage – the capacity of a party to the marriage to repay the debt after the order is made;
(f) the economic, legal or other capacity of the third party to comply with the order;
(g) if, as a result of the third party being accorded procedural fairness in relation to the making of the order, the third party raises any other matters – those matters;
(h) any other matter that the court considers relevant.”
What was the issue before the courts?
The Commissioner of Taxation appealed from a question of law stated (also known as a case stated) by the Federal Circuit Court to the Full Court of the Family Court. The question was (at [31]):
“concerned with the interaction between Pts VIII and VIIIAA and, in particular, whether a court in proceedings under s 79 in Pt VIII has power under s 90AE(1) in Pt VIIIAA to make an order directed to … the Commissioner, to substitute the husband for the wife in relation to a debt owed to the Commonwealth which arises under a taxation law.”
The wife argued that binding orders under s 90AE could be made against the Commissioner. The Commissioner disagreed.
In Tomaras & Tomaras and Official Trustee in Bankruptcy and Commissioner of Taxation (2017) FLC 93-806, the Full Court held that one spouse could be substituted for another spouse as the debtor responsible for the debt, even though it was a taxation debt and therefore owed to the Crown. The Commissioner appealed.
What did the High Court say about the ability for s 90AE orders to bind the Crown?
The Commissioner argued that Crown immunity was engaged and s 90AE did not apply to taxation debts on the basis of the presumption of statutory construction that general words in a statute do not bind the Crown.
The High Court decided in Bropho v Western Australia (1990) 171 CLR 1; [1990] HCA 24, that the presumption may be displaced without the use of express words or words of necessary intendment.
In the High Court, Justice Gordon considered the views of the Full Court of the Family Court, and in relation to the rebuttal of the presumption, said (at [52]-[53]):
“The relevant provisions of the Family Law Act do not expressly state that they bind the Crown. The presumption that general words of statutory provisions will not bind the Crown operates as no more than a general principle of statutory construction; or an aid to statutory construction. In certain circumstances, the presumption may represent little more than the starting point of the ascertainment of the relevant legislative intent. The ultimate question must be whether the presumption has, in all the circumstances, been rebutted and, if it has, the extent to which it was the legislative intent that the relevant statutory provisions should bind the Crown. The ‘circumstances include the terms of the statute, its subject matter, the nature of the mischief to be redressed, the general purpose and effect of the statute, and the nature of the activities of the Executive Government which would be affected if the Crown is bound’. That list is by no means exhaustive.
… The task is to construe the statute in context, adopting a flexible approach to construction which takes into account the nature of the statutory provisions in question and the activities of government to which they might apply ….” [footnotes removed]
In support of her conclusion that Crown immunity did not apply, Gordon J referred to two areas where the drafters of Pt VIIIA had specifically addressed the effects of the provisions on the executive functions of government:
Like Gordon J, Kiefel CJ and Keane J rejected the distinction that the Commissioner sought to make between tax debts and other debts, saying (at [3]):
“Nothing in Pt VIII of the Act suggests an intention to differentiate between Commonwealth, State and Territory revenue authorities or an intention to differentiate between revenue authorities and other creditors.”
Some statutes differentiate between ordinary creditors and revenue authorities, but the FLA does not. Instead, as Kiefel CJ and Keane J said (at [8]):
“Any concern for the protection of the revenue – Commonwealth, State or Territory – is met by the terms of s 90AE(3)(b). If this condition is not satisfied, the power to make an order under s 90AE(1)(b) is not enlivened. The observance of this condition by the court is apt to ensure that the interests of the revenue authorities, and other creditors for that matter, are not adversely affected by the making of an order under s 90AE(1)(b). The scope of this power should not be distorted by attributing to the Parliament an unfounded apprehension that the courts cannot be trusted to ensure that the statutory conditions upon which the power may be exercised are satisfied.”
Justice Gageler held (at [19]) that the presumption was displaced by the appearance of an affirmative legislative intention to confer jurisdiction on a court to alter, by an order under s 90AE(1) or (2), the interest of the Commonwealth in a debt owed to it by a party to a marriage:
“That affirmative intention appears sufficiently from the text and structure of Pt VIIIAA when read in context with s 79 in Pt VIII of the Act.”
Justice Gageler noted that the Commissioner’s argument had been refined before the High Court so that it was not so much about power as about jurisdiction. The Commissioner presumably took this approach to try to avoid the High Court taking the plain meaning approach to s 90AE which was ultimately adopted by all members of the High Court. Justice Gageler set this argument out (at [15]):
“The Commissioner argued that the Federal Circuit Court lacks power to make such an order under s 90AE(1)or (2) because the jurisdiction conferred on the Federal Circuit Court by s 39(5AA) with respect to matters arising under the Act in respect of matrimonial causes constituted by ‘proceedings between the parties to a marriage with respect to the property of the parties to the marriage’ is not extended by s 90AD(1) for the purpose of Pt VIIIAA of the Act to encompass proceedings between the parties to a marriage regarding the taxation debts owed by one or both of those parties to the Commonwealth. The Commissioner argued that the jurisdiction of the Federal Circuit Court is not so extended because a taxation debt owed to the Commonwealth is excluded from the instruction in s 90AD(1) that, for the purpose of Pt VIIIAA, ‘a debt owed by a party to a marriage is to be treated as property’ for the purpose of a matrimonial cause as defined. The Commissioner relied for that exclusion on the common law presumption that a statute does not ‘bind the Crown’.”
Justice Gageler rejected this argument, holding that “a debt owed by a party to a marriage in s 90AD does not exclude a taxation debt owed to the Commonwealth”.
Justice Edelman also agreed, holding (at [118]):
“The alleged presumption that Pt VIIIAA does not bind the Commissioner in relation to tax debts owed to the Crown has, at best, weak force. Against that weak force, the plain meaning, in context, of “a creditor of the parties” in Pt VIIIAA of the Family Law Act can include the Commonwealth in respect of a tax debt owed to it.”
All members of the High Court confirmed that the term “creditor” in s 90AE(1) has the same meaning as in s 79 and is not narrower.
The case stated process
Chief Justice Kiefel, and Keane and Gordon JJ were critical of the process taken by the parties to state a question of law. According to Kiefel CJ and Keane J (at [13]):
“it would have been more efficient, in terms of the administration of justice, if the wife’s application for substitution had been allowed to proceed to a determination on the merits”.
The question stated “was unlikely ever to be of other than academic interest”.
Justice Gordon said (at [94]) that the procedure should only be used in “exceptional circumstances” as it was “more often than not productive of difficulty, delay and artificiality, and should be adopted cautiously”. She said “the stated case procedure was inappropriate, and the answer given incomplete” and (at [96]):
“Hearing and determining the property settlement proceedings would have been cheaper and quicker.”
Justice Gageler disagreed. He considered that the process taken was appropriate, saying (at [16]):
“That the question is one of general significance for the administration of taxation laws and that it has been raised in other pending cases are additional considerations which support the appropriateness of adopting a procedure to ensure its early and authoritative resolution.”
Justice Edelman expressed no view on the procedure taken.
Did the High Court change the law?
It is difficult to see what the wife was seeking to achieve in Tomaras. The husband was bankrupt, so unless the husband was likely to have a surplus after his bankruptcy ended, or there was a chance of an annulment, it appeared unlikely, on the facts stated in the Federal Circuit Court, Full Court of the Family Court and the High Court, that a court would order that the taxation debt be borne solely by the husband. If such an order was made, then contrary to s 90AE(3)(b) and (4)(e), the debt was not likely to be paid.
Justice Gordon explained (at [32]) that, although “under Pt VIIIAA, the court has jurisdiction over debts owed to the Commonwealth and the court has the power under s 90AE to order the Commissioner to substitute the husband for the wife in relation to a taxation debt, “there will seldom, if ever, be occasion to exercise that power”. As a matter of practice, as she pointed out (at [37]), s 90AE will rarely be used in relation to tax debts. She said further (at [87]):
“The fact that the husband in this appeal was bankrupt is reason enough not to make the order sought by the wife under s 90AE. But there are other facts, matters and circumstances which compel the same conclusion in this appeal: the inability of the husband to exercise the Pt IVC rights of objection and review (both because the time allowed to the wife for objections has long expired, and because of the difficulties identified above); the fact that the debt owed to the Commonwealth, in relation to which the Commissioner has obtained default judgment, is long overdue; and the fact that the size of that Commonwealth debt continues to increase, not just on a daily basis, but at a higher rate, because of the accruing GIC. That list is not and cannot be exhaustive. However, those facts and matters, or even some of them, compel the conclusion that a court could not be satisfied of the matters prescribed in s 90AE(3) and, therefore, the court would not be empowered to make a substitution order under s 90AE(1) in Pt VIIIAA.”
Justice Gordon tested her conclusion by reference to Pt VIII FLA, which empowers a court to make an order under s 80(1)(f) FLA directing a party to a marriage to simply pay a debt owed by the other party, rather than make an order substituting them as a debtor. This could be a direction to pay a tax debt owed to the Commonwealth. If the husband had cash or another immediately realisable asset or assets to meet that debt, an order could be made under s 80(1)(f) directing the husband to make a payment direct to the Commissioner of Taxation for the benefit of the wife. If that form of order could not be made (because the husband lacked means to meet the debt), then, contrary to the requirements of s 90AE(3), it would be foreseeable that if an order were made under s 90AE(1), it would result in the debt not being paid in full and, in all the circumstances, it would not be just and equitable to make the order. So, the fact that the husband could not satisfy an order under s 80(1)(f) strongly suggested, even required, the conclusion that two requirements of s 90AE(3) – that it must not be foreseeable that if the order were made, it would result in the debt not being paid in full, and that it must be just and equitable to make the order – would not be satisfied. She concluded (at [90]) that there was “limited” scope to deal with a taxation debt in a s 90AE(1) order.
Chief Justice Kiefel and Keane J said (at [13]) that:
“Given the difficulty confronting the wife’s application for substitution by reason of the condition in s 90AE(3)(b), the question stated for the opinion of the Full Court was unlikely ever to be of other than academic interest.”
Justice Gageler expressed no opinion.
Conclusion
The proceeding was described by two judges in the High Court as an “academic exercise”. This is a succinct summary of the effect of the High Court’s judgment. Whilst the High Court unanimously confirmed that orders could be made under s 90AE in relation to taxation debts, a majority of the High Court also considered that this would occur rarely because of the difficulty parties faced in meeting the statutory requirements. Although the High Court was not required to decide the issue, 4 of the 5 judges said that a substitution order was unlikely to be made in the particular circumstances of the case before it, as a substitution order would mean that the tax debt would not be made.
© Copyright – Jacqueline Campbell of Forte Family Lawyers and Wolters Kluwer/CCH. This paper uses some material written for publication in Wolters Kluwer/CCH Australian Family Law and Practice. The material is used with the kind permission of Wolters Kluwer/CCH.
Jacky Campbell, November 2017
There has been a strong reaction, almost panic-stricken, in the media and by lawyers to the first examination of financial agreements by the High Court. Is this reaction justified? Has the High Court hung financial agreements out to dry, or are they still a viable option?
In Thorne v Kennedy [2017] HCA 49; (2017) FLC 93-807 the High Court set aside two financial agreements, casting considerable doubt on the viability of financial agreements which are a bad bargain for one of the parties. Unanimously, the High Court set aside the two agreements for unconscionable conduct. The plurality also set them aside for undue influence, finding it unnecessary to decide whether there was duress. Helpfully, the High Court explained the distinctions between the three concepts, as the concepts are often confused and used interchangeably. The question is, in clarifying the law, did the High Court set such a high bar that it will be impossible for a financial agreement to withstand an application to set it aside?
The facts
The wife was aged 36 and the husband was 67 when they met on a bride website in mid-2006. The wife was living overseas, spoke Greek and very little English. She had no children and no assets of any substance, whilst the husband was an Australian property developer with assets worth at least $18 million. He was divorced from his first wife, and had three adult children.
During their courtship the husband promised the wife that he would look after her like “a queen”. In February 2007 the wife travelled to Australia with the husband and moved into his penthouse. The husband made it clear to the wife prior to her coming to Australia that he wanted to protect his wealth for his children and that, if they were to get married, she would have to sign a legal agreement to that effect. The wife, however, did not learn the terms of the first agreement until 10 days before the wedding. By that stage, the wife’s parents and sister had arrived in Australia from Eastern Europe for the wedding. The husband told the wife that if she failed to sign the first agreement, the wedding was off.
When presented with the draft first agreement, the wife’s only concern was with the testamentary provisions – not the separation provisions. Her solicitor advised the wife orally and in writing not to sign the first agreement, saying that it was all in the husband’s favour. After some minor changes to the testamentary provisions of the first agreement requested by the wife’s solicitors were agreed to by the husband, the wife received further advice on the amended first agreement. Her solicitor again advised her not to sign it. The wife understood her solicitor’s advice to be that it was the worst agreement that the solicitor had ever seen. Under the separation provisions, the wife was to receive a total payment of $50,000 plus CPI in the event of a separation after at least three years of marriage, which the wife’s solicitor described as “piteously small”. In the event of the husband’s death, the wife would receive an apartment worth up to $1.5M, a Mercedes and a continuing income. The wife nevertheless signed the first agreement 4 days before the wedding. The first agreement contained a recital that within 30 days the parties would sign another agreement in similar terms. In November the wife signed the second agreement, revoking the first agreement but otherwise in the same terms. The wife’s solicitor urged her not to sign the second agreement. During the meeting the wife received a telephone call from the husband asking her how much longer she would be. The wife’s solicitor had the impression that the wife was being pressured to sign the second agreement.
The husband signed a separation declaration after the couple had been cohabiting for about 4½ years. It was slightly less than 4 years after the first agreement was signed.
Litigation history
The wife commenced proceedings in the Federal Circuit Court, seeking orders under the Family Law Act 1975 (“FLA”) that both agreements be declared not to be binding and/or to be set aside, and orders for a property settlement and spousal maintenance. The husband died part way through the hearing and the husband’s legal personal representatives were substituted for him in the proceedings.
In March 2015 Demack J in Thorne & Kennedy [2015] FCCA 484 made orders that neither Agreement was binding and set them both aside. Demack J held (at [94]) that the wife had:
“signed the Agreements under duress borne of inequality of bargaining power where there was no outcome to her that was fair and reasonable.”
On 26 September 2016 the Full Court of the Family Court (Strickland, Aldridge and Cronin JJ) in Kennedy & Thorne (2016) FLC 90-737 allowed an appeal by the husband’s estate. The Full Court found that both agreements were binding on the parties, holding that there had not been duress, undue influence or unconscionable conduct by the husband.
On 10 March 2017 the High Court granted special leave to the wife to appeal from the decision of the Full Court of the Family Court. The special leave application is reported as Thorne v Kennedy [2017] HCA Trans 54. Further details of the special leave application are in an article by the writer at http://www.wolterskluwercentral.com.au/legal/family-law/high-court-rule-financial-agreements/
The grounds of appeal were that the Full Court erred in law in failing to find the financial agreements were not binding and they should be set aside on the ground of duress, undue influence or unconscionable conduct.
What did the High Court decide?
The judgment of the plurality was delivered on 8 November 2017 by Kiefel CJ, Bell, Gageler, Keane and Edelman JJ. They held that the findings and conclusion of the trial judge should not have been disturbed by the Full Court and both agreements were voidable due to both undue influence and unconscionable conduct.
The plurality said that the trial judge used duress interchangeably with undue influence, and considered that undue influence was (at [2]) “a better characterisation of her findings”. The plurality decided that it was not necessary to consider whether the agreement should be set aside for duress.
In two separate judgments, Nettle and Gordon JJ agreed that the agreements should be set aside for unconscionable conduct, but did not agree that they should be set aside for undue influence.
Marriage and equitable principles
Although initially the wife’s case was that the principles of common law and equity as described in s 90KA (and also applied in s 90K) might be affected by their statutory context and interpreted differently because of the marital relationship, she conceded (at [23]) “that the principles were not altered although the particular circumstances of the marital context would be taken into account”. The High Court plurality accepted that the same tests applied to marital relationships as to commercial relationships when assessing vitiating factors such as duress, undue influence and unconscionable conduct, although, of course, duress and undue influence generally, if not always, arise in non-commercial contexts.
Requirements of duress
The plurality commenced by considering the requirements of duress, although it held that it was not necessary to decide whether the agreement should be set aside for duress. The plurality described the requirements for duress (at [26]):
“Duress does not require that the person’s will be overborne. Nor does it require that the pressure be such as to deprive the person of any free agency or ability to decide. The person subjected to duress is usually able to assess alternatives and to make a choice. The person submits to the demand knowing ‘only too well’ what he or she is doing” [footnotes removed, but relying strongly on Crescendo Management Pty Ltd v Westpac Banking Corporation (1988) 19 NSWLR 40]
The plurality noted (at [27]) the uncertainty as to whether duress should be based on any unlawful threat or conduct or, whether lawful threats or conduct might suffice. It said that the question was a “difficult” one, but did not shed any light on the answer to it.
The plurality’s view was that it was not necessary for the trial judge (and therefore the High Court) to determine whether there was common law duress, because the sense in which the trial judge described the pressure on the wife was to focus on the wife’s lack of free choice (in the sense used in the undue influence cases) rather than whether the husband was the source of all the relevant pressure, or whether the impropriety or illegitimacy of the husband’s lawful actions might suffice to constitute duress.
Requirements of undue influence
The High Court plurality referred (at [30]) to
“the difficulty of defining undue influence” and that “the boundaries, particularly between undue influence and duress, are blurred”. Undue influence occurred when a party was “deprived … of ‘free agency’” [footnotes removed].
In Johnson v Buttress (1936) 56 CLR 113 at 134; [1936] HCA 41, Dixon J described how undue influence could arise from the “deliberate contrivance” of another (which naturally includes pressure) giving rise to such influence over the mind of the other that the act of the other is not a “free act”. The plurality accepted this analysis, and said (at [32]):
“The question whether a person’s act is ‘free’ requires consideration of the extent to which the person was constrained in assessing alternatives and deciding between them. Pressure can deprive a person of free choice in this sense where it causes the person substantially to subordinate his or her will to that of the other party … It is not necessary for a conclusion that a person’s free will has been substantially subordinated to find that the party seeking relief was reduced entirely to an automaton or that the person became a ‘mere channel through which the will of the defendant operated’. Questions of degree are involved. But, at the very least, the judgmental capacity of the party seeking relief must be ‘markedly sub-standard’ as a result of the effect upon the person’s mind of the will of another.” [footnotes omitted]
The plurality noted (at [14]) that there were different ways to prove the existence of undue influence. One method of proof was by direct evidence of the circumstances of the particular transaction and that was the approach relied upon by the trial judge and the High Court. The plurality rejected the proposition that the wife was entitled to the benefit of a presumption of undue influence because of the relationship of fiancé and fiancée, as that presumption no longer existed.
Requirements of unconscionable conduct
The parties agreed that the applicable principles of unconscionable conduct in equity were recently restated by the High Court in Kakavas v Crown Melbourne Ltd (2013) 250 CLR 392; [2013] HCA 25. No submissions were made as to whether the statutory concept of unconscionable conduct in s 90K(1)(e) might differ from the equitable concept in s 90K(1)(b) and the High Court did not determine that issue.
A finding of unconscionable conduct requires (at [38]) the innocent party to be subject to a special disadvantage “which seriously affects the ability of the innocent party to make a judgment as to [the innocent party’s] own best interests”. The other party must also unconscientiously take advantage of that special disadvantage, and have known or ought to have known of the existence and effect of the special disadvantage.
The plurality quoted favourably from Amadio (1983) 151 CLR 447 at 461, where Mason J emphasised the difference between unconscionable conduct and undue influence:
“In the latter the will of the innocent party is not independent and voluntary because it is overborne. In the former the will of the innocent party, even if independent and voluntary, is the result of the disadvantageous position in which he is placed and of the other party unconscientiously taking advantage of that position’.”
The trial judge’s decision
The plurality found that the trial judge was at a considerable advantage in assessing the parties and their personalities, particularly where issues of undue influence and unconscionable conduct were involved. In Kakavas the High Court said that where a transaction is sought to be impugned for vitiating factors, such as duress, undue influence or unconscionable conduct, it is necessary for a trial judge to conduct a “close consideration of the facts.” On appeal, it is essential for the appellate court to scrutinise the trial judge’s findings in light of the advantages enjoyed by the trial judge.
The trial judge posed the hypothetical question of why the wife would sign an agreement when she understood the advice of her solicitor to be that the agreement was the worst that the solicitor had ever seen. The trial judge also asked, despite the advice of her solicitor, why the wife failed to conceive of the notion that the husband might end the marriage.
The trial judge described duress ([2015] FCCA 484 at [68]) as “a form of unconscionable conduct”. The plurality said that this did not mean that duress was subsumed within the doctrine of unconscionable transactions, but the trial judge used “unconscionable” in the sense described by Gaudron, McHugh, Gummow and Hayne JJ in Garcia v National Australia Bank Ltd [(1998) 194 CLR 395 (at [34])] as “to characterise the result rather than to identify the reasoning that leads to the application of that description”.
The trial judge concluded that the wife was powerless to make any decision other than to sign the first agreement, and referred to an inequality of bargaining power and a lack of any outcome for the wife that was “fair or reasonable”. However, the trial judge also explained that the wife’s situation was “much more than inequality of financial position”, setting out six matters which, in combination, led her to the conclusion that the wife had “no choice” or was powerless:
These six matters were the basis for what the plurality described as the “vivid” description by the trial judge (quoted at [47]) of the wife’s circumstances:
“She was in Australia only in furtherance of their relationship. She had left behind her life and minimal possessions … She brought no assets of substance to the relationship. If the relationship ended, she would have nothing. No job, no visa, no home, no place, no community. The consequences of the relationship being at an end would have significant and serious consequences to Ms Thorne. She would not be entitled to remain in Australia and she had nothing to return to anywhere else in the world.
Every bargaining chip and every power was in Mr Kennedy’s hands. Either the document, as it was, was signed, or the relationship was at an end. The husband made that clear.”
As to the second agreement, the High Court plurality noted (at [48]) that trial judge held that it was “simply a continuation of the first – the marriage would be at an end before it was begun if it wasn’t signed”. In effect, the trial judge’s conclusion was that the same matters which vitiated the first agreement, with the exception of the time pressure caused by the impending wedding, also vitiated the second agreement. The factors had not otherwise dissipated.
The Full Court’s decision
The Full Court found that the agreements were fair and reasonable because, as summarised by the plurality (at [51]):
The Full Court held that the wife could not have been subject to undue influence because she acquiesced in the husband’s desire to protect his assets for his children and because she had no concern about what she would receive on separation. The Full Court also held that the husband’s conduct was not unconscionable because he did not take advantage of the wife, referring to:
The High Court plurality, noting (at [54]) the advantages enjoyed by the trial judge in evaluating the evidence, said that with one exception, none of the findings of fact by the trial judge were overturned by the Full Court. That exception was the Full Court’s rejection of the trial judge’s finding that there was no outcome available to the wife that was fair or reasonable. The High Court found that the Full Court erred in rejecting this finding. It was open to the trial judge to conclude that the husband, as the wife knew, was not prepared to amend the agreement other than in minor respects. Further, the High Court plurality said (at [55]) that the description of the agreements by the trial judge as not being “fair or reasonable” was not merely open to her, it was “an understatement”. The unchallenged evidence of the wife’s solicitor was that the terms of the agreements were “entirely inappropriate” and wholly inadequate.
As the terms of the agreement were so unfavourable to the wife – a bad bargain – the plurality considered those terms to be relevant to a finding of undue influence. It said (at [56]) that the trial judge:
“was correct to consider the unfair and unreasonable terms of the pre-nuptial agreement and the post-nuptial agreement as matters relevant to her consideration of whether the agreements were vitiated. Of course, the nature of agreements of this type means that their terms will usually be more favourable, and sometimes much more favourable, for one party. However, despite the usual financial imbalance in agreements of that nature, it can be an indicium of undue influence if a pre-nuptial or post-nuptial agreement is signed despite being known to be grossly unreasonable even for agreements of this nature.”
The plurality did not agree with the Full Court that the trial judge’s conclusion was based only upon an inequality of bargaining power. The trial judge carefully set out the 6 specific factors (stated earlier in this paper) which, together with the lack of a fair or reasonable outcome, led her to the conclusion that the wife had no choice but to enter into the two agreements.
In circumstances where the Full Court accepted almost all of the finding of fact, and had erred in not accepting there was no outcome available to the wife which was fair and reasonable, the High Court plurality said that the Full Court ought to have found that the wife was subject to undue influence, albeit
mis-described by the trial judge as duress.
The plurality’s conclusion
The plurality set out factors which it identified as being relevant to whether a financial agreement should be set aside for undue influence (at [60]):
These factors were not only important to the determination in this case, but clear guidance as to the factors which should be looked at in future applications to set aside a financial agreement for undue influence.
In relation to unconscionable conduct, the High Court plurality relied on Amadio and said (at [64-65]) that the adjective “special” in the requirement for “special disadvantage” is “used to emphasise that the disadvantage is not a mere difference in the bargaining power but requires an inability for a person to make a judgment as to his or her own best interests”.
The trial judge found that the wife’s powerlessness and lack of choice but to enter into the agreements pointed inevitably to the conclusion that she was at a special disadvantage. The husband was aware of the wife’s special disadvantage and it was, in part, created by him:
The High Court plurality said these matters increased the pressure which contributed to the substantial subordination of the wife’s free will in relation to the agreements. The husband took advantage of the wife’s vulnerability to obtain agreements which, on the uncontested assessment of the wife’s solicitor, were entirely inappropriate and wholly inadequate.
Minority judgments
There were two separate minority judgments, being of Justices Nettle and Gordon. Both agreed that the 2 agreements should be set aside for unconscionability, but not for undue influence.
Justice Nettle felt he could not depart from the decision of the Court of Appeal of the Supreme Court of New South Wales in Australia & New Zealand Banking Group v Karam (2005) 64 NSWLR 149, which decided that the concept of illegitimate pressure should be restricted to the exertion of pressure by “threatened or actual unlawful conduct”. He said that had “largely been followed without demur”.
Justice Nettle said (at [71]) that there was much to be said for the view that, the test of illegitimate pressure should be whether the pressure goes beyond what is reasonably necessary for the protection of legitimate interests. However, the equitable doctrine of unconscionable conduct did not have the same restrictions as undue influence and is not restricted to unlawful means.
Although Nettle J believed that the concept of illegitimate pressure might be more appropriate for this case, it was also capable of being seen as unconscionable conduct, for reasons similar to those expressed by the plurality. Like the plurality, Nettle J’s view (at [76]) was that the circumstances had so affected the wife’s state of mind that she was incapable of make a judgement in her own interests. There was no other rational explanation for the wife’s decision not to insist upon the substantive changes which her solicitor recommended, and instead to acquiesce to the husband’s “extraordinary demands”.
The second agreement was dependent for its efficacy upon the first agreement, and so it fell with the earlier agreement, but, if that were not so (at [77]) the wife was “in a position of special disadvantage which rendered her even less capable of making a decision in her own best interests to refuse to sign the second agreement than she had been capable at the time of the first agreement of insisting upon amendments in accordance with [her solicitor’s] recommendations”. On this analysis, the second agreement was more at risk of being set aside than the first agreement.
Justice Nettle held that it was against equity and good conscience for the husband or his successors to be permitted to enforce either agreement.
Justice Gordon said in relation to unconscionability, (at [81]) that although the wife’s “independent, informed and voluntary will was not impaired, she was unable, in the circumstances, to make a rational judgement to protect her own interests”. Those circumstances were evident to and substantially created by the husband, and it was unconscionable for the husband to procure or accept the wife’s assent to the agreements.
Justice Gordon held that undue influence did not apply because (at [80]) the wife’s “capacity to make an independent judgment was not affected”. She “was able to comprehend what she was doing when she signed the agreements, and that she knew and recognised the effect and importance of the advice she was given”. Moreover, she wanted the marriage to proceed and to prosper. She knew and understood that it would proceed only if she accepted his terms. Once she decided to go ahead with the marriage, it was right to say, as the trial judge said, that she had “no choice” except to enter into the agreements. No other terms were available. But her capacity to make an independent, informed and voluntary judgment about whether to marry on those terms was unaffected and she chose to proceed. Her will was not overborne.
Justice Gordon set out the requirements to establish unconscionable conduct (at [113]):
“A special disadvantage may also be discerned from the relationship between parties to a transaction; for instance, where there is ‘a strong emotional dependence or attachment’ … Whichever matters are relevant to a given case, it is not sufficient that they give rise to inequality of bargaining power: a special disadvantage is one that “seriously affects” the weaker party’s ability to safeguard their interests.”
She found that the wife was under a special disadvantage and that the agreements were “grossly improvident” (Bridgewater v Leahy (1998) 194 CLR 457 at 493). It was relevant that the wife’s entitlements in the event of separation were (at [121]) “extraordinarily and disproportionately small in comparison to what the wife would have been entitled to if she had not entered into the agreements”. Unlike the other judges, who looked at the general fairness of the agreements, Gordon J, expressly compared the wife’s entitlements under the agreements to her entitlements under the FLA, if she had not entered into the agreements.
Although the wife was expecting an agreement about the husband’s wealth, he had brought her to Australia promising to look after her like “a queen” and it was only 10 days before the wedding that she received detailed information about the husband’s finances and became aware of the specific contents of the first agreement.
Justice Gordon said (at [123]) that the fact that the wife received independent legal advice about the two agreements and rejected her solicitor’s recommendation on each occasion did not mean that there was not unconscionable conduct. The fact that she was willing to sign both agreements despite being advised that they were “terrible” served to underscore the extent of the special disadvantage under which she laboured, and to reinforce the conclusion that it was unconscientious for the husband to procure or accept her assent.
Section 90F
The agreements included an “acknowledgement” that the wife was able to support herself without an income tested pension, allowance or benefit, taking into account the terms and effect of the agreement when the agreement came into effect. This statement was designed to ensure that the agreement, in compliance with s 90F, ousted the jurisdiction of the court to make an order for spousal maintenance.
As the plurality said, this statement was made (at [20]) despite the wife’s “extremely limited personal means”. The plurality made no findings on whether the s 90F declaration was effective as submissions were not made with respect to it either in the Full Court of the Family Court or in the High Court, but the plurality appeared to express doubt as to whether the wife was bound by her “acknowledgment”. The High Court drew the attention of the parties to the issue, but because of the way the case was presented it was significant only (at [20]) “as a matter of contextual construction”, which suggests that the incorrect statement may have assisted the plurality to reach the conclusions it made.
What next?
The High Court unanimously agreed that a financial agreement which was a bad bargain for a party who had been given legal advice not to enter into it, might be evidence of a vitiating factor such as duress, undue influence and unconscionable conduct. In the process, it clarified aspects of the law relating to the financial agreements, but also created new uncertainties.
Areas where Thorne v Kennedy gives some clarity for the future include:
Whilst the High Court gave clarity on some issues, many others were left unresolved. In reality, there are more uncertainties than there were before. These include:
Conclusion
The impact of Thorne v Kennedy reaches beyond cases where a party is seeking to set aside a financial agreement for a vitiating factor such as duress, undue influence or unconscionable conduct. Whilst its most obvious effect will be on lawyers (and their clients) negotiating pre-nuptial agreements where the parties have unequal bargaining power, Thorne v Kennedy is a salutary warning to all lawyers to be careful when negotiating and advising on all financial agreements, and possibly property settlement orders under s 79 and 90UM. It is also a useful reminder we are dealing with contracts. Financial agreements are a form of contract but they are still contracts, and subject to contract law. There is nothing special about them to take them out of the realms of contract law. Despite the introduction of s 90G(1A)–(1C), which gives the court a discretion to save agreements which do not comply with the s 90G(1) requirements, the safest way to ensure a financial agreement is binding is to meet those requirements and for the terms of the agreement to result in a fair outcome for the less wealthy party.
© Copyright – Jacqueline Campbell of Forte Family Lawyers and Wolters Kluwer/CCH. This paper uses some material written for publication in Wolters Kluwer/CCH Australian Family Law and Practice. The material is used with the kind permission of Wolters Kluwer/CCH.
Jacky Campbell, October 2019
Why is this paper called “The Micawber principles”? Mr Micawber, in Charles Dickens’ David Copperfield is the eternal optimist. His famous phrase “Something will turn up” is probably reflective of why many people end up bankrupt. Judge Driver, in a case referred to in this paper, described a bankrupt as Mr Micawber.
Bankruptcy issues frequently arise when parties separate – either contributing to the reasons for the separation or as an outcome of the separation. This paper provides a brief introduction to bankruptcy law and the interaction between bankruptcy law and family law. It then examines some of the tricky issues which arise, as well as the most recent cases. As the 2005 amendments to the Family Law Act 1975 (Cth) (FLA) have not been heavily litigated, perhaps because many of the cases settle as the property pools are modest and trustees in bankruptcy are usually pragmatic and not funded for litigation with uncertain outcomes – the effect of these amendments is still not clear. This is an opportune time to look again at the intersection of bankruptcy and family law. Not only have there been some recent cases which change or challenge the assumptions lawyers have made as to the effect of the 2005 amendments, but in 2019, the economic environment is uncertain and bankruptcies may increase in number and frequency because of falling house prices, stagnant incomes and a slow economy.[1]
References to the sections of the FLA are given for married parties only. Similar provisions generally apply to de facto relationships caught by the FLA.
There are several ways in which a family law court has jurisdiction over bankruptcy matters. These are:
2.1. Matrimonial causes under the FLA. The “matrimonial causes” were extended by the Bankruptcy and Family Law Legislation Amendment Act 2005. In addition, all States and Territories (except Western Australia) referred jurisdiction in de facto financial causes to the Commonwealth in 2009/10. The “de facto financial causes” are similarly worded, but not precisely the same as the “matrimonial causes”. Both include proceedings between a party to a marriage (or a de facto relationship) and a trustee in bankruptcy for the other party.
Section 79 specifically provides, in relation to bankruptcy matters:
(1) In property settlement proceedings, the court may make such order as it considers appropriate:
(a) in the case of proceedings with respect to the property of the parties to the marriage or either of them–altering the interests of the parties to the marriage in the property; or
(b) in the case of proceedings with respect to the vested bankruptcy property in relation to a bankrupt party to the marriage–altering the interests of the bankruptcy trustee in the vested bankruptcy property;
including:
(c) an order for a settlement of property in substitution for any interest in the property; and
(d) an order requiring:
(i) either or both of the parties to the marriage; or
(ii) the relevant bankruptcy trustee (if any);
to make, for the benefit of either or both of the parties to the marriage or a child of the marriage, such settlement or transfer of property as the court determines….
(10) The following are entitled to become a party to proceedings in which an application is made for an order under this section by a party to a marriage (the subject marriage):
(a) a creditor of a party to the proceedings if the creditor may not be able to recover his or her debt if the order were made;
(aa) a person:
(i) who is a party to a de facto relationship with a party to the subject marriage; and
(ii) who could apply, or has an application pending, for an order under s 90SM, or a declaration under s 90SL, in relation to the de facto relationship;
(ab) a person who is a party to a Part VIIIAB financial agreement (that is binding on the person) with a party to the subject marriage;
(b) any other person whose interests would be affected by the making of the order.
(10A) Subsection (10) does not apply to a creditor of a party to the proceedings:
(a) if the party is a bankrupt–to the extent to which the debt is a provable debt (within the meaning of the Bankruptcy Act 1966 ); or
(b) if the party is a debtor subject to a personal insolvency agreement – to the extent to which the debt is covered by the personal insolvency agreement.
(11) If:
(a) an application is made for an order under this section in proceedings between the parties to a marriage with respect to the property of the parties to the marriage or either of them; and
(b) either of the following subparagraphs apply to a party to the marriage: (i) when the application was made, the party was a bankrupt;
(ii) after the application was made but before it is finally determined,
the party became a bankrupt; and
(c) the bankruptcy trustee applies to the court to be joined as a party to the proceedings; and
(d) the court is satisfied that the interests of the bankrupt’s creditors may be affected by the making of an order under this section in the proceedings;
the court must join the bankruptcy trustee as a party to the proceedings
If, at a particular time:
(a) a party to the marriage is a bankrupt; and
(b) the trustee of the bankrupt estate is:
(i) party to property settlement proceedings in relation to either or both the parties to the marriage; or
(ii) an applicant under s 79A of the Family Law Act 1975 for the variation or setting aside of an order under s 79 of that Act in property settlement proceedings in relation to either or both of the parties to the marriage; or
(iia) an applicant for an order under s 90K(1) or (3) of the Family Law Act 1975 in relation to the setting aside of a financial agreement of the parties to the marriage; or
(iii) a party to spousal maintenance proceedings in relation to the maintenance of a party to the marriage;
then, at and after that time, the Family Court has jurisdiction in bankruptcy in relation to any matter connected with, or, arising out of, the bankruptcy of the bankrupt.
A similar provision, s 35(1A), applies to de facto relationships. Section 35B applies to the Family Court of Western Australia.
2.3. The Federal Circuit Court has jurisdiction under the BA as well as under the FLA and can deal with a dispute by exercising jurisdiction under both Acts.
3.1. When is bankruptcy an option and what other options are there under the BA?
Bankruptcy is an option for a debtor who is unable to pay their debts as and when they fall due. A debtor may file a debtor’s petition. A creditor owed $5,000 or more can file a creditor’s petition.
A debtor filing for bankruptcy must file a Statement of Affairs at the same time, setting out such matters as their assets, liabilities, income and recent transactions and addresses. If a creditor’s petition is filed, the bankrupt has 14 days to file a Statement of Affairs from the date the sequestration order is made. The information in a Statement of Affairs can be helpful for the non-bankrupt spouse (as well as for the trustee).
A bankruptcy can end in one of two ways:
2.1. All debts, interest, charges, trustee’s expenses and fees are paid in full; or
2.2. The creditors accept a composition or arrangement; or
2.3. A bankruptcy court makes an order annulling the bankruptcy.
Other options for the potential bankrupt under the BA besides bankruptcy are:
3.2. What property vests in the trustee and what is exempt?
Upon bankruptcy, the bankrupt’s property vests in the trustee in bankruptcy under s 58 BA. There is a proviso to s 58 in s 59A which makes s 58 subject to an order under Pt VIII or VIIIAB FLA. Furthermore, property which is exempt under s 116 BA does not vest. Exempt property includes:
The right to take proceedings “for exercising all such powers in, over and in respect of property as might have been exercised by the bankrupt for his or her own benefit” at the commencement of the bankruptcy or during the bankruptcy is generally a property right which vests in the trustee (s 116(1)(b)). Certain causes of action do not vest. A right to claim a property settlement under s 79 or s 90SM FLA is a personal right which does not vest in the trustee. However, any property transferred to the bankrupt pursuant to a property settlement order which is not exempt (e.g. a superannuation split is exempt) vests in the trustee as after-acquired property (s 58(1)(b)).
Generally, creditors with debts which are provable in bankruptcy cannot continue to enforce their debts after bankruptcy. Debts provable in bankruptcy are defined in s 82(1) as:
All debts and liabilities, present or future, certain or contingent, to which a bankrupt was subject at the date of the bankruptcy, or to which he or she may become subject before his or her discharge by reason of an obligation incurred before the date of the bankruptcy are provable in his or her bankruptcy.
In simpler terms, a debt is provable “if there is a legally enforceable obligation upon which the debt is founded, being an obligation incurred before the date of bankruptcy” (Agresta v Trustee of F Agresta a Bankrupt [2015] FCA 463 at [30]; Jones v DCT (1998) 157 ALR 349). Judgment is not required for a proof of debt to be lodged. The bankrupt has no direct liability to the creditors after bankruptcy and the creditors no longer have a right of action for their debts (s 58(3)). Proceedings in respect of the non-payment of a provable debt, including to enforce payment, are stayed (s 60(1)(b) and (c)). Secured creditors usually rely on their security and do not prove in the bankruptcy, although they can choose to give up their security.
Child support, child maintenance and spousal maintenance debts receive special treatment in a bankruptcy. The creditor can prove in the bankruptcy, but enforcement proceedings outside of the bankruptcy can still continue (s 58(5A) BA). After being discharged from bankruptcy, a bankrupt is still liable for these debts (s 153(2)(c)) unless there is an order of the court. See Segler v Child Support Registrar [2009] FMCA 41; Segler v Child Support Registrar (No 2) [2011] FMCA 96.
There are obligations on parties to FLA proceedings to notify a bankruptcy trustee of the proceedings, and obligations on bankrupts to notify the other parties to the FLA proceedings and the court of the bankruptcy as well as to notify their trustee in bankruptcy of the FLA proceedings.
There are also obligations for parties to notify creditors where there is no bankruptcy but the proposed court order or financial agreement may mean that the creditor will not be paid (e.g. s79(10) FLA). These obligations are not covered in this paper.
A party to a marriage or de facto relationship or a party to a relevant case in relation to that marriage or de facto relationship (r 6.16 Family Law Rules 2004 (FLR)) who is also a bankrupt or a debtor subject to a personal insolvency agreement must, under r 6.17, notify:
(a) all other parties to the relevant case, in writing, about the bankruptcy or personal insolvency agreement;
(b) the bankruptcy trustee or the trustee of the personal insolvency agreement, as the case may be, about the relevant case in accordance with r 16.18;
(c) the court in which the relevant case is pending, in accordance with r 6.19.
Notice to a trustee must be in writing and be given within 7 days, or as soon as practicable, after the date on which the party becomes both a relevant party and a bankrupt or debtor (r 6.18). The notice must attach a copy of the application starting the relevant case, response (if any) and any other relevant documents. The date and place of the next court event must be given.
A relevant party who is a party to bankruptcy proceedings must give notice of the bankruptcy proceedings to the court in which the relevant case is pending and the other party or parties to the case (r 6.20(1)). The notice must be in writing, be given within 7 days or as soon as practicable after the date on which the party becomes a party to bankruptcy proceedings, and state the date and place of the next court event in the bankruptcy proceedings (r 6.20(2)).
There are no similar rules in the Federal Circuit Rules 2001(FCCR). Although the FLR do not expressly apply (r 1.05(3) FCCR), the Federal Circuit Court may apply the FLR (r 1.05(2) FCCR).
A trustee in bankruptcy is not automatically a party to property settlement proceedings. An action commenced by a person who later becomes bankrupt is stayed until the trustee elects in writing to prosecute or discontinue the action (s 60(2) BA). The election must be made within 28 days after notice of the action is served on the trustee (s 60(3)). If the trustee elects to continue FLA proceedings, what standing does the bankrupt have? And what if the trustee does not elect?
5.1 Standing of trustee
The trustee has standing to join the s 79 FLA proceedings if the conditions of s 79(11) FLA are met. The section provides:
If:
(a) an application is made for an order under this section in proceedings between the parties to a marriage with respect to the property of the parties to the marriage or either of them; and
(b) either of the following subparagraphs apply to a party to the marriage:
(i) when the application was made, the party was a bankrupt;
(ii) after the application was made but before it is finally determined, the party became a bankrupt; and
(c) the bankruptcy trustee applies to the court to be joined as a party to the proceedings; and
(d) the court is satisfied that the interests of the bankrupt’s creditors may be affected by the making of an order under this section in the proceedings;
the court must join the bankruptcy trustee as a party to the proceedings.
In Bethke & Bethke (2019) FLC 93-906 the Full Court rejected the argument by the bankrupt that his trustees in bankruptcy should not have been joined to the proceedings because the trial judge failed to consider whether joinder was in the creditors’ best interests or it was equitable and just. The Full Court said that if the s 79(11) requirements were met, the court must join the trustees as a party to the proceedings. The only real question to be asked in the circumstances of this case was whether the requirements of s 79(11)(d) were met. The Full Court said (at [49]-[51]):
The requirements in s 79(11)(d) will ordinarily be easily satisfied because it is axiomatic that:
(a) The interests of the bankrupt’s creditors are affected if the size of the bankrupt’s estate is less than the total amount owed to the creditors;
(b) The property of the bankrupt vests in the Trustee; and
(c) That property can either be increased or decreased as a result of an adjustment to the property of either the applicant or the respondent, held jointly or severally by the making of a property settlement order.
In this case:
(a) The Trustees’ assessment of the appellant’s direct financial contributions to the assets held jointly and severally by the parties was in the order of $21,000;
(b) The appellant’s creditors significantly exceeded his possible claim under s 79 of the Act. The primary judge was told one of the appellant’s debts exceeded $500,000 …
(c) The appellant had forged a mortgage for $385,000 which was registered against the property in the respondent’s name. The respondent sought that the mortgage be set aside under s 106B of the Act in the proceedings for the property settlement order; and
(d) If the respondent was successful in the proceedings, the appellant’s creditors in his bankruptcy were going to get less.
The primary judge, in this case, was correct in making an order joining the Trustees as parties to the proceedings having been satisfied that “the interests of the bankrupt creditors may be affected” and that the low bar set by s 79(11)(d) of the Act had been comfortably cleared in this case.
The procedure for any third party to become a party to a case is either by being named as a respondent by one of the parties to the case, or by applying to intervene in a case. The first option is the simplest – if the third party consents to being joined. A party to a case may add another person as a party by amending the application to add the name of the person (r 6.03(2) FLR).
The procedure for adding a person under r 6.03(2) is set out in r 6.03(3):
(a) file an affidavit setting out the facts relied on to support the addition of the new party, including a statement of the new party’s relationship (if any) to the other parties; and
(b) serve on the new party:
(i) a copy of the application, amended application, response or amended response; and
(ii) the affidavit mentioned in paragraph (a); and
(iii) any other relevant document filed in the case.
Justice Cronin in Pencious & Pencious [2010] FamCA 605 took issue with the apparent simplicity of an earlier version of r 6.03. He said (at [1], [2], [4]):
…In my view it is not that simple.
The recipient of the application for joinder as well as all other parties to the litigation must be able to identify what material facts give rise to a cause of action against the party sought to be joined. Perhaps the practical test is whether the application would enable the party so joined or to be joined, to respond, in the sense of filing a defence to the claim.
After pointing to the jurisdictional basis upon which orders are sought (if they are), the application for joinder (or the person seeking to defend having joined a person) must be able to show that the rights of those persons may be affected by an issue in the case but also that participation is necessary to enable the court to determine all issues in the case.
He agreed with the Full Court in B Pty Ltd and Ors and K (2008) FLC 93-380 which said (at [43]):
However, the narrative or descriptive nature of evidence is often unsuited to formulate or particularise a cause of action against a third party. Something resembling a statement of claim will generally be necessary.
In the Family Court, a person who is not a party to a case who seeks to intervene in a case must comply with r 6.05 FLR unless they are a person entitled to intervene without the court’s permission. Some examples are given, such as a creditor under s 79(10) and the Attorney-General. The person must file a Notice of Intervention by Person entitled to Intervene and an affidavit:
The Registry Manager must fix a date for a procedural hearing (r 6.06(3)).
A party may apply to be removed as a party to a case by filing an Application in a Case (r 6.04).
The trustee is not obliged to join the proceedings and can seek to be dis-joined if they object to continuing. The trustee may not want to be a party after weighing up the costs of the proceedings as against the likely benefits, or lack of funding. However, a trustee may be a “necessary party” within r 6.02(1) as their “rights may be directly affected by an issue in a case”. To succeed in a dis-joinder application, the trustee will need to be prepared to abide by any orders made by a family law court.
5.2 Trustee elects to continue proceedings
If a trustee elects to continue the s 79 proceedings, a bankrupt loses the right to make submissions regarding vested bankruptcy property. The bankrupt must seek the leave of the court to make submissions (s 79(12)). Leave can only be granted in exceptional circumstances (s 79(13)). The bankrupt can, however, as of right, make submissions about property which has not vested, such as superannuation. These submissions will probably indirectly deal with vested property.
It is also possible that the trustee can elect to continue the s 79 proceedings under s 60(2) BA but not become a party and allow a creditor or the bankrupt to continue the proceedings relying on s 134 and s 178 BA. For example, a creditor was allowed to continue the proceedings in Vincent & Vincent and Anor [2016] FCCA 227 which is discussed later in this paper. These options have not been fully explored.
In Reua & Reua [2008] FamCA 1038 Stevenson J found that there were “exceptional circumstances” within s 79(13) to enable the bankrupt to make submissions about vested bankruptcy property because:
1. Neither the wife nor the trustee opposed the granting of leave.
2. The husband sought relief in respect of non-vested property so he was a participant in the proceedings anyway.
3. The husband had knowledge of the circumstances in which many of the unsecured debts were incurred. Although the husband’s evidence was useful to the court and the trustee, the bankrupt could have been a witness without being a party.
None of these seem to be “exceptional” circumstances in the sense otherwise used in the FLA.
5.3 Trustee does not elect to continue the proceedings – the problem of s 60 BA
The question of what happens if the trustee does not elect to continue the s 79 proceedings arose in Sloan & Sloan [2018] FamCA 610. The husband became bankrupt in February 2018. The trustee did not elect to continue the property and parenting applications instituted by the bankrupt prior to the bankruptcy.
The wife posed two main arguments against the husband being able to continue the litigation. The first related to the effect of the bankruptcy vesting provisions in the light of the High Court decision of Cummings v Claremont Petroleum NL (1996) 185 CLR 124, which went to the question of whether the husband’s right to litigate had vested in the trustee and, in any event, whether the husband had sufficient interest in the subject matter of the litigation to give him standing. The second related to the operation of s 60 BA.
Section 58 BA provides that property held by the husband at the time of his bankruptcy, along with property acquired by him during the period of bankruptcy, vests in the trustee. The consequence is that, to the extent that a right to litigate may be considered to fall within the definition of property within s 5 BA, it vests in the trustee. The definition of “property” within the BA is broad, and:
Means real or personal property of every description, whether situate in Australia or elsewhere, and includes any estate, interest or profit, whether present or future, vested or contingent, arising out of or incident to any such real or personal property.
Justice Gill noted (at [8]) that the High Court majority found in Cummings that “the definition is not such as to capture all rights to litigate as aspects of property under the BA.” The High Court was dealing with an attempt to commence an appeal by two bankrupt litigants, who became bankrupt following the hearing of the case but prior to judgment being handed down. The questions in Cummings were:
The husband relied upon cases dealing with the application of Cummings to family law litigation: O’Neill & O’Neill (1998) FLC 92-811 at [87] which discussed Page & Page (No 2) (1982) FLC 91‑241 and Reed & Reed; Grellman (1990) FLC 92-105. In Cummings, the Full Court accepted the position of Frederico J in Page that the right to litigate a s 79 application is a personal right that does not pass to the trustee in bankruptcy. Justice Frederico specifically referred to the operation of s 60 BA and indicated that the provision did not stop a bankrupt from bringing or continuing proceedings under s 79 FLA. Applying Cummings, the Full Court in O’Neill stated (at [88]):
Furthermore, the majority of the High Court in Cummings referred, without apparent disapproval, to the concept of “rights of action which do not pass to a trustee on bankruptcy because they are personal to the bankrupt and do not affect the quantum of the bankrupt estate” (emphasis added)… Although there must be a question as to meaning of the words…just quoted, it would appear to remain good law that a bankrupt spouse may initiate and prosecute property settlement proceedings during the course of his or her bankruptcy – although any property acquired would have to vest in the trustee by virtue of s58(1)(b) of the BA (apart from the limited classes of property exempted under s116(2) of that Act).
Reed, perhaps inconsistently with Cummings, supported the right to litigate at first instance due to the possibility of the fruit of a s 79 application outstripping what was to be recovered pursuant to the bankruptcy.
The wife relied upon Guirguis v Guirguis and Official Trustee in Bankruptcy (1997) FLC 92-726 (which predated and was considered in O’Neill) where the prospect of a surplus (consistently with Cummings) did not give standing to a bankrupt to pursue an appeal. She asserted that s 60 BA stopped the husband from conducting any proceedings other than proceedings in respect of property that, pursuant to s 116 BA, was not divisible among creditors, such as superannuation.
After considering the earlier cases, Gill J in Sloan concluded (at [20]):
Subject to the caution expressed by the Full Court regarding the qualification as to affecting the quantum, this supports the notion that s 79 proceedings fall into the category of actions that do not vest in the trustee as they are personal to the bankrupt.
Justice Gill dealt with the wife’s other arguments and concluded that the issue of standing identified in Cummings did not stifle the husband’s proceedings, but more problematic for the husband’s application was s 60 BA (at [26]) “from which a clear basis for the ending of the husband’s application flows”.
Section 60 BA states:
(1) The Court may, at any time after the presentation of a petition, upon such terms and conditions as it thinks fit: …
(b) stay any legal process, whether civil or criminal and whether instituted before or after the commencement of this subsection, against the person or property of the
debtor:
(i) in respect of the non-payment of a provable debt or of a pecuniary penalty payable in consequence of the non- payment of a provable debt; or
(ii) in consequence of his or her refusal or failure to comply with an order of a court, whether made in civil or criminal proceedings, for the payment of a provable debt; …
(2) An action commenced by a person who subsequently becomes a bankrupt is, upon his or her becoming a bankrupt, stayed until the trustee makes election, in writing, to prosecute or discontinue the action.
(3) If the trustee does not make such an election within 28 days after notice of the action is served upon him or her by a defendant or other party to the action, he or she shall be deemed to have abandoned the action.
(4) Notwithstanding anything contained in this section, a bankrupt may continue, in his or her own name, an action commenced by him or her before he or she became a bankrupt in respect of:
(a) any personal injury or wrong done to the bankrupt, his or her spouse or de facto partner or a member of his or her family; or
(b) the death of his or her spouse or de facto partner or of a member of his or her family. …
(5) In this section, action means any civil proceeding whether at law or in equity.
The underlying point made for the wife was that the specific exclusions in s 60(4) BA, which do not include family law proceedings, implicitly meant that proceedings instituted under the FLA are not exempted from the operation of the provision. This understanding of the operation of s 60 BA was consistent with the analysis of Carew J in Lincoln (Deceased) v Moore [2016] FamCA 547 and by Cronin J in Trent & Rowley [2014] FamCA 447.
It was common ground between the parties that the trustee was on notice of the current proceedings but that 28 days had not passed since the trustee came to be on notice. The trustee appeared on 11 May 2018 to advise the Court that the trustee had not yet made an election to prosecute or discontinue the action commenced by the husband.
Justice Gill distinguished Page, (at [35]):
It may be observed that the Husband’s s 79 application in Page was not on foot at the time of the bankruptcy, but post- dated it, meaning that s 60 of the Bankruptcy Act did not have operation in relation to the staying of those proceedings in any event. To the extent that Justice Frederico’s assertion as to “continuing an application” was a reference to the operation of s 60 of the BA in the context of pre-existing proceedings, it constitutes obiter dicta.
Justice Gill concluded (at [39]):
The plain meaning of the language used in the section is to apply to all civil litigation (other than the exempted classes). Litigation that relates to matters other than property caught by the vesting provisions is not exempted. The provision has a blanket effect, other than in the limited specific exceptions set out at s 60(4).
Justice Gill explained the breadth of the impact of s 60 BA on FLA proceedings (at [40]-[42]):
Given the breadth of the definition of “action” this also has the apparent and unwelcome effect that proceedings under Part VII of the FLA relating to children are also included (save potentially to the extent that they constitute injunctive protections relating to a “wrong done to the bankrupt…or a member of his or her family.”) resulting in their being stayed by a bankruptcy. This effect of s 60 makes no sense and potentially undermines the well-being of children, without any corresponding benefit being conferred on creditors (if such benefit could be weighed against the welfare of a child).
However, absent a relevant exception, this is the effect of the language used in the provision.
The broad operation of s 60(2) and (3) means that in the event that the trustee has not made an election to prosecute the current proceedings, then they are first stayed and then abandoned. This, on its terms, includes all aspects of proceedings, including child-related proceedings.
However, in relation to the husband’s contempt application which he issued after he went bankrupt, Justice Gill found (at [43]) that it was not affected by s 60 BA. Further, as it was not a property right, it was able to continue.
Following the delivery of reasons further orders were made. The orders included a notation that Justice Gill had been advised by the parties that the trustee had made an election pursuant to s 60(2) BA following an order made by Justice Thawley of the Federal Court to extend the period of time available to the trustee to make that election. An order was made joining Mr G as Trustee of the property of Mr Sloan (a bankrupt) as Second Applicant in the proceedings.
In Biddick & Etier [2018] FamCA 744, s 60 BA was also a problem. In July 2018, the husband and the wife executed documents for property orders to be made by consent. Essentially, they each kept the property in their respective names and possession. The proposed orders included the following problematic provision, for which no power to make the order could be identified (at [6]):
That Ms Biddick immediately cease and desist in publishing (in any form) or verbalising defamatory statements that are directed or pointed or inferred at Mr Etier. That at all times information held by the parties by either of them remain confidential. That settlement between the parties confers that all legal disputes between the parties are settled and neither party will commence any proceedings against either party at any time.
A further problem was that the wife became bankrupt after the proceedings commenced. Section 60 BA was therefore relevant. Justice Gill referred to his earlier case of Sloan and noted (at [13]):
It should, however, be noted that Ms Biddick’s right to litigate, insofar as it concerns ‘property that will not form a part of the estate available for distribution to creditors, but rather will deal with interests that will lie with the bankrupt’ remains, as Ms Biddick retains standing in relation to these aspects. Whether this will result in her recommencing proceedings remains to be seen.
The staying of the proceedings meant that absent the election by the trustee, the proposed consent orders could not be made and Ms Biddick’s application was deemed to be abandoned. This meant that the proposed consent orders could not be made into orders. The matter was relisted for directions, to enable the husband to have the proceedings finally determined. Justice Gill noted the right of the wife to recommence FLA proceedings in relation to exempt property.
A similar approach to s 60 was taken by Cronin J in Trent & Rowley [2014] FamCA 447. He referred to Cummings and said (at [1]):
A bankrupt’s contingent interest in a surplus in his or her estate does not alone give a right or entitlement which would allow him or her to sue to enforce proprietary rights.
The majority in Cummings referred to the possibility that where a trustee declines to exercise their power to sue or to appeal against a judgment, the bankrupt may apply to a court (exercising BA jurisdiction) for an order under s 178 BA. Section 178 BA has now been repealed, but it stated:
(1) If the bankrupt, a creditor or any other person is affected by an act, omission or decision of the trustee, he or she may apply to the Court, and the Court may make such order in the matter as it thinks just and equitable.
(2) The application must be made not later than 60 days after the day on which the person became aware of the trustee’s act, omission or decision.
Section 178 has been replaced by the much lengthier s 90-15 Insolvency Law Reform Act 2016(Cth) (ILRA) the relevant part of which commenced on 1 September 2017. The extent to which the old s 178 is preserved in the new provision is uncertain.[2] It may enable proceedings to be continued by a bankrupt or creditor instead of by the trustee if the trustee does not elect, or elects and does not want to take part in the proceedings.
Under the Sloan line of authority some earlier cases where the trustee chose not to intervene would have been decided differently. If the bankrupt is the applicant even in parenting proceedings, unless the trustee elects to continue the proceedings, the bankrupt’s application is deemed to be abandoned. The non-bankrupt spouse may still be able to continue the proceedings if they have filed a Response and will become the applicant (r 10.11(3) FLR). The respondent will become the applicant. The bankrupt may need to try to re-file and the BA does not prevent this.
5.4 Creditor’s standing
The standing of a creditor to be a party to FLA proceedings is less clear than that of the trustee and the bankrupt. Section 58(3) BA states:
Except as provided by this Act, after a debtor has become a bankrupt, it is not competent for a creditor:
(a) to enforce any remedy against the person or the property of the bankrupt in respect of a provable debt; or
(b) except with the leave of the Court and on such terms as the Court thinks fit, to commence any legal proceeding in respect of a provable debt or take any fresh step in such proceeding.
The limited role of creditors to continue or institute proceedings after bankruptcy was discussed in Fraser v Commissioner of Taxation & Official Trustee [1996] FCA 1801, where Beaumont J said (at [42]):
The point is that there is no scope for any role to be played by individual creditors acting on their own initiative; if litigation is to be instituted with a view to the recovery of assets, it is the trustee’s function and responsibility to be the dominus litis and thus entirely in charge of the litigation to the exclusion of individual creditors. In other words, the relevant scheme of the legislation specifically that of s 58(3), is that individual creditors have no right to decide to pursue, or not pursue, the assets of the bankrupt with a view to the satisfaction of individual debts
A creditor is entitled to be a party to s 79 proceedings if the creditor may not be able to recover their debt if a s 79 order is made (s 79(10)(a)). Section 79(10) does not apply to a creditor if the debtor is bankrupt and the debt is a provable debt or covered by a PIA (s 79(10A)).
However, in Vincent & Vincent and Anor [2016] FCCA 227 Judge Riethmuller allowed the creditor to join the proceedings as the beneficiary of the trustee in circumstances where the trustee in bankruptcy had elected not to join the proceedings (unless funded). He said (at [13]; [20]):
Ordinarily the trustee in bankruptcy is the appropriate person to bring or defend proceedings. It is open to the court to direct the trustee to do so. However, there is a practical problem if the trustee is not in funds and the creditors cannot fund the suit. In such a situation it would be unjust to the creditors not to allow them to represent themselves and pursue the suit for the benefit of the trust estate (indirectly for their even benefit). Whilst such an exercise is unusual, it is open if the justice of a particular case demands. To hold otherwise would allow impecuniosity (potentially caused by the bankrupt) to deny a significant creditor a remedy.
(…)
I am satisfied that on the present material the Intervenor has a prima facie case that the husband’s property or part thereof should not be settled on the Wife under s 79 of the Family Law Act 1975. Significantly, this is not a case where the Intervenor is pursuing a claim, rather she is now defending the bankrupt estate against a claim by the Wife.
Another example, similar to Vincent, arose in Van Dyke v Lo Pilato, in the matter of Sidhu [2016] FCA 1347. Justice Katzmann in the Federal Court granted leave to the largest creditor of the bankrupt estate to commence proceedings under s 79A FLA on the basis that she entered into undertakings:
Justice Katzmann explained why she granted leave to the creditor (at [30]):
Here, Ms Van Dyke does not seek any undue advantage over other creditors. The purpose of her application and, if it succeeds, the effect of her action under s 79A is to augment the bankrupt estate for distribution between all creditors. Ms Van Dyke has given an undertaking to facilitate this course. The willingness of an applicant to enter into an undertaking to hold the benefit of any order made in the Family Court proceedings on behalf of the bankrupt estate has been held to render proceedings of that kind in the interests of “the general body of creditors”…
Other factors Katzmann J considered to be relevant were:
The above cases can, perhaps be explained in part, by the preference of a court for there to be a contradictor rather than the proceedings be undefended.
Any property recovered by a creditor or bankrupt must be paid to the trustee of the bankrupt. The inability of the Family Court to order that a payment be made directly to an unsecured creditor of a bankrupt was made clear in Trustee for the bankrupt estate of Lasic & Lasic (2009) FLC 93-402. The Full Court understood the trial Judge’s concern that if the husband’s entitlement was paid to the trustee, the creditor Mr M would receive nothing. Reluctantly, the Full Court concluded that ordering a direct payment by the wife to Mr M was not within the trial Judge’s power.
The property in the bankrupt estate may be expanded by the trustee in bankruptcy taking action to seek, for example, the recovery of property transferred prior to the date of bankruptcy by a spouse (who is later bankrupted) to a non-bankrupt spouse. Any property clawed back is declared to be property of the bankrupt (and is part of the bankrupt estate) under s 58(1) BA.
The trustee can rely on the following claw-back provisions for recovery of property under the FLA and the BA:
– had the effect of giving the creditor a preference, priority or advantage over other creditors; and
– was made within a certain period, usually 6 months before the bankruptcy commenced
The BA provisions above must be read subject to the protection given to contain transactions, such as those for market value, under s 123 BA.
The trustee can also rely on back-dating of the commencement date of bankruptcy, usually to the earliest act of bankruptcy within 6 months of the date on which the creditor’s petition was presented or the sequestration order was made (s 115 BA). For example, under s 40(1)(o) BA, if the debtor becomes insolvent as a result of one or more transfers of property in accordance with a financial agreement under the FLA to which the debtor is a party, this is an act of bankruptcy. The trustee may be able to apply under the BA to set aside the transfer made pursuant to the agreement, although the transfer was otherwise made prior to the time limits in s 120, 121 or 122 BA.
A case which seems to have had a revival recently, in that it has been referred to and followed is Trustee of the Property of John Daniel Cummins v Cummins [2006] HCA 6. In 2000, Mr Cummins, a Queen’s Counsel, had not submitted a tax return for 45 years. He went bankrupt and shortly afterwards he and his wife separated. At issue was a transfer of his 50% interest in the former matrimonial home as a joint tenant, 13 years prior to the bankruptcy.
The wife argued that even if the transfer was void under s 121 BA, she beneficially owned a portion of the bankrupt’s legal interest in the home by way of a resulting trust arising from her contributions to the purchase and construction costs.
The High Court rejected the wife’s argument and found that even after the transfer of the husband’s 50% legal interest, he still had a 50% beneficial interest. The High Court said (at [71]):
The present case concerns the traditional matrimonial relationship. Here, the following view expressed in the present edition of Professor Scott’s work [The Law of Trusts, 4th ed (1989), Vol 5, 5443 at 197-198] respecting beneficial ownership of the matrimonial home should be accepted:
“It is often a purely accidental circumstance whether money of the husband or of the wife is actually used to pay the purchase price to the vendor, where both are contributing by money or labor to the various expenses of the household. It is often a matter of chance whether the family expenses are incurred and discharged or services are rendered in the maintenance of the home before or after the purchase.”
The High Court rejected the wife’s arguments that equity should intervene to displace the doctrine of resulting trust and override the joint tenancy which was formerly registered on the title. This was primarily because the parties had lawyers acting for them when they purchased the home who probably advised the parties of the option of registering their ownership of the home as tenants in common. Instead, the parties chose a joint tenancy with the prospect that one party would take the whole property upon the death of the other by way of survivorship. Further evidence that the wife did not have a two-thirds rather than a half interest in the home was that she paid stamp duty on the whole of the half interest when it was transferred to her in 1987, not on the one-third interest which she was arguing was the only part she did not beneficially own.
Cummins sits uncomfortably with the principles of trust law and has, until recently, not been given much credence. Perhaps a case where the just result required some twisting of the law of trusts?
There are many case examples of clawback transactions. One example is Turner as Trustee of the Bankrupt Estate of Wallace v Wallace [2017] FCCA 3044 has a family law flavour, although Judge Riethmuller in the Federal Circuit Court was exercising BA jurisdiction.
The chronology of events was:
The primary claim of the trustee with respect to the Robina property was that it was transferred without consideration. Relying on Trustee of the Property of Cummins (a bankrupt) v Cummins [2006] HCA, Judge Riethmuller said that where a husband and wife purchase a matrimonial home, each contributing to the purchase price, it may be inferred they each intended to have a half interest. Judge Riethmuller found that the interest in the Robina property registered in the name of the bankrupt was not held on trust for the non-bankrupt spouse. ‘Natural love and affection’ was not sufficient consideration to be a defence under s 120 BA. The claims by the wife of constructive trust and resulting trust were rejected.
There was no evidence of any other consideration at the time of this transfer. The transfer was therefore prima facie void against the trustee, subject to any defence that the non-bankrupt spouse may have had under the section.
With respect to the Sandringham property the trustee primarily relied upon s.121BA. Section 121BA was also an alternative claim with respect to the Robina property if the view was taken that the Robina property was gifted in 2004 when the first transfer (which was never lodged) was executed. Robina was the parties’ holiday home and later became their retirement home.
It was argued by the wife, in the alternative to the constructive trust and resulting trust claims, that the Robina property was gifted or transferred in equity to the non-bankrupt spouse in 2004 when the transfers were signed and stamped. As the 2004 transfer was never lodged at the Titles Office, it was not a case where a gift could be said to be completed at law. The bankrupt had given the signed transfers to the solicitor acting for both the bankrupt and the non-bankrupt spouse. The evidence suggested that the solicitor was nonetheless acting as agent of the bankrupt, awaiting his instructions with regard to the transfers. The donor therefore had not done all that was required to put the matter outside of his control and therefore in equity it was no more than an imperfect form of gift (Corin v Patton [1990] HCA 12; (1990) 169 CLR 540).
Judge Riethmuller considered the position if he was in error. What result would flow under s 121 BA if the first transfer was a perfected gift of the Robina property to the non-bankrupt spouse or created a beneficial interest for the non-bankrupt spouse? Judge Riethmuller said that he had no doubt that, but for the transfers to the non-bankrupt spouse, the bankrupt’s shares in the Sandringham and Robina properties would have been part of the bankrupt’s estate.
The crucial question under s 121 BA was whether “the main purpose in making the transfer was to prevent the transferred property from becoming divisible among the transferor’s creditors”. In simple terms, was the property gifted to the non-bankrupt spouse to ensure it was not an asset of the bankrupt should he be sued or sequestrated by his creditors? It was for the trustee to prove the main purpose of the transfers. The trustee did not have the benefit of the presumption in s 121(2) as on the evidence it did not appear that the bankrupt was, at the time of the transfers in 2004, either insolvent or about to become insolvent.
Judge Riethmuller noted a number of important surrounding facts (at [88]):
Foreshadowing that a FLA claim might be made, Riethmuller J tried to bring the litigation to an end by discouraging such a claim. He said (at [93]):
Given the age of the respondent and bankrupt, and the nature and length of the marriage, it is difficult to see how the respondent would obtain more than 50% of the assets if any adjustment were to be made under s.79 of the Family Law Act, in any event. The respondent already has a 50% interest in the properties, and therefore unlikely to be able to show it was just and equitable to make orders under s.79: see Stanford v Stanford [2012] HCA 52.
In an earlier case reported as [2016] FCCA 9634, a 2004 transfer of the bankrupt’s interest in a Brighton property was set aside under s 121 BA.
In the case of liquidations there are clawback provisions in the Corporations Act 2001 (Cth) (CA). D Pty Ltd (in liquidation) v Calas (Trustee) in the matter of D Pty Ltd (in liq) [2016] FCA 1409 is a recent example.
On 7 December 2012, the Family Court made orders by consent. The husband was to pay $500,000 into a trust account in the name of the wife. The initial $300,000 was from the sale proceeds of a property owned by C Pty Ltd with the balance to be paid from the sale of a property owned by D Pty Ltd. The husband was associated with both companies. The wife said that he had de facto control if he was not the director. The orders signed by the parties were different from those made by the Court.
On 10 July 2014, the wife applied in the Family Court to enforce the orders. The wife became bankrupt on 9 August 2014. On 22 August 2014, D Pty Ltd was placed into liquidation. The Family Court in Megalos & Katsaros [2015] FamCA 1094 gave the wife’s trustee in bankruptcy leave under s 471B CA to pursue and continue the enforcement action, declared that the property owned by D Pty Ltd was charged with satisfaction of the husband’s obligations under the consent orders and that all monies received by the liquidator in relation to the sale of the property owned by D Pty Ltd were held on trust for the benefit of the wife’s trustee in bankruptcy. The liquidator brought proceedings in the Federal Court and argued that when the husband and wife agreed to settle their FLA proceedings with terms which included the giving of a charge over the property owned by D Pty Ltd, that this amounted to an unreasonable director-related transaction within s 588FDA CA.
The Federal Court found that the liquidator was unable to make out all of the elements of s 588FDA. Justice Moshinsky considered that if s 588FDA had been satisfied, he would not have set the transaction aside, but would have transferred the proceedings to the Family Court.
A case dealing with s 588FDA and financial agreements is Kirjuna (as Liquidator of ET Family Pty Ltd) v Taouk [2015] FCA 424.
The Treasury Laws Amendment (Combating Illegal Phoenixing) Bill 2019[3] was reintroduced into Federal Parliament on 4 July 2019 and will extend s 588FDA with the objective of combatting creditor-defeating dispositions. A previous bill lapsed with the calling of the last federal election. The bill introduced new criminal offences. Illegal asset stripping will attract a penalty of up to 10 years imprisonment.
Section 106B FLA is also available to the trustee if the trustee can establish the requirements. It is generally considered to be easier for a trustee to succeed under s 106B FLA than under s 120, 121 or 122 BA.
In Roberts and Ors & Pedrana & Ors [2013] FamCA 224 a s 106B order was made in favour of the wife and the husband’s trustee. A disposition to the husband’s parents of $280,000 was set aside and $50,000 of it was payable to the wife and the balance to the trustee.
A family law court has power to alter the interests of a bankruptcy trustee in the vested bankruptcy property (s 79(1)(b)). In making determinations under s 79 (property) or s 82 (maintenance), s 75(2)(ha) FLA requires the Court to consider:
… the effect of any proposed order on the ability of a creditor of a party to recover the creditor’s debt, so far as that effect is relevant.
However, the interests of creditors are only one factor amongst many to be considered under s 75(2) and their interests are not given more or less weight than the other s 75(2) factors. The interests of a bankruptcy trustee or unsecured creditor do not arise elsewhere in the s 79 process unless they are entitled to be considered as “legal and equitable interests” to be determined by the court under s 79(1) (see Stanford v Stanford (2012) FLC 93-518). Doubt has been cast by the Full Court of the Family Court on whether unsecured liabilities are “interests” (e.g Bevan & Bevan (2013) FLC 93-545 and Layton & Layton [2014] FamCAFC 120). Despite this doubt, in many cases where neither party is bankrupt, the parties and the court agree that certain debts be deducted from the gross property pool when calculating the property available for division between the parties in line with Biltoft & Biltoft (1995) FLC 92-614. In cases where a party is bankrupt the interests of the trustee may be protected by applying Biltoft. Commissioner of Taxation & Worsnop (2009) FLC 93-392 and Trustee of the Property of G Lemnos & Lemnos (2009) FLC 93-394 are examples of the application of s 75(2)(ha). Worsnop is discussed later in this paper.
The extent to which s 75(2)(ha) covers the interests of a trustee as opposed to a creditor may, however, be re-considered following the Full Court decision of Bloomfield & Grainger and Anor (2015) FLC 93-677, which is also discussed later in this paper.
In Biltoft & Biltoft (1995) FLC 92-614 the Full Court looked at the position of unsecured creditors saying (at p 82,124):
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… Gibbs J. (as he then was) pointed out at p 355 [in Ascot Investments] that the Court “must take the property of a party to the 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…
The Full Court then set out some limitations on this principle (at p 87,127):
Notwithstanding the general practice which has developed, the Court has indicated that it may properly determine not to take into account or to discount the value of an unsecured liability in certain circumstances. Such liabilities would include but are not limited to a liability which is vague or uncertain, if it is unlikely to be enforced or if it was unreasonably incurred.
The Full Court concluded in relation to the general rule (at p 82,128-9):
The rule is not absolute, is not prescribed by the statute and there are a number of well recognised exceptions…. 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, taken 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.
The Full Court of the Family Court in Puddy & Grossvard (2010) FLC 93-432 was clear that both s 79(10)(a) and s 75(2)(ha) refer to debts which are uncontroversial.
There is a history of the Family Court being concerned to ensure that revenue authorities, such as the Australian Taxation Office and State Revenue Offices, are paid (eg. Chemaisse & Chemaisse (1988) FLC 91-915). Priority has been given to tax debts over the interests of the non-bankrupt spouse and other unsecured creditors (Hannah & Hannah; Tozer & Tozer (1989) FLC 92-052). However, Coleman J in Lemnos & Lemnos (2009) FLC 93-394 considered that the Australian Taxation Office no longer had priority over other creditors due to the Insolvency (Tax Priorities) Legislation Amendment Act 1993. Among other amendments, s 123(5) BA was deleted. This section protected payments of tax. The trial Judge, Le Poer Trench J, for different reasons, reached the same conclusion. He said (cited at [127] of the Full Court’s judgment):
I have some concern with the outcome of this case insofar as the creditor principally to lose out in this case is the Australian Tax Office and therefore the tax payers of this land. The question should realistically be asked why the wife should ultimately prosper at the expense of the public purse. The answer so far as I am concerned is that the Family Law Act as now standing provides for that to be the outcome in appropriate cases. The legislation does not elevate the status of creditors to a ranking above the other considerations.
Although not a bankruptcy case, Commissioner of Taxation & Worsnop (2009) FLC 93-392 illustrates the application of s 75(2)(ha). The Commissioner of Taxation appealed against an order that the former matrimonial home be sold and, after the costs of sale, the proceeds be divided equally between the wife and the Commissioner. The only substantial asset was the home worth $4.75 million. There was conflicting evidence as to the wife’s knowledge of the husband’s tax avoidance but the trial Judge accepted that the wife did not know. The trial Judge made no adjustment in favour of the wife for s 75(2) factors although she had the primary care of 4 children aged between 1¾ and 13 years and this affected her earning capacity. Her s 75(2) factors were off-set against the husband’s indebtedness to the ATO as a factor in the Commissioner’s favour under s 75(2)(ha).
In balancing the competing claims of the wife against the Commissioner, the Full Court found that the trial Judge clearly appreciated the critical features of the exercise, and said (at [86]):
In our view, the Commissioner of Taxation is in a position distinguishable from that of a commercial creditor. Commercial creditors have a choice about to whom they extend credit. On the other hand, the position of the Commissioner as a creditor of taxpayers is of a completely different origin. The onus is on taxpayers to make full and proper disclosure to the Commissioner of Taxation. The Commissioner does not extend credit at all, but becomes a creditor by virtue of the conduct of the affairs of the taxpayer. As seen, Rose J gave “…much weight to the fact that the outstanding tax indebtedness of the husband is a debt to the Crown and implicitly there is a public interest issue”, though he also recognised that the Commissioner had no priority over the wife’s claims.
The 2005 Act did not give a trustee in bankruptcy the right to institute proceedings under the FLA. Section 79 gives a right in personam and this does not vest in the trustee (Page & Page (No 2) (1982) FLC 91-241; Reed and Reed; Grellman (Intervener) (1990) FLC 92-105; Audet v Audet; Official Trustee in Bankruptcy (Intervener) (1995) FLC 92-607). The trustee may, if proceedings have already been instituted, be able to continue the s 79 proceedings. It then has other options, such as to make a claim under s 106B FLA to claw back property or seek that the Court exercise jurisdiction outside its usual jurisdiction on a cross-vested or accrued basis. In Doisy v Wilmont-Doisy [2009] FamCAFC 14 the Full Court confirmed that there is jurisdiction for the court to make a declaration under s 78 FLA in favour of a third party, in that case the husband’s second wife.
Unless the non-bankrupt spouse issues FLA proceedings or FLA proceedings have already commenced at the time of the bankruptcy, a trustee trying to increase the property available to the creditors is left only with the option of claims under the BA, including equitable claims.
In the reported cases the non-bankrupt spouse is generally more successful in claiming that property which has vested in the trustee should be transferred to the non-bankrupt spouse than the trustee of the non-bankrupt spouse in claiming against or even retaining all the vested bankruptcy property. The s 75(2) factors favour the non-bankrupt spouse and the trustee rarely improves its position.
A significant problem for the trustee is whether the bankrupt is willing to co-operate with the trustee. The bankrupt’s evidence can be essential to maximise the assessment of contributions in favour of the bankrupt (and therefore the trustee) and minimise the assessment of s 75(2) factors in favour of the non-bankrupt spouse. A bankrupt may be either totally unco-operative or very co-operative, perhaps motivated by vengefulness or by a desire to achieve an annulment of their bankruptcy.
Many of the reported cases involve debts where the total is much greater than the gross property pool, so there is no prospect of them all being paid in full and no opportunity for the bankrupt to achieve an annulment (e.g. Johnson & Johnson [1999] FamCA 369; Trustee of the Property of Lemnos & Lemnos (2009) FLC 93-394; Commissioner of Taxation & Worsnop (2009) FLC 93-392). An interesting but unresolved question is whether the overwhelming size of the liabilities relative to the value of the gross property pool does, or should, influence the court in determining whether it is just and equitable to make an order and if so, what order. In many cases reference is made by the court to there being little or no prospect of payment to creditors at all or in full.
Section 90K(1)(aa) states that one of the grounds where a financial agreement may be set aside is:
a party to the agreement entered into the agreement:
(i) for the purpose, or for purposes that included the purpose, of defrauding or defeating a creditor or creditors of the party; or
(ii) with reckless disregard of the interests of a creditor or creditors of the party.
The ability of a trustee in bankruptcy to set aside a financial agreement after the husband was discharged from bankruptcy was considered by the Family Court in Official Trustee in Bankruptcy & Galanis [2014] FamCA 832 and by the Full Court of the Family Court in Official Trustee in Bankruptcy & Galanis (2017) FLC 93-760.
The matrimonial cause under consideration in Galanis was (eab) of s 4 FLA which gives the court power to deal with “third party proceedings (as defined in s 4A) to set aside a financial agreement.”
The trustee argued that it had standing to bring the proceedings as it was a “government body” within s 4A(1)(b)(iii) which provides:
(1) For the purposes of paragraph (eab) of the definition of matrimonial cause in subsection 4(1), third party proceedings means proceedings between:
(a) any combination of:
(i) the parties to a financial agreement; and…
(b) any of the following:
(i) a creditor
(iii) a government body acting in the interests of a creditor;
being proceedings for the setting aside of the financial agreement on the ground specified in paragraph 90K(1)(aa).
The trial judge, Rees J, found that the Official Trustee was not a government body but a statutory trustee. She also found that it would be completely anomalous if one category of trustee (the Official Trustee) were advantaged by the right to make an application under the FLA where another trustee, who was not the Official Trustee, did not have that right.
The trustee also argued that the matter was a “matrimonial cause” within s 4(1)(cb) being:
(cb) proceedings between:
(i) a party to a marriage; and
(ii) the bankruptcy trustee of a bankrupt party to the marriage;
with respect to any vested bankruptcy property in relation to the bankrupt party, being proceedings:
(iii) arising out of the marital relationship …
Although the husband was discharged from bankruptcy under s 149(1) BA and the bankruptcy had ended, the bankrupt still had some ongoing obligations to the trustee. The trustee retained the right to make claims against the bankrupt in certain circumstances, limited by s 127(1) BA:
After the expiration of 20 years from the date on which a person became a bankrupt, a claim shall not be made by the trustee in the bankruptcy to any property of the bankrupt, and that property shall, subject to the rights, if any, of a person other than the trustee in respect of the property, be deemed to be vested in the bankrupt, or a person claiming through or under him or her, as the case may be.
In determining whether a trustee in bankruptcy could initiate proceedings against a discharged bankrupt at any time prior to the expiration of 20 years after bankruptcy, Rees J considered the Explanatory Memorandum to the 2005 amendments to the FLA and the BA and concluded that the term “bankrupt party” in s 4(1)(b) FLA did not mean a party to a marriage who had been discharged from bankruptcy and said (at [49], [52]):
The emphasis appears to be on closing off the avenue, which may have previously existed, that allowed a debtor to alienate property using a financial agreement so as to make that property unavailable, to his or her trustee in bankruptcy, for the payment of creditors. …
If the legislature intended that the provisions of the Act would apply to give jurisdiction to the Family Court of Australia to deal with proceedings between a party to a marriage and the trustee in bankruptcy of a discharged bankrupt, then those words could have been included.
Justice Rees dismissed the trustee’s application and ordered that the trustee pay the wife’s costs on a solicitor/client basis.
The Full Court in Official Trustee in Bankruptcy & Galanis (2017) FLC 93-760 agreed with Rees J and noted (at [457]):
As we pointed out at the commencement of these reasons, and as was accepted by the parties, in this case the Official Trustee can pursue its claim against the wife in other courts without any need to set the agreement aside. What is in issue in this case is whether the Court has jurisdiction in determine the trustee’s claim to set the financial agreement aside.
The Full Court contrasted the position of Australian Securities & Investments Commission (ASIC) with the Official Trustee. ASIC is a Commonwealth entity for the purposes of the Public Governance, Performance & Accountability Act 2013. Under s 18AA BA the Official Trustee is expressly not a Commonwealth entity.
Since Galanis, the Civil Law & Justice Legislation Amendment Act 2018 amended the BA, to clarify that the Family Court has bankruptcy jurisdiction when a trustee in bankruptcy applies to set aside a financial agreement. The amended version of s 35 BA is set out earlier in this paper. Section 90K FLA was not, however, amended.
The question of the ability of a creditor and the trustee in bankruptcy to set aside a financial agreement was also considered by the Full Court in Grainger & Bloomfield (2015) FLC 93-677. The wife was bankrupt, but the trustee was not a party to the proceedings. Two months before going bankrupt, the parties to the marriage entered into a financial agreement and the wife transferred her interest in a property to the husband. For a court to have jurisdiction in proceedings to set aside the agreement under s 90K(1)(aa), the Full Court said that the proceedings must be between the parties to the agreement and either a creditor of one of those parties or “a government body acting in the interests of a creditor”. It was not contended before the Full Court that the Official Trustee was within the definition of “a government body” in s 4A FLA.
The Full Court concluded that Ms Bloomfield had standing as a creditor to apply under s 90K(1)(aa) FLA to set aside the agreement, and also under s 90K(3) FLA to seek ancillary orders (subject to a grant of leave under s 58(3)(b) BA). The creditor could not rely on other s 90K grounds. The Full Court agreed with Cassidy J that the creditor did not have standing to seek orders under s 90G(1). The trustee’s rights weren’t an issue in the appeal.
This decision has significant impact for creditors and for couples where one spouse is bankrupt. The rights of a creditor to apply to set aside a financial agreement were confirmed by the Full Court of the Family Court to survive a bankruptcy. The trustee cannot rely on the FLA, but must take action under the BA (although s 35 BA has been amended since, to at least partially, rectify this gap).
The impact of Bloomfield & Grainger may be broader than the obvious one on the rights of trustees with respect to financial agreements. A narrow reading of “creditor” for the purposes of s 90K(1)(aa) may extend to a narrow reading of “creditor” for the purposes of s 75(2)(ha). This narrow reading is supported by the fact that creditors and trustees generally each have specific provisions which apply to them in the FLA, for example s 79(10) and (11).
The assumption has generally been made that the court should take into account the interests of trustees in bankruptcy under s 75(2)(ha). There is no other obvious reference to their interests in s 75(2). Section 79(11) enables a trustee to apply to join the proceedings, but if their interests are of no relevance to the court, why would a trustee do that? If a narrow reading of s 75(2)(ha) is accepted and the interest of trustees are not to be considered, the trustee is limited to arguing equitable interests under s 79(10), the contribution-based entitlements of the bankrupt, s 106B claims and trying to bring BA claims.
In the future, unless there is legislative reform to expand s 75(2)(ha) to expressly cover trustees, trustees may do even worse than they have in the past.
Cases involving bankruptcy often increase the costs of the proceedings. There may be three parties or more, and the bankrupt is usually unrepresented thus increasing the length of hearings and making negotiated settlement of issues on an interim and final basis less likely. There may be other third parties besides the trustee in bankruptcy, such as liquidators, or directors and family members. The same restrictive legislative position applies where a party is bankrupt (s 117 FLA) but in practice costs orders are more commonly made in favour of and against third parties than between spouses.
In Megalos & Katsaros Pty Ltd [2017] FamCA 734, which was heard and delivered subsequent to the related proceedings of D Pty Ltd (in liq) v Calas (Trustee) in the matter of D Pty Ltd (in liq) [2018] FCA 1409, discussed earlier in this paper, the liquidator of C Pty Ltd and D Pty Ltd was ordered to pay costs to the wife’s trustee in bankruptcy and the bankrupt wife. The liquidators argued that the determination of costs should be delayed until the determination of the liquidator’s s 79A application. Justice Benjamin questioned why the liquidator had not made the s 79A application earlier because if the substantive consent orders were set aside, then the 2015 proceedings, for which costs were sought by the trustee, was moot. Justice Benjamin considered that regardless of the outcome of the s 79A proceedings, the factors on which those proceedings were based were in the knowledge of the parties in the s 79A proceedings. Furthermore, there was a possibility that more parties would join or re-join the proceedings. He considered it appropriate not to postpone the determination of the costs applications.
The trustee was in essence seeking orders against non-parties. The Full Court of the Federal Court held that the Family Court had jurisdiction to make an order against a liquidator who was a non‑party in Brent v Gough [1992] FCA 267. The liquidators conceded that there was jurisdiction, but argued that the discretion should not be exercised.
Party-party costs orders were made in favour of the trustee and the bankrupt wife. The claims for indemnity costs failed.
In West & West [2007] FamCA 681 the trustee had difficulty obtaining co-operation from the bankrupt. The wife offered to pay the primary debt of about $8,000 but not the costs of about $60,000 which arose from the creditor obtaining the judgment debt, the bankruptcy and the FLA proceedings, Federal Magistrate O’Sullivan (as he then was) found the costs were disproportionate to the debt and the property pool. Including the costs as part of the debts reduced the net pool by almost 25%. The trial judge was not referred to any authority that required the interests of the trustee to be taken into account, but only the interests of the creditors. He did not distinguish between the petitioning creditor’s costs and those incurred by the trustee. He ignored the order that the bankrupt pay the petitioning creditor’s costs of the bankruptcy proceedings. He found the trustee in bankruptcy was not a “creditor” within s 75(2)(ha). The trustee didn’t recover anything from creditors or its own fees and costs. The wife was given leave to seek a costs order against the trustee.
Just as orders for costs are rare in the Family Court, so are orders for security for costs. They are made under s 117 and the factors listed in s 117(2A) must be considered. Justice Butler in Brown and Brown; Eley and Henty (Interveners) (1991) FLC 92-265 ordered that the husband and the wife each provide $750 as initial security and gave the trustee liberty to make further applications for security for costs.
Case law update
Deputy Commissioner of Taxation v Vasiliades [2015] FCA 412
In 2002 Mr Vasiliades signed a contract which permitted him to nominate his wife as the purchaser of a property at 3 Towers Road Toorak. The purchase price was $4.6 million. In 2011, the Commissioner of Taxation commenced an audit of Mr Vasiliades’ affairs. In June 2014, the property was sold. The Commissioner of Taxation successfully sought freezing orders for the net proceeds of sale in [2014] FCA 1250.
The Deputy Commissioner of Taxation sought judgment against Mr Vasiliades in default, or alternatively, summary judgment. He also sought declaratory orders against Mr and Mrs Vasiliades that the net proceeds of sale in an account in the name of Mrs Vasiliades, which were subject to the freezing order, were held on trust for the benefit of Mr Vasiliades. Mr Vasiliades owed over $30 million for income tax, general interest charges, administrative penalties and shortfall interest charges.
The Commissioner submitted that Mr Vasiliades had an equitable interest in the net proceeds of sale of the property registered in the name of Mrs Vasiliades by virtue of a presumed or resulting trust. The purchase was funded partly by a joint loan to Mr and Mrs Vasiliades of $3.925 million and partly by contributions of money by them. The dwelling on the property was demolished and in 2005 a new family home constructed, financed by further joint loans. More joint borrowings were made against the property, and when the property was sold, the net proceeds of about $5.4 million were paid to Mrs Vasiliades. There was a dispute as to how much the parties had each contributed to a property which the parties had owned jointly prior to the Towers Road property. The parties had drawn down significant equity from the Towers Road property by way of joint loans from 2012 onwards, from about the time the Commissioner issued amended assessments.
Justice Pagone accepted that the legal ownership of the property was intended to be, and was, for the benefit of both parties jointly. Relying upon Cummins and Calverley v Green [1984] HCA 81, he found that the property was purchased by funds from joint loans making them both contributors to the purchase. The proceeds of sale were, therefore, held in part on behalf of Mr Vasiliades. Justice Pagone made declarations that Mr Vasiliades had an equitable interest in the property to the extent of about $2.7 million and Mrs Vasiliades held that amount for him.
Matech & Matech (No 2) [2018] FamCA 1029
Some years after the parties entered into a s 90B financial agreement, and whilst the parties were in an intact marriage, the husband became bankrupt. His bankruptcy was discharged by effluxion of time, two years before the parties separated.
The husband asserted that he had contingent liabilities under s 82(4) BA to the wife under the financial agreement. He said they were debts provable in his bankruptcy, the wife’s rights merged in his discharged bankruptcy and his liability to the wife had been discharged.
Judge Baumann rejected this argument:
Merrill & Burt [2018] FamCA 609
Justice Berman rejected the wife’s argument that the Family Court should not be satisfied that it was just and equitable for an order to be made that alters the parties’ property interests under s 90SM(1) FLA. Relying on Stanford & Stanford (2012) FLC 93-518, the wife contended that notwithstanding their 26 year relationship, the parties made a conscious decision (prior to the husband’s bankruptcy several years earlier from which he was discharged) to transfer ownership and control of the assets of the relationship to the wife because of the husband’s concern that the wife and children were “financially secure”.
The wife argued (at [61]) that:
It would be an affront to public interest if a person in the husband’s position was able to obtain financial protection afforded by the Bankruptcy Act and represent to the world at large that he is unable to pay his lawful debts while at the same time benefiting from and being able to recover property kept from his creditors which should have been available to meet his debts.
The husband denied that the transfer of property in late 2009 was the first step leading up to his voluntary bankruptcy in 2010 and highlighted the transparency of the transfers and that no action was taken by his trustee in bankruptcy under the BA in relation to the transactions.
Justice Berman concluded (at [93]) that the separation of the parties represented a “severance of the mutuality of the marital relationship”. Until then there had been the opportunity for consensual change to the arrangements in recognition of the changing circumstances of the family. It was therefore just and equitable to alter the parties’ interests in property.
Needham & Trustees of the Bankrupt Estate of Needham (2017) FLC 93-777
The wife appealed against orders which gave her 68% of the net proceeds of sale of the former matrimonial home valued at $3 million.
The parties were married for 14 years, aged in their early 70s and had two adult children together. The husband also had one child from a previous relationship and the wife had two other children. By the time of the trial the parties had been separated for 17 years, which was one of the unusual features of this case. It was the wife’s evidence that she and the husband had come to an “understanding” that she would retain the jointly owned home, on the conditions she maintained the property, looked after the children (including the husband’s two children) and their needs and made no further claim for any of the husband’s money.
On 16 February 2015 the husband was declared bankrupt. His trustees became respondents in the proceedings. It was agreed at the time of trial that the trustees’ total claim against the bankrupt estate of the husband was approximately $3.4 million. The husband’s bankruptcy occurred as a result of the husband’s actions after the parties separated, when he was working in the Middle East. The husband ceased employment with a particular firm, which ultimately commenced action against him claiming he sought to divert clients from that firm to another firm. Judgment was eventually made against the husband in the sum of $7 million.
The wife was not cross examined with respect to her assertion that, from the time of separation, she paid for the children’s clothing, dental and medical bills and attended to their emotional, social and physical needs. This occurred, without contribution from the husband, until each child acquired full time employment or moved out. The husband paid some school fees.
The Full Court agreed with the wife that the fact that the husband paid for two of his three children to attend boarding school (the oldest child was an adult at separation), did not give her an “enhanced opportunity to engage in her professional practice” as she had the sole care of five children, with such demands not diminished by two of those children attending boarding school.
The Full Court concluded in relation to the trial judge’s decision (at [25]-[27]):
Having regard to the reasons, it is clear that his Honour was in error in not giving appropriate consideration and weight to the following factors:
a) The wife contributed almost solely to the children’s welfare post separation;
b) While the husband did pay school fees for the parties’ children, this was a minor contribution in contrast to the overwhelming responsibility of that of the wife; and
c) The husband made no contribution to the property other than the wife having the sole use of a jointly owned house
It is not possible to ascertain from the reasons how the judge arrived at the figure of 63 per cent especially as he described the wife’s contributions as substantial. The basis of the move from qualitative to quantitative is not only impossible to discern, but the outcome is not reflective of the unchallenged evidence as to the respective contributions of the parties.
That evidence required a far greater percentage be attributed to the wife by reason of her post separation contributions.
The wife argued that the trial judge erred by including the wife’s personal and post-separation assets totalling about $40,000 in the pool. The trustees did not seek to include them. The Full Court agreed with the wife, saying (at [34]):
The order made by the judge provided the Trustees with the sum of $12,555 on account of the wife’s personal assets. Although it was open to the judge to compile a pool including assets acquired by the wife post separation it was not correct in the circumstances of this case to give the Trustees a share of them. This figure represents 32 per cent of assets to which the husband made little or no contribution, and cannot be justified. Instead, those assets should be considered in the context of the wife’s current circumstances as part of a decision addressing the s 75(2) matters. This ground must also succeed.
The Full Court rejected the wife’s argument that there was non-disclosure by the husband and inadequate investigation of the property of the husband, which warranted an adjustment in her favour.
It said (at [44]-[45]):
The Trustees contended that “the application of fairness and equity demands that any adjustment in the wife’s favour should be minimal.” In response to the wife’s complaint that the Trustees had failed to properly investigate the husband, it was submitted by the Trustees: