Findings
44 In my view the notice of motion of the respondent for an order that the substantive proceedings be stayed as an abuse of the process of the Court should be dismissed. I form this view for the following reasons.
45 First, in the circumstances of this case it is not clear to me how the commencement of proceedings by the applicant in the Federal Court is an "abuse of process". To paraphrase comments in Williams v Spautz (1992) 174 CLR 509, it is not clear to me how the process was issued for some collateral advantage, nor how the proceedings are being used by the applicant to obtain some advantage for which they were not designed. In support of her claim of abuse of process, the respondent contends in summary that:
· by force of the financial agreement between Mr Jensen and the respondent, the respondent became the equitable owner of the Carrara property; and
· the only available attack on the financial agreement is pursuant to s 90K of the Family Law Act.
46 In my view, the highest at which the respondent can place her case for abuse of process is in terms of Mr Griffin QC's contention that the applicant has sought to "stifle the respondent's legitimate claims" under the Family Law Act. However, no evidence to that effect has been produced, nor motive demonstrated to substantiate that claim other than the lawful entitlement of the applicant to pursue his rights under the Bankruptcy Act, and put a case based upon those rights to the Court.
47 Second, in my view a more accurate articulation of the respondent's claim in these interlocutory proceedings is that the Federal Court lacks jurisdiction to deal with the applicant's claims, allegedly because the correct forum for the claim of the applicant is the Family Court, and because the applicant should have commenced proceedings pursuant to s 90K of the Family Law Act in the Family Court. Clearly this Court has power to permanently stay or dismiss proceedings where the court has no jurisdiction because of lack of power, absence of legislative grant of jurisdiction, or otherwise (Rahman v Director-General Department of Education & Training [2005] NSWCA 285, Ramsay v Accident Compensation Corporation [2007] NZCA 367, Simundic v University of Newcastle [2007] FCA 676, Mentyn v Westpac Banking Corporation [2003] FCA 1521, Coffey v Secretary, Department of Social Security (1999) 86 FCR 434). A claim by a litigant that the court has no jurisdiction is however distinguishable from a claim that the litigation constitutes an abuse of process, unless of course the commencement of process for an improper purpose in the sense explained in Williams v Spautz (1992) 174 CLR 509 can also be identified. Absence of jurisdiction is commonly pleaded as an alternative to a claim for abuse of process. However even if I am wrong as to the basis of the respondent's claim in these interlocutory proceedings, the respondent has clearly contended that it was appropriate for the Court to permanently stay the substantive proceedings on the grounds that the proper course of the applicant in seeking to impugn the transfer of the Carrara property by Mr Jensen was to apply to the Family Court to have the entire financial agreement set aside pursuant to s 90K(1)(aa) of the Family Law Act. For reasons to which I now turn, I do not agree.
48 The respondent points to the decision of the Full Court in Mateo (2003) 127 FCR 217 as authority for the proposition that, in the context of an application by a trustee in bankruptcy under s 121, the "transfer" consists of the whole transaction ranging from the signing of the consent orders (or in this case, the execution of the financial agreement) through to the completion of the transfer of the interest by the husband, and that accordingly it is not possible for this Court to make a determination as to the transfer of the Carrara property without disturbing the financial agreement as a whole. However to the extent that this was the finding of the judge at first instance in Mateo (see in particular Mateo v Official Trustee in Bankruptcy (2002) 117 FCR 179 at 186) the Full Court were by no means supportive of this proposition (see for example Wilcox J at 235, Branson J at 249). Indeed as Wilcox J observed at 234:
[Tamberlin J at first instance took the view that] it was artificial to "isolate one individual component of the transaction as in itself comprising the transfer", rather than to "look at the overall transaction which has been implemented". He found support for this approach in Silvera v Savic.
49 His Honour continued:
I do not wish to cast doubt upon the correctness of the view expressed in Silvera v Savic and subsequent New South Wales cases, but I see difficulty in applying that view to s121 of the Bankruptcy Act... (S)ection 121 is concerned with a "transfer of property". This term is not defined by the Act, other than by the statement in s 121(9)(a) (and s 120(7)(a)) that it includes a payment of money. It seems to direct attention to the particular transaction, commonly a document, that changes title to the relevant property. However it is important to note that the transaction will not necessarily affect the legal title to the property... If the effect of a s 79 order requiring a party to a marriage to transfer an interest in real estate to the other party is to cause the designated transferor to become a bare trustee of the relevant legal interest, that is because the order has vested an equitable interest in the proposed transferee.
On this analysis, in the present case there were two vesting events; but only the second of them was a "transfer of property by a person who later becomes a bankrupt". The first event took place on 22 June 2000, when the Family Court made orders requiring, amongst other things, Mr Mateo to transfer to his wife all his right, title and interest in the home. The effect of that order was to vest in Mrs Mateo an equitable interest in the one-half legal estate that continued to be held by Mr Mateo, but which, thereafter, had only a nominal market value. The second event was the transfer of the legal estate that was effected by the registration of a transfer document on or about 10 August 2000. (127 FCR 217 at 234-235) (emphasis added)
50 I do not accept Mr Griffin QC's interpretation of the decision in Mateo as submitted - namely that if the financial agreement and the transfer are separated, the second part of the transaction is not a "transaction" within the meaning of s 120 and s 121 of the Bankruptcy Act because the relevant estate has already been transferred by force of the financial agreement (cf TS p 48 ll 27-38). Rather, as submitted by Mr McQuade, I consider the correct approach to be that in considering an application under s 120 and s 121 of the Bankruptcy Act, the Court considers the creation or transfer of the interest which is sought to be avoided, not the provision in the legal document (or other mechanism) which has created it. To illustrate this principle I need look no further than Rambaldi [2008] FCA 1957. The respondent in these proceedings claimed that Rambaldi [2008] FCA 1957 is authority that an applicant seeking to set aside a transaction pursuant to a financial agreement needs to "confront the financial agreement itself". However the clear outcome in Rambaldi [2008] FCA 1957 was that the Court set aside the purported equitable interest in the relevant property sought to be created by the financial agreement, not the financial agreement itself (cf [2008] FCA 1957 para [47]). While the terms of the financial agreement in Rambaldi [2008] FCA 1957 were clearly critical to the questions whether the relevant provisions of the Bankruptcy Act were satisfied and accordingly whether the interest of the non-bankrupt spouse should be set aside, the orders of the Court in Rambaldi [2008] FCA 1957 with respect to the financial agreement were limited to the validity of the creation of an interest in land purportedly created by the financial agreement. This outcome did not require an order that the financial agreement be avoided pursuant to s 120 or s 121. I consider that similar principles apply in the case before me. Whether the "transfer" in this case was the creation of an equitable interest in the Carrara property in favour of the respondent, or the actual transfer effected by the form 1 (an issue I need not resolve for the purposes of this notice of motion) the transfer can nonetheless be the subject of challenge pursuant to s 120 or s 121 of the Bankruptcy Act without the applicant being required to make application to set aside the financial agreement executed by Mr Jensen and the respondent. I consider that this approach is consistent with the findings of this Court in Macks v Edge (2006) 156 FCR 302 and Rambaldi [2008] FCA 1957, as well as the Full Court in Mateo (2003) 127 FCR 217.
51 In any event, as I have already observed, the key principle in my view emerging from the decision in Mateo (2003) 127 FCR 217 is that where property is transferred pursuant to orders of the Family Court - and accordingly, the transfer of property is not "a transfer of property by a person who later becomes a bankrupt" for the purposes of s 120 and s 121 of the Bankruptcy Act - the appropriate remedy of a trustee in bankruptcy seeking to have those orders set aside is to make application to the Family Court for variation of those orders (per Wilcox J at 236, Branson J at 252, Merkel J at 258). The facts in Mateo (2003) 127 FCR 217 are clearly distinguishable from the case before me - in these proceedings the Carrara property was not transferred pursuant to orders of the Family Court, but pursuant to a financial agreement under the Family Law Act (which is very different from orders made by a superior court).
52 Further, in my view the current legislative framework applicable to financial agreements contemplates that a trustee in bankruptcy may make application pursuant to both s 120 and s 121 of the Bankruptcy Act in the Federal Court to set aside a transfer pursuant to a financial agreement executed by the parties. In relation to the trustee's application pursuant to s 120 of the Bankruptcy Act in the instant proceedings, it is clear that:
· Section 120(2)(b) operates to specifically exclude transfers pursuant to maintenance agreements under the Family Law Act from the clawback effects of s 120(1).
· However following the Bankruptcy and Family Law Legislation Amendment Act 2005 (Cth) and the exclusion of "financial agreement" from the definition of "maintenance agreement" in s 5 of the Bankruptcy Act, the exclusion in s 120(2)(b) clearly no longer applies to financial agreements.
· As explained by the Explanatory Memorandum to the Bankruptcy and Family Law Legislation Amendment Act 2005 (Cth), the policy rationale for the amendment to the definition of "maintenance agreement" was to ensure that trustees can use the clawback provisions of the Bankruptcy Act to recover property transferred prior to bankruptcy pursuant to such an agreement.
53 The inference necessarily drawn as a result is that the legislature intended that a transaction pursuant to a financial agreement would not be protected in circumstances where subsequently a trustee in bankruptcy of a party to such an agreement seeks to have transactions set aside pursuant to s 120 of the Bankruptcy Act. This is notwithstanding the operation of s 90G of the Family Law Act, which provides that financial agreements are binding on the parties thereto without the necessity for an order of the Family Court.
54 The position is less clear in relation to s 121 of the Bankruptcy Act. Unlike s 120, s 121 makes no mention of maintenance agreements (or financial agreements). As I have already observed in this judgment, s 123(6) specifically provides that subject to s 121, nothing in the Bankruptcy Act invalidates, inter alia, a transfer made by the debtor before bankruptcy pursuant to a maintenance agreement. It therefore follows that a transfer of property pursuant to a maintenance agreement by a debtor who subsequently became bankrupt could be challenged by a trustee in bankruptcy pursuant to s 121. As I have also noted in relation to s 120, s 5 of the Bankruptcy Act now excludes financial agreements from the definition of maintenance agreement. This is a curious outcome, the reason for which is not clear. In my view a reasonable and logical explanation is that submitted by Mr McQuade for the applicant, namely that in the absence of a specific exemption for transactions undertaken pursuant to a financial agreement, such transactions are capable of being the subject of application by the trustee in bankruptcy of the transferor pursuant to s 121 of the Bankruptcy Act. Indeed this was the position prior to the 2005 amendments and in this respect there is (as I indicated earlier) particular relevance to the decision of Ryan J in Rambaldi [2008] FCA 1957, where his Honour accepted that a trustee in bankruptcy could apply pursuant to s 121 of the Bankruptcy Act to set aside an interest in real property following a financial agreement between parties to a marriage. (Another possible explanation, namely that the effect of the 2005 amendments to the Bankruptcy Act resulted in financial agreements being excluded from the operation of s 121, in my view is completely anomalous and has no merit.)