Macks v Edge

(a) The Family Court has jurisdiction to hear and determine the proceeding;

(b) The Family Court also has jurisdiction to hear and determine matters not otherwise within its jurisdiction (whether by virtue of paragraph (a) or otherwise):

(i) that are associated with matters arising in the proceeding; or

(ii) that, apart from subsection (32)(1) of the Federal Court of Australia Act 1976, the Federal Court would have had jurisdiction to hear and determine the proceeding;

(c) The Family Court may, in and in relation to the proceeding:

(iii) issue, and direct the issue of, writs of such kinds;

as the Federal Court could have granted, made, issued or directed the issue of, as the case may be, in and in relation to the proceedings;

(d) Remedies, orders and writs granted, made or issued by the Family Court in and in relation to the proceeding have effect, and may be enforced by the Family Court, as if they had been granted, made or issued by the Federal Court;

(e) Appeals lie from judgments of the Family Court given in and in relation to the proceeding as if the judgments were judgments of the Federal Court constituted by a single Judge, and do not otherwise lie; and

(f) Subject to paragraphs (a) to (e) (inclusive), this Act, the Federal Court of Australia Act 1976, the Rules of Court made under that Act, and other laws of the Commonwealth, apply in and in relation to the proceeding as if:

(i) a reference to the Federal Court (other than in the expression "the Court or a Judge") included a reference to the Family Court;

(ii) a reference to a judge of the Federal Court (other than in the expression "the Court or a Judge") included a reference to a Family Court Judge;

(iii) a reference to the expression "the Court or a Judge" when used in relation to the Federal Court included a reference to a Family Court Judge sitting in Chambers;

(iv) a reference to a Registrar included a reference to a Registrar of the Family Court; and

(v) any other necessary changes were made.' 4 The sequestration order against the estate of the bankrupt was made on 31 July 2003. The Official Receiver was appointed the trustee of his estate on the date of sequestration and continued in that capacity until 5 July 2004. Since that date, Mr Macks has been the trustee of the bankrupt estate.

The cases of the respective parties 5 I start with a summary of the allegations made by the trustee. 6 The ownership of three assets is in issue. First, there is a freehold interest in property at 68 Range Road North, Upper Hermitage in the State of South Australia. The bankrupt and Mrs Edge were joint tenants of that property. I will refer to this property as 'the freehold property'. Secondly, there is a leasehold interest in property at 32 and 33 Pelican Point, Morgan, in the State of South Australia. The bankrupt and Mrs Edge were joint tenants of that property. I will refer to this property as 'the leasehold property'. Thirdly, there was a 1980 Camero V8 speedboat. The speedboat was owned by the bankrupt. I will refer to this as 'the speedboat'. 7 By memorandum of transfer dated 19 September 2002, the bankrupt's interest in the freehold property was transferred to Mrs Edge. The memorandum of transfer was lodged for registration on 24 September 2002, and was registered on 26 August 2003. The trustee alleges that Mrs Edge either gave no consideration for the transfer, or alternatively, gave consideration of less than the market value of the freehold value of the property at the time of the transfer. The trustee alleges that the transfer is void within the provisions of s 120 of the Bankruptcy Act, or, in the alternative, s 121. He makes various allegations of fact, which are said to bring the transfer within those sections, but, for present purposes, it is not necessary to set out those allegations. 8 By instrument dated 18 September 2002, the bankrupt's interest in the leasehold property was transferred to Mrs Edge. The instrument was lodged for registration on 24 September 2002 and was registered on 26 August 2003. The trustee alleges that Mrs Edge gave no consideration for the transfer, or, alternatively, gave consideration of less than the market value of the leasehold value of the property at the time of the transfer. Again, he alleges that the transfer was void within the provisions of s 120 of the Bankruptcy Act, or, in the alternative, s 121. Again, it is not necessary for me to set out the factual allegations which the trustee says bring the transfer within those sections. 9 The bankrupt's interest in the speedboat was transferred to Mrs Edge in or around September 2002. The trustee alleges that Mrs Edge gave no consideration for the transfer, or, alternatively, consideration of less than the market value of the speedboat the time of the transfer. The trustee alleges that the transfer was void within the provisions of s 120 or, in the alternative, s 121 of the Bankruptcy Act. 10 In short, the trustee alleges that each transfer was void, and he claims declarations to that effect. He also claims orders under s 64 of the Real Property Act (1886) (SA) directing the Registrar-General to cancel the relevant certificates of title and issue new certificates of title. 11 Mrs Edge has filed a Defence in the proceedings. She alleges that she and the bankrupt separated in August 2002 and were divorced on 12 December 2003. She alleges that in about September 2002 she and the bankrupt entered into an oral agreement which she calls the separation agreement ('the separation agreement') and that the transfer of the freehold property, the leasehold property and the speedboat occurred pursuant to or under that agreement. Mrs Edge alleges that the separation agreement dealt with all of the existing claims, rights and interests as between the bankrupt and herself. Mrs Edge alleges that the separation agreement was formalised by the bankrupt and herself on 22 May 2003 when they entered into what she calls a written certificated financial agreement ('the certificated financial agreement'). 12 Mrs Edge alleges that, by reason of the separation agreement, from about September 2002 the bankrupt held his interest in the freehold property on trust for her. It therefore did not become part of the bankrupt's estate under s 116 of the Bankruptcy Act. In the alternative, Mrs Edge alleges that she gave consideration for the transfer of the freehold property, the leasehold property and the speedboat. For present purposes, it is unnecessary to set out the matters which she pleads in support of that allegation. Mrs Edge denies that the trustee is entitled to the relief that he claims. She claims in the alternative, and should it be be held that the transfers are void, that, under ss 120(4) and 121(5), respectively, of the Bankruptcy Act, she is entitled to an amount equal to the value of the consideration that she gave for each transfer. Those subsections provide that the trustee must pay to the transferee an amount equal to the value of any consideration that the transferee gave for a transfer that is void against the trustee. 13 The trustee has filed a Reply, but, for present purposes, it is not necessary to outline the allegations in the Reply. 14 On 18 May 2006, Mrs Edge issued proceedings in the Family Court of Australia against the trustee and the bankrupt seeking certain orders under the Family Law Act 1975 (Cth) ('the Family Law Act'). During the course of the submissions on the application, counsel for Mrs Edge indicated that the orders sought in the proceedings in the Family Court may need to be amended. After the submissions, a member of the firm of solicitors acting for Mrs Edge filed an affidavit in which it is said that Mrs Edge has amended the application in the proceedings in the Family Court in terms of the orders sought. Subject to the question of costs, I am prepared to decide this application on the basis of the orders sought in the amended application. Those orders are as follows: '1. That pursuant to section 44(3) of the Family Law Act 1975, leave of the Court be granted to institute proceedings for the orders applied for hereinafter. 2. That pursuant to section 78 of the Family Law Act 1975 a declaration be made that: 2.1 Pursuant to section 90KA of the Family Law Act 1975, the Binding Financial Agreement entered into between the husband and wife on 22 May 2003 is valid and binding, and 2.2 The transfers executed on 18 and 19 September 2002 respectively pursuant to the Binding Financial Agreement entered into between the husband and wife on 22 May 2003 are valid and binding. 2.3 In the alternative to 2.2, that the transfers effected on 18 and 19 September 2002 respectively were in contemplation of the Binding Financial Agreement entered into between the husband and wife on 22 May 2003 and thus valid and binding. 2.4 As a consequence thereof the wife is entitled to be and remain registered as the sole proprietor both at law and in equity of the properties situate at and known as 68 Range Road North, Upper Hermitage in the State of South Australia being all the land comprised in Certificate of Title Volume 5711 Folio 494 and 32 & 33 Pelican Point, Morgan in the State of South Australia being all the land comprised in Certificate of Title Volume 5203 folio 799. 3. In the alternative, that if the Transfers referred to in paragraphs 2.2 and 2.3 above are void against the first respondent by reason of the operation of either or both of sections 120 and 121 of the Bankruptcy Act 1966:- 3.1 An order pursuant to sub-sections 90K(1)(b) and (c) of the Family Law Act terminating the binding financial agreement entered into between the husband and wife on 22 May 2003. 3.2 Such order as is just and equitable pursuant to section 90K(3) of the Family Law Act 1975 preserving or adjusting the rights of the wife in relation to the property the subject of the terminated binding financial agreement. 4 In the further alternative to 2 and 3, that pursuant to section 79 of the Family Law Act 1975, the net matrimonial assets of the parties be divided as to 75% to the applicant wife and 25% to the respondent husband. 5 That the husband's Trustee in Bankruptcy PETER IVAN MACKS be substituted as the Respondent in these proceedings in respect of the husband's property that may vest in the Trustee in Bankruptcy.' 15 The trustee submits that, insofar as an order is sought under s 79(1) of the Family Law Act, the application is out of time, and it will be necessary for Mrs Edge to obtain an extension of time. I have no information before me as to whether an extension of time will be granted, and I think it is appropriate to proceed on the basis that it may be granted.

Issues on the application 16 Significant amendments were made to the Bankruptcy Act and Family Law Act by the Bankruptcy and Family Law Legislation Amendment Act 2005 (Cth). I will refer to this Act as 'the Amending Act'. In terms of the issues in this case, it was not suggested that the relevant provisions of the Amending Act did not apply by reason of the fact that the relevant provisions came into effect during the course of 2005. I note that the amendments in Schedule 1 came into operation on 18 September 2005, those in Schedule 2 on 18 March 2005 and the balance on 15 April 2005. 17 In order to explain the effect of the Amending Act on the legal rights and interests between a non-bankrupt spouse and the trustee in bankruptcy of a bankrupt spouse, it is necessary to briefly examine the position before that Act. For present purposes, the previous position may be summarised as follows. 18 First, s 120(2) excludes from the operation of subsection (1) (among other things) a transfer to meet all or part of a liability under a maintenance agreement. Before 15 April 2005, 'maintenance agreement' was defined to include a financial agreement within the meaning of the Family Law Act. A similar exclusion or exception applied in relation to other provisions in the Bankruptcy Act, but it was not an exclusion or exception in the case of the operation of s 121 where the main purpose of the transfer was to prevent the transferred property from becoming divisible among the transferor's creditors or to hinder or delay the process of making property available for division among the transferor's creditors (s 123(6)). Before the introduction of the Amending Act, Mrs Edge could have raised as a defence or exception to the trustee's claim under s 120, but not s 121, an allegation that the transfers were to meet liabilities under a financial agreement. 19 Secondly, before the introduction of the Amending Act, the Family Court could not, generally speaking, make orders which affected the rights, powers and interests of third parties. 20 The original jurisdiction of the Family Court is defined in ss 31 and 33 of the Family Law Act. For present purposes, it is sufficient to say that the Court had and has jurisdiction with respect to matrimonial causes. Before the Amending Act, 'matrimonial cause' was defined in s 4 of the Family Law Act as meaning (relevantly): '(ca) proceedings between the parties to a marriage with respect to the property of the parties to the marriage or either of them, being proceedings:

(ii) in relation to concurrent, pending or completed divorce or validity of marriage proceedings between those parties; or

(iii) in relation to the dissolution or annulment of that marriage or the legal separation of the parties to that marriage, being a dissolution, annulment or legal separation effected in accordance with the law of an overseas jurisdiction, where that dissolution,, annulment or legal separation is recognised as valid in Australia under section 104; or

(f) any other proceedings (including proceedings with respect to the enforcement of a decree or the service of process) in relation to concurrent, pending or completed proceedings of a kind referred to in any of paragraphs (a) to (eb), including proceedings of such a kind pending at, or completed before, the commencement of this Act.' 21 Part VIII of the Family Law Act contains provisions dealing with the property of parties to a marriage. Section 78 deals with the Family Court's power to declare the interests in the property of the parties to a marriage and s 79 gives the Family Court power to alter the interests of parties to a marriage with respect to the property of them or either of them. The section sets out the matters the court must take into account in determining the order which should be made (s 79(4)). Part VIIIA deals with financial agreements between the parties to a marriage and provides that Part VIII (which includes s 79) does not apply to financial resources to which a financial agreement that is binding on the parties to the agreement applies: s 71A. The court is given various general powers in s 80 and power to make declarations and injunctions in Part XIV (s 112A et seq). 22 In Ascot Investments Pty Ltd v Harper (1981) 148 CLR 337 Gibbs CJ said (at 354): 'The general words of ss. 80 and 114 must be understood in the context of the Act, which confers jurisdiction on the Family Court in matrimonial causes and associated matters, and in that context it would be unreasonable to impute to the Parliament an intention to give power to the Family Court to extinguish the rights, and enlarge the obligations, of third parties, in the absence of clear and unambiguous words. It can safely be assumed that the Parliament intended that the powers of the Family Court should be wide enough to prevent either of the parties to a marriage from evading his or her obligations to the other party, but it does not follow that the Parliament intended that the legitimate interests of third parties should be subordinated to the interests of a party to a marriage, or that the Family Court should be able to make orders that would operate to the detriment of third parties. There is nothing in the words of the sections that suggests that the Family Court is intended to have power to defeat or prejudice the rights, or nullify the powers, of third parties, or to require them to perform duties which they were not previously liable to perform. It is one thing to order a party to a marriage to do whatever is within his power to comply with an order of the court, even if what he does may have some effect on the position of third parties, but it is quite another to order third parties to do what they are not legally bound to do.' 23 In The Queen v Ross-Jones; Ex parte Green (1984) 156 CLR 185, Wilson and Dawson JJ said (at 211) (footnotes omitted): 'We should add that even if those proceedings were a matrimonial cause, the Family Court would nevertheless lack the power to grant the relief sought. Apart from any constitutional limitation, it is now authoritatively established that as a matter of construction the general powers of the Family Court are to be understood in the context of the Family Law Act which confers jurisdiction upon the Court in matrimonial causes and associated matters. Those powers, which include the power to grant injunctive relief under s. 114, are not to be construed so as to confer jurisdiction to defeat the rights, or enlarge the obligations, of persons who are not parties to the marriage involved in the relevant matrimonial cause: Ascot Investments Pty. Ltd. v. Harper.' The principle referred to in the above passages has been applied in a number of cases in this Court and, in particular, it was applied in a context involving the provisions of the Bankruptcy Act in Deputy Commissioner of Taxation v Swain (1988) 20 FCR 507. Davies, Lockhart and Burchett JJ said (at 514): 'A sequestration order reflects a right of a creditor, and creates rights as between a debtor and his creditors and trustee. The Family Court, in the pursuit of its duty (in an appropriate case) to adjust rights as between the parties to a marriage, has no power to deprive other parties of their rights. Its power to deal with the property of the parties over whom it has jurisdiction must start with the property that is theirs, not with property that the law (whether the Bankruptcy Act or some other law) has vested in another.' 24 It follows from the above that had these proceedings been governed by the legislation and common law principles which applied before the introduction of the Amending Act then, subject to the exclusion or exception in s 120(2), the ownership of the three assets would be determined by reference to the provisions of the Bankruptcy Act. If the trustee could bring the transfers within the provisions of s 120 or s 121 then that was the end of the matter. 25 Thirdly, (in terms of the position before the Amending Act) s 35A of the Bankruptcy Act has been in the Act since 1988 and the above principles did not mean that this Court would never exercise its discretion to transfer proceedings under the Bankruptcy Act to the Family Court. The circumstances of the case might suggest that that course was appropriate even though, once transferred, the Family Court was bound to give full force and effect to the provisions of the Bankruptcy Act: Re Sabri; Ex parte Sabri v Brien (1995) 60 FCR 131. I also refer to Re Boscolo; Ex parte Botany Council (1996) 62 FCR 397 as an example of a case where this Court refused to transfer proceedings to the Family Court. 26 Had this application been made under the law as it stood prior to the enactment of the Amending Act, I would have seen no reason to transfer the proceedings to the Family Court. It is true that the Family Court would have had jurisdiction to hear the trustee's claim by reason of the order for transfer and the provisions of s 35A, but the Family Court would have had no power to make orders altering the ownership interests in the freehold property, leasehold property and speedboat if and once the trustee had brought the transfers within the provisions of s 120 or s 121 of the Bankruptcy Act. If he was unsuccessful in doing that then the ownership interests would remain as they are. Furthermore, there is no existing order of the Family Court that might suggest, as it did in Re Sabri; Ex parte Sabri v Brien, that to avoid the appearance of conflict between orders, the proceedings should be transferred to the Family Court. 27 For the purposes of this case, the important change introduced by the Amending Act is that it gives the Family Court the power to make such orders as it considers appropriate, altering the interests of the bankruptcy trustee in what is referred to as 'the vested bankruptcy property'. It is necessary to examine the amendments in some detail because, as the submissions developed, counsel for Mrs Edge submitted that in pursuing a matrimonial cause the trustee 'had simply issued in the wrong court'. 28 The starting point is the introduction into the Family Law Act of two new paragraphs in the definition of 'matrimonial cause'. For present purposes, paragraph (cb) is the relevant paragraph and it is in the following terms: '(cb) proceedings between:

(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; or (iv) in relation to concurrent, pending or completed divorce or validity of marriage proceedings between the parties to the marriage; or

(v) in relation to the divorce of the parties to the marriage, the annulment of the marriage or the legal separation of the parties to the marriage, being a divorce, annulment or legal separation effected in accordance with the law of an overseas jurisdiction, where that divorce, annulment or legal separation is recognised as valid in Australia under section 104;' 29 The term 'vested bankruptcy property' is defined in s 4 of the Family Law Act as follows: '"vested bankruptcy property" , in relation to a bankrupt, means property of the bankrupt that has vested in the bankruptcy trustee under the Bankruptcy Act 1966. For this purpose, propertyhas the same meaning as in the Bankruptcy Act 1966.' 30 By reason of the Amending Act, s 79(1) of the Family Law Act (which is in Part VIII) now reads: '(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;

(c) an order for a settlement of property in substitution for any interest in the property; and

(i) either or both of the parties to the marriage; or

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.' 31 The term 'property settlement proceedings' is defined in s 4 to mean: '"property settlement proceedings"means proceedings with respect to:

(a) the property of the parties to a marriage or either of them; or

(b) the vested bankruptcy property in relation to a bankrupt party to a marriage.' 32 Section 71A of the Family Law Act, which sets out the circumstances in which Part VIII does not apply where there is a binding financial agreement, has also been amended so that it now reads: '(1) This Part does not apply to:

(a) financial matters to which a financial agreement that is binding on the parties to the agreement applies; or

(b) financial resources to which a financial agreement that is binding on the parties to the agreement applies.

(2) Subsection (1) does not apply in relation to proceedings of a kind referred to in paragraph (caa) or (cb) of the definition of matrimonial cause in subsection 4(1).' 33 The Amending Act also introduced amendments to the Bankruptcy Act which had the effect of recognising the new power in the Family Court under s 79(1) to alter the interests of the bankruptcy trustee in the vested bankruptcy property. Sections 58 and 59 of the Bankruptcy Act deal with the vesting of property upon a sequestration order being made. The Amending Act introduces s 59A which provides as follows: 'Sections 58 and 59 have effect subject to an order under Part VIII of the Family Law Act 1975.' 34 Section 116 of the Act defines the property which is divisible among the bankrupt's creditors and subsection (2) defines property that is not within that description. The Amending Act introduces a further paragraph to subsection (2) which is in the following terms: '(9) any property that, under an order under Part VIII of the Family Law Act 1975, the trustee is required to transfer to the spouse of the bankrupt.' 35 At the same time, the definition of maintenance agreement in the Bankruptcy Act (s 5(1)) for the purposes of s 120(2) and s 123(6) was amended to exclude from its terms a financial agreement within the provisions of the Family Law Act. 36 In addition to these changes in the substantive law, the Commonwealth Parliament has given the Family Court jurisdiction in bankruptcy, in addition to that which it may have on an order for transfer being made under s 35A. Section 27 has been amended to include a further exception to the exclusive jurisdiction in bankruptcy which is vested in this Court and the Federal Magistrates Court. A section 35 has been inserted in the Bankruptcy Act and it is in the following terms: '(1) If, at a particular time:

(i) a party to property settlement proceedings in relation to either or both of the parties to the marriage; or

(ii) an applicant under section 79A of the Family Law Act 1975 for the variation or setting aside of an order made under section 79 of that Act in property settlement proceedings in relation to either or both 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.

(2) Subsection (1) does not limit the Family Court's jurisdiction under section 35A.

property settlement proceedings has the same meaning as in the Family Law Act 1975.

spousal maintenance proceedings means proceedings under the Family Law Act 1975 with respect to the maintenance of a party to a marriage.' 37 The definition of property settlement proceedings in the Family Law Act is set out in [31] above. 38 There might be interesting questions in a case such as this one as to when the jurisdiction conferred by s 35 of the Act is engaged. For example, are there proceedings with respect to vested bankruptcy property only when a court declares transfers to be void within the provisions of ss 120 or 121 or are there such proceedings at an earlier point in time? I can pass over the possible questions which might arise under s 35 because it is clear that if I make the order for transfer, the Family Court has jurisdiction to hear and determine the trustee's claim under the provisions of s 35A itself. 39 At the same time, there is nothing to suggest that this Court does not have jurisdiction over the trustee's claim and I reject the submission that the trustee has issued proceedings in the wrong court. The Family Court has jurisdiction to alter the trustee's rights with respect to vested bankruptcy property, but this Court retains jurisdiction to determine the prior questions of whether the transfers are void because they fall within the provisions of ss 120 or 121. 40 It was suggested in submissions that the power in the Family Court to alter the trustee's rights in vested bankruptcy property arose in the alternative under s 79(1) of the Family Law Act or under s 90K(3). The latter subsection deals with the Family Court's powers to make orders upon setting aside a financial agreement. I doubt whether it is necessary to go to s 90K and consider the consequences of setting aside a financial agreement rather than going straight to s 79(1), although I do not need to decide the point. It seems to me that by reason of s 71A(2) of the Family Law Act any claim with respect to the vested bankruptcy property is simply made under s 79(1). In any event, subject to an extension of time, the Family Court would have the power to alter the trustee's rights with respect to the three assets should it be found that by reason of the provisions of ss 120 or 121 the transfers were void. I do not think that that proposition was contested by the trustee. 41 It follows from what I have said that the first issue in proceedings between the trustee and Mrs Edge is whether the trustee's claim under the provisions of the Bankruptcy Act ought to be upheld. If the trustee is successful then Mrs Edge may make an application against the trustee under s 79(1) of the Family Law Act, with respect to the freehold property, leasehold property and speedboat, seeking an order 'altering the interests of the bankruptcy trustee in the vested bankruptcy property'. It seems to me that that is the substance of any proceedings she may bring in the Family Court. Her claim is in a sense a contingent claim in that it only becomes relevant if the trustee's claim is successful. If the trustee is unsuccessful then Mrs Edge's claim falls away because there is no relevant vested bankruptcy property. Should the trustee be successful, the Family Court has the power to alter the interests of the trustee in the vested bankruptcy property. 42 In those circumstances, whether the order for transfer should be made comes down to whether it is appropriate in the exercise of the discretion to make the order for transfer. This Court can hear and determine the trustee's claim, but it cannot hear and determine Mrs Edge's claim should it become necessary to do so. If I make the order for transfer, the Family Court can hear and determine both claims. That is a powerful reason for making an order for transfer. On the other hand, the proceedings in this Court are nearly ready for hearing and, so far as I can see, involve some fairly concise issues. The hearing of the trustee's claim should not take very long. If the trustee's claim is unsuccessful, there will be no need for Mrs Edge to pursue the claim against the trustee in the Family Court. On balance, I am of the opinion that the proceedings should not be transferred to the Family Court. 43 Mrs Edge's application to transfer the proceedings to the Family Court is dismissed. I will hear the parties on the costs of the application. I certify that the preceding forty three (43) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Besanko.

Associate: Dated: 18 August 2006 Counsel for the Applicant: A O'Halloran