What happened

The Full Court of the Family Court of Australia, constituted by Strickland, Ainslie-Wallace and Austin JJ, decided two related appeals between Mr Rahman and Ms Rahman on 12 November 2020. Austin J gave the reasons, with the other members of the Court agreeing.

The dispute began with a final property settlement order made in February 2012 under Pt VIII of the Family Law Act 1975 (Cth). It required the husband to pay the wife $377,000 and included an order under s 114(3) restraining him from leaving Australia until he paid that sum (facts [1]). The order followed findings that the husband had secretly accumulated about $580,000 in cash, largely by drawing against the mortgage on the former family home, and sent it to Lebanon beyond the wife’s reach in the matrimonial proceedings (facts [2]). The husband’s appeal against the property orders was dismissed in 2013.

The husband petitioned for bankruptcy in October 2013. His petition listed the $377,000 liability to the wife as the principal component of his stated liabilities of $378,010 (facts [3]). He was discharged in October 2016, without paying the wife (facts [4]). In 2017, he applied to remove the travel injunction, arguing that bankruptcy had absorbed the debt and discharge relieved him of it. The primary judge dismissed that application in March 2020, giving rise to appeal EAA 44 (facts [5]–[6]).

In April 2020, the wife began a new proceeding seeking superannuation splitting orders and interim restraints concerning bank accounts holding about $115,000. The primary judge granted interim relief on 29 May 2020, and the husband appealed in EAA 83 (facts [7]–[8]).

The result was divided between the two appeals. The Full Court dismissed EAA 44, leaving the travel injunction in place. It granted leave and allowed EAA 83, setting aside order 1 made on 29 May 2020. It made no order as to costs. The Court’s distinction was between the continuing liability under the 2012 order and the lack of jurisdiction to make additional final property orders in the 2020 proceeding.

Why the court decided this way

Bankruptcy did not extinguish the liability under the property order

The Court began from the general bankruptcy position that, subject to exceptions, the bankrupt’s property vests in the trustee under s 58 of the Bankruptcy Act 1966 (Cth). It then focused on the statutory treatment of Pt VIII family law orders. Section 59A provided that the trustee’s investiture operated subject to the Pt VIII order, and s 116(2)(q) provided that property to be transferred to a bankrupt’s spouse under a Pt VIII order was not divisible among creditors (first appeal [1]–[3]).

The husband argued that the order to pay a fixed sum was merely a money judgment, making the wife a creditor who had to prove the debt in his bankruptcy (first appeal [5]). The Court rejected the distinction between a fixed payment and an order identifying particular property from which payment was to be made. In the Court’s view, the $377,000 figure was the form of an adjustment of the parties’ property interests under Pt VIII, made on the premise that the parties’ assets included the cash identified at the original hearing (first appeal [6]–[7]).

The operative result was that the designated sum did not vest in the trustee and was not available for distribution among the husband’s creditors. The wife consequently did not need to prove the liability in the bankruptcy, and the husband remained liable under the Pt VIII order (first appeal [8]). The Court then connected that conclusion to discharge: under ss 82 and 153 of the Bankruptcy Act, discharge released the husband from debts provable in bankruptcy, but not this liability (first appeal [9]).

The Court also dealt with earlier authorities. It described Ejje and Ejje and Melnik v Melnik as reflecting the historical position before the 2005 amendments. It considered those authorities in light of the later insertion of ss 59A and 116(2)(q), referring to Trustee of the Property of G Lemnos, A Bankrupt & Lemnos and Anor for the legislative changes (first appeal [4]). It rejected the husband’s reliance on Trustee for the Bankrupt Estate of N Lasic & Lasic, explaining that general statements about bankruptcy in Lasic did not contradict Lemnos’s more specific treatment of the relationship between spouses’ rights and creditors’ rights (first appeal [5]).

The 2020 application could not reopen final property adjustment

The second appeal concerned the jurisdiction to grant the wife’s requested relief. The Court treated the 2012 property settlement as a final determination of the parties’ financial relationship. Section 81’s finality objective was central to that reasoning. The Court referred to Mullane v Mullane, Hickey and Hickey, Gabel & Yardley, and Strahan & Strahan (Interim Property Orders) in support of the proposition that making the final order exhausted the Pt VIII discretionary power (second appeal [3]).

The Court then considered the nature of the wife’s 2020 application. It sought superannuation splitting orders to supplement the 2012 settlement. The Court stated that the existing property order could not be varied, reversed or supplemented except through an appeal or an application under s 79A. The wife’s proceeding was neither of those (second appeal [4]). Although superannuation splitting orders are made under Pt VIIIB, the Court explained that the power to make them in this context depended on the statutory extension of “matrimonial cause” and the Court’s Pt VIII jurisdiction (second appeal [5]).

Because there was no jurisdiction to entertain the further final relief, there was also no jurisdiction to grant the interim injunction sought incidentally to that relief (second appeal [6]). The Full Court therefore set aside the relevant interim order.

The Court separately recognised the difference between seeking additional final property adjustment and enforcing the existing order. It noted that the wife remained able to initiate enforcement proceedings. The primary judge had treated part of the wife’s proposed relief as property and/or enforcement proceedings, but declined to order payment from the bank accounts because the interim restraints were too wide (second appeal [7]). The wife had not appealed that refusal (second appeal [8]). The Court said any later application to enforce should be an enforcement application in both style and substance under Pt XIII and ch 20 of the Family Law Rules (second appeal [9]).

Before and after state of the law

The judgment describes an earlier approach under which sums payable by one spouse to another under a Pt VIII order could be proved in the debtor spouse’s bankruptcy. It identifies Ejje and Melnik as examples of that historical approach (first appeal [4]). The Court did not treat those cases as governing the present dispute without regard to subsequent legislative change.

The Bankruptcy and Family Law Legislation Amendment Act 2005 inserted ss 59A and 116(2)(q) into the Bankruptcy Act. As the Full Court explained by reference to Lemnos, those provisions harmonised the operation of bankruptcy law with family law property orders. The Court’s application of those provisions meant that the Pt VIII order in this case continued to operate despite bankruptcy, and the amount payable under it was not treated as divisible property in the bankruptcy estate (first appeal [2]–[4], [8]).

The judgment’s account of the post-amendment position is specific to the statutory provisions and order before it. It does not say that every amount described as payable in a family law proceeding will necessarily have the same treatment. Its reasoning turns on the order being an exercise of Pt VIII power to adjust property interests and on the effects the Court attributed to ss 59A and 116(2)(q).

On finality, the judgment applies the principle that a final property settlement order exhausts the Pt VIII jurisdiction, subject to the routes it identifies: an appeal or an application under s 79A (second appeal [3]–[4]). It distinguishes that situation from enforcement of the existing order, which it said remained possible (second appeal [7]–[9]). The decision therefore treats further substantive adjustment and enforcement as different kinds of proceedings.

Key passages with plain-English translation

“The designated sum of cash did not vest in the husband's trustee and was not divisible amongst the husband's creditors.” (first appeal [8])

In plain English, the Court held that the amount covered by the property order was not swept into the pool available to the husband’s creditors. The consequence in this case was that the wife did not have to prove the liability as a bankruptcy creditor.

“The husband remained separately liable to the wife for the sum of $377,000, together with any accrued interest.” (first appeal [8])

The Court treated the obligation under the family law order as continuing independently of the husband’s bankruptcy discharge. It did not regard discharge as releasing a liability that was not provable in the bankruptcy.

“The Court's jurisdiction was spent.” (second appeal [4])

The Court was describing the effect of the earlier final property settlement. It considered that the Court could not use the wife’s 2020 proceeding to add further final property relief to the 2012 settlement.

“Since there was no jurisdiction to entertain it, nor was there any jurisdiction to entertain her incidental application for interim injunctive relief.” (second appeal [6])

The interim injunction depended on a proceeding in which the Court could hear the substantive relief sought. Once the Full Court concluded that the new final-relief application was outside the Court’s jurisdiction, it concluded that the incidental interim relief could not stand either.

What fact patterns trigger this precedent

The bankruptcy reasoning is relevant to a fact pattern involving a Pt VIII property settlement order, a later bankruptcy of the person required to comply with it, and a dispute about whether the family law liability must be proved as a bankruptcy debt. The significant features identified by the judgment include that the payment obligation arose from a Pt VIII adjustment of the parties’ property interests and that ss 59A and 116(2)(q) governed the interaction with the bankruptcy estate (first appeal [2]–[8]).

The finality reasoning is relevant where a party seeks further substantive property relief after a final Pt VIII order has already been made. In Rahman, the later application sought superannuation splitting orders intended to supplement the earlier settlement. The Full Court held that the 2020 application was not an appeal or an application under s 79A, and therefore could not be entertained as a route to additional final adjustment (second appeal [3]–[6]).

The judgment also draws attention to the procedural character of the relief. It distinguishes a fresh request for further final property orders from an application to enforce the existing order. The wife’s ability to bring enforcement proceedings was expressly recognised, but the Court did not decide the merits of any future enforcement application (second appeal [7]–[9]).

The decision should not be read as resolving every issue that could arise in a bankruptcy involving family law obligations. The source judgment addresses the identified statutory provisions, the particular Pt VIII order and the procedural history before the Court. Other circumstances or statutory provisions are not analysed in the supplied judgment.

How later courts have treated it

The supplied judgment does not refer to any later decisions applying, distinguishing or criticising Rahman & Rahman [2020] FamCAFC 279. On the material provided, its later treatment cannot be assessed.

The judgment itself does identify the earlier authorities it applied or considered. For the bankruptcy issue, it discusses Oliver v Malanos and Lemnos in relation to the effect of Pt VIII orders on bankruptcy vesting and creditor distribution. It contrasts those post-amendment authorities with the earlier approaches described in Ejje and Melnik, and rejects the husband’s reading of Lasic as inconsistent with the more specific reasoning in Lemnos (first appeal [3]–[5]).

For the finality issue, the Court relies on Mullane, Hickey, Gabel & Yardley and Strahan & Strahan (Interim Property Orders) in support of its understanding that a final property order exhausts the Pt VIII jurisdiction. The decision also cites Adam P Brown Male Fashions Pty Ltd v Philip Morris Inc when explaining why leave to appeal from the interlocutory order should be granted in the presence of a fundamental error of principle (second appeal [2]–[4]).

Those relationships describe the authorities as used in Rahman itself. They do not establish how later courts have treated Rahman, which is not addressed in the supplied source.

Still-open questions

The judgment does not determine the merits or appropriate form of any future enforcement application by the wife. It says that she remained able to bring enforcement proceedings and indicates that an application should be an enforcement application in both style and substance under Pt XIII and ch 20 of the Family Law Rules (second appeal [7]–[9]). It does not decide what orders might be available on a properly constituted application.

Nor does the decision determine whether the wife could obtain payment from the husband’s bank accounts through enforcement proceedings. The primary judge declined the proposed interim restraint because it was too widely framed, and the wife did not appeal that refusal (second appeal [7]–[8]). The Full Court therefore did not review that decision.

The judgment’s bankruptcy analysis concerns the particular $377,000 Pt VIII payment order and the statutory provisions cited. It does not provide a comprehensive account of how every kind of family law liability interacts with bankruptcy, or how different wording in a property order might affect the statutory analysis.

The jurisdiction discussion also leaves matters outside the case unresolved. The Court identifies appeal and s 79A proceedings as routes relevant to varying, reversing or supplementing the existing property order, but does not decide any hypothetical application under those routes. Its holding concerns the wife’s particular 2020 application, which was neither.

This is general legal information, not legal advice. Zoe can make mistakes. Before acting on this, relying on it, or using any draft, have it checked by a qualified Australian lawyer.