Van Dyke v Lo Pilato, in the matter of Sidhu

Federal Court of Australia|2016-11-08|Before: Katzmann J

On the undertakings noted below, leave be granted to the applicant to commence proceedings in the Family Court of Australia for orders under s 79A of the Family Law Act 1975 (Cth) to set aside or vary consent orders made by that court on 13 November 2013 in proceedings CAC 766/2013 between Prithvi Pal Singh Sidhu and Lajla Karine Sidhu ("the s 79A proceedings").
The applicant serve a copy of the initiating process and any supporting affidavit upon the respondent within seven days of filing. THE COURT NOTES THE APPLICANT'S UNDERTAKINGS:
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;
to consent to any application by the trustee in bankruptcy to be joined as a party to those proceedings; and
if no such application is made, to notify the trustee in bankruptcy of final orders made in those proceedings. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT 1 Prithvi Pal Singh Sidhu is an undischarged bankrupt. He became bankrupt on or about 6 March 2015 following the presentation of a debtor's petition. 2 Lauren Marie Van Dyke is the largest creditor of the bankrupt estate. Ms Van Dyke became a creditor of Mr Sidhu after orders were made in the New South Wales Court of Appeal that he pay her equitable compensation, with the amount to be determined, and the costs of the proceeding below and the appeal. The orders were made on 1 July 2013. Four months later, on 13 November 2013, consent orders were made in the Family Court of Australia for the transfer from Mr Sidhu to his wife, Lajla, of certain interests in real property and a sum of $580,000 in cash. At the time, an application for special leave to appeal to the High Court from the Court of Appeal judgment had been filed but not yet heard. Neither Mr Sidhu nor his wife disclosed Ms Van Dyke's interest to the Family Court. Special leave was granted on 13 December 2013 but the appeal to the High Court was dismissed with costs on 16 May 2014 (Sidhu v Van Dyke (2014) 251 CLR 505) and on 18 September 2014 equitable compensation was assessed and judgment entered in favour of Ms Van Dyke in the sum of $594,028.25: Van Dyke v Sidhu [2014] NSWSC 1341. Taking into account the various costs orders, it seems that the debt to her totals over $800,000. 3 Ms Van Dyke wishes to recover the money to which she has been adjudged entitled. Subsection 79A(1) of the Family Law Act gives the court a discretion to vary or set aside an order made by a court of competent jurisdiction under s 79 of that Act in property settlement proceedings if (amongst other things) the court is satisfied that "there has been a miscarriage of justice by reason of fraud, duress, suppression of evidence (including failure to disclose relevant information), the giving of false evidence or any other circumstance". Ms Van Dyke contends that both Mr and Mrs Sidhu failed to disclose material to the Family Court in circumstances where they either knew or ought to have known that they were bound to do so. Indeed, she contends that they were bound to do so. She also contends that they made false statements in support of the application for consent orders.

Facts 4 Ms Van Dyke and Mr Sidhu had a romantic and sexual relationship which began when Ms Van Dyke and her then husband, Lajla's brother, were living in a cottage in Burra, New South Wales. The cottage was situated on land owned by Mr and Mrs Sidhu on Homestead Road, land upon which Mr and Mrs Sidhu also lived, albeit in a different house. After Ms Van Dyke's husband learned of his wife's relationship with Mr Sidhu, that marriage broke down and she and her then husband are now divorced. Ms Van Dyke did not seek property settlement as part of the divorce proceedings because of promises made to her by Mr Sidhu to the effect that he was planning to subdivide the property, that once the subdivision took place, he would ensure that the cottage was put in her name, and that it was unnecessary for her to seek a property settlement or hire a lawyer. Ms Van Dyke continued to live in the cottage with her son after her husband left her and carried out maintenance and improvement work on it for no reward. As Ms Van Dyke had acted to her detriment in reliance on Mr Sidhu's promises, believing them to be true, Mr Sidhu was held to have been estopped from resiling from his promises and she entitled to equitable compensation. 5 An unsigned copy of the application for consent orders in the Family Court is annexed to Ms Van Dyke's affidavit. She states that it was given to her by the trustee in bankruptcy. In the application Mr Sidhu listed his property as follows: a 50% share in two pieces of real estate, both located at Homestead Road, Burra, one valued at $1 million (total value $2 million), the other at $125,000 (total value $250,000); family real estate located in India (not otherwise described), with an estimated value of $700,000; a Holden motor car valued at $20,000; a 50% share in furniture, furnishings and effects estimated at $50,000 (total value estimated at $100,000); and a 50% share in a business valued at $5000 (total value $10,000). 6 In addition, Mr Sidhu listed investments in an unnamed company or companies with a total value of $500,000 and a loan to his brother "and wife" for $430,000. 7 The total value of his property, then, was said to be $2,830,000. The total value of the property listed by Mrs Sidhu was said to be $1,220,000. 8 The application also reveals that the parties proposed a division of their property in the following proportions: 47% to Mr Sidhu and 53% to his wife. An order was made for the division of the properties in accordance with the proposal. 9 The only liability Mr and Mrs Sidhu disclosed in the application was a mortgage to the National Australia Bank in the amount of $1,200,000. 10 The Sidhus answered "no" to question 19: "Is there any person who may be entitled to become a party to the case under subsection 79(10) or subsection 90SM(10) of the Act?" Question 71 asked the applicant to stipulate whether there were any other relevant matters or facts in relation to the division of the property. In answer to that question Mr Sidhu revealed that since separation he had spent a total of $400,000 of "marital funds" in meeting liabilities associated with his property in India and personal expenses he had incurred. He made no mention of the Court of Appeal's judgment or orders. Nor did Mrs Sidhu when the form invited her to agree or disagree with the description given by her husband. 11 Mr Sidhu did not pay the damages and costs pursuant to the judgments. Ms Van Dyke caused garnishee orders to be served on Mr Sidhu's employer and banks and she also applied to this Court for orders that Mr and Mrs Sidhu attend before a registrar to be examined on oath under s 81 of the Bankruptcy Act 1966 (Cth) and to give evidence in relation to the examinable affairs of Mr Sidhu. The examination hearing began on 4 April 2016 and Mr and Mrs Sidhu were both examined. 12 The form of application for consent orders provides for both parties to certify in a "Statement of Truth" that the facts and matters set out in the application are true to the best of their knowledge, information and belief. In the examination hearing, Mr Sidhu stated that he was "pretty sure" that he had signed the Statement and conceded that he had failed to disclose Ms Van Dyke's interest in the Burra property. Both Mr and Mrs Sidhu admitted to being aware of the orders of the Court of Appeal shortly after they were made but denied deliberately concealing the information from the Family Court. 13 On 23 July 2015, more than four months after Mr Sidhu was made bankrupt, Frank Lo Pilato took over from the Official Trustee as trustee of the estate pursuant to s 181A of the Bankruptcy Act. On 2 September 2015 he provided his report to creditors. Ms Van Dyke received a copy. The report summarised the contents of Mr Sidhu's Statement of Affairs. According to the summary he had declared total assets of $1,697.13 and liabilities (to unsecured creditors) of $1,062,262.62. Ms Van Dyke was not named in the Statement of Affairs as one of the unsecured creditors. The debt to her, said to consist of "Court Judgement and legal fees", was $844,028. That sum was made up of two amounts, the first being the amount of equitable compensation the subject of the Supreme Court order on 18 September 2014, the second an amount of $250,000, which Ms Van Dyke states in her affidavit is Mr Sidhu's estimate of her costs and is "close" to the true figure. 14 In the report to creditors, Mr Lo Pilato referred to the litigation involving Ms Van Dyke and Mr Sidhu and the consent orders obtained in the Family Court. He noted that Mr Sidhu had advised that, following the consent orders, the property was "approximately evenly split in terms of value", with property he owned in India, worth approximately $900,000. Mr Lo Pilato continued: The transfer of the Bankrupt's interest in the Indian property for a non-registrable and unrecoverable tenancy arrangement has effectively converted the Bankrupt's interest in the properties, together with a number of sums of cash, to property which is unrecoverable by the Trustee. I consider that the Bankrupt may have entered into these transactions for the purpose of defeating his creditors, and I intend to report this matter to AFSA Fraud. I advise that there are currently insufficient funds to conduct further investigations into the affairs of the Bankrupt. To this end, should creditors wish us to conduct further investigations, I request the creditors provide us with sufficient funding to do so. …

The interim application 15 The present application was filed on 26 September 2016 as an interim application in the examination proceedings. It is supported by an affidavit affirmed by Ms Van Dyke the same day and from which the above factual summary is drawn. The remainder is drawn from the judgments of the Court of Appeal and the High Court. In her affidavit, Ms Van Dyke offered an undertaking to the Court if asked to consent to the joinder of the respondent in the proposed proceedings and, if he does not consent to be joined, to "keep him informed of the making of any final orders". In the course of the hearing undertakings to that effect were given on her behalf through her counsel. Ms Van Dyke also undertook 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. 16 On 12 October 2016, the first return date of the interim application, there was no appearance for the trustee. Instead, he sent an email to the registry informing the Court that he would not be attending the hearing. I made the following orders: 1. Within 7 days: (a) the applicant file an affidavit of service of her interim application and supporting affidavit on: i. the respondent; ii. Mr Prithvi Pal Singh Sidhu; and iii. Ms Lajla Karine Sidhu; and (b) the applicant file and serve her outline of submissions in support of the interim application, together with a chronology. 2. Service of the applicant's submissions and chronology be effected by email and express post. 3. Within 21 days of the date of these orders, any person named wishing to be heard in opposition to the interim application file and serve his or her outline of submissions setting out: (a) the grounds upon which he or she intends to oppose the orders sought in the interim application; and (b) the arguments in support of those grounds. 4. No outline of submissions exceed 10 pages. 5. The interim application be listed for hearing at 10.15am on 8 November 2016. 6. The parties have liberty to apply on 48 hours' notice. 7. Within 24 hours of the date of these orders, the applicant notify the respondent and Mr and Ms Sidhu of the orders by email and express post. 17 At the hearing on 8 November 2016 there was no appearance by Mr Lo Pilato or either of the Sidhus. An affidavit of service was read and, upon the basis of that affidavit, I am satisfied that each of them was duly served with a copy of my orders on the day they were made and the submissions and chronology by email on 18 October and by express post the following day. The only submissions I received in accordance with the orders were from Ms Van Dyke. 18 At 6.19pm on Sunday 6 November 2016, however, after the time to file submissions had expired, Mrs Sidhu sent an email to the Court advising that "[t]hrough circumstances beyond [her] control", she was unable to appear on 8 November. Attached to the email was a document entitled "submission" in which Mrs Sidhu intimated that her position was that the application should not be granted. Yet she did not identify any basis upon which the application should be refused and she did not engage with any of Ms Van Dyke's submissions. She claimed that she needed a lawyer, could not pay for one, and had been told that she was ineligible for legal aid. She said that she had made a request of her superannuation fund for monies to be released for "emergency purposes" and hoped to receive some funds "in a few weeks". She had not sought a variation of the Court's order to enable her to make submissions, however. Nor did she ask for an adjournment. There is no reason to believe that she will necessarily receive an advance in her superannuation, let alone that she will obtain legal representation, and, if so, when. In all those circumstances, there was no good reason not to proceed with the hearing and the interim application was heard in her absence. 19 On the afternoon of the following day, Mr Sidhu forwarded submissions by email to the registry. He apologised for the delay, explained that he was bankrupt, was unable to obtain legal representation, and was unwell. He also indicated that he would not attend the hearing. Nevertheless, he provided a detailed response to Ms Van Dyke's submissions. In summary, he argued that leave should be refused for two reasons: first because Ms Van Dyke would not have standing to bring a s 79A application as she was not a creditor at the time the application for consent orders was made; and secondly, because, even if she were, relief is discretionary, Ms Van Dyke has been aware of the transfer of the matrimonial property since May 2014, yet she took no steps "in relation to the Indian property" and, in relation to the Australian property, all she did was to arrange for Mr Sidhu's examination.

The relevant provisions of the Family Law Act 20 A court exercising jurisdiction under the Family Law Act may make orders altering the interests in property of either or both of the parties to a marriage: Family Law Act, ss 79(1)(a), 4(1). If an application is made for an order under s 79, subs 79(10) stipulates that the following people are entitled to become parties to the proceedings: (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 section 90SM, or a declaration under section 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. 21 Furthermore, the applicant for such an order must give written notice to anyone with such an entitlement of: (a) the person's entitlement to become a party to the case; and (b) the date of the next relevant court event; and the notice must include a copy of the application for the order that is sought: Family Law Rules 2004 (Cth), r 14.07(1) and (3). 22 In her affidavit Ms Van Dyke did not state in terms that she was not given notice but the inference is that she was not. In oral evidence given by leave at the hearing she stated that she first became aware that an order had been made by the Family Court after the High Court had published its judgment in May 2014 and that she first saw a copy of the application for the consent orders in April 2016 when it was produced by Mr Lo Pilato in answer to a summons issued in the examination proceedings. 23 Section 79A relevantly provides as follows: Setting aside of orders altering property interests (1) Where, on application by a person affected by an order made by a court under section 79 in property settlement proceedings, the court is satisfied that: (a) there has been a miscarriage of justice by reason of fraud, duress, suppression of evidence (including failure to disclose relevant information), the giving of false evidence or any other circumstance; ... the court may, in its discretion, vary the order or set the order aside and, if it considers appropriate, make another order under section 79 in substitution for the order so set aside. … (2) In the exercise of its powers under subsection (1) … , a court shall have regard to the interests of, and shall make any order proper for the protection of, a bona fide purchaser or other person interested. … (4) For the purposes of this section, a creditor of a party to the proceedings in which the order under section 79 was made is taken to be a person whose interests are affected by the order if the creditor may not be able to recover his or her debt because the order has been made. (5) For the purposes of this section, if: (a) an order is made by a court under section 79 in proceedings with respect to the property of the parties to a marriage or either of them; and (b) either of the following subparagraphs apply to a party to the marriage: (i) when the order was made, the party was a bankrupt; (ii) after the order was made, the party became a bankrupt; the bankruptcy trustee is taken to be a person whose interests are affected by the order. …

Is leave required? 24 Section 58 of the Bankruptcy Act relevantly states that: (1) Subject to this Act, where a debtor becomes a bankrupt: (a) the property of the bankrupt, not being after-acquired property, vests forthwith in the Official Trustee or, if, at the time when the debtor becomes a bankrupt, a registered trustee becomes the trustee of the estate of the bankrupt by virtue of section 156A, in that registered trustee; … (3) 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 a proceeding. … 25 The reference in subs (3) to "a provable debt" is a reference to a debt provable in the bankruptcy. To decide whether a debt is provable in the bankruptcy it is necessary to turn to s 82 of the Bankruptcy Act. Subsection 82(1) provides, with certain exceptions which are not presently relevant, that: 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. 26 As the judgment debts owing to Ms Van Dyke were debts to which Mr Sidhu was subject at the date of his bankruptcy, they are provable debts within the meaning of the Act. A proceeding by a creditor to set aside a consent order entered into by a bankrupt, under s 79, is a "legal proceeding in respect of a provable debt" for the purposes of this section: Fraser v Commissioner of Taxation (1996) 69 FCR 99 ("Fraser") at 112-15 (Beaumont J, Black CJ and Tamberlin J agreeing). It follows that Ms Van Dyke requires leave to bring the action.

Should leave be granted? 27 In Re McMaster; Ex parte McMaster (1991) 33 FCR 70 at 72-3 Hill J made the following observation: The modern bankruptcy law serves three purposes. The first is to ensure that the assets of the bankrupt are distributed rateably among creditors. The second, which is interrelated with the first, is to ensure that one creditor does not obtain an undue advantage over other creditors. The third is to bring about the discharge of the debtor from future liability for his existing debts, so that the debtor may start afresh ... 28 In McMaster the divorced wife of a bankrupt achieved a property settlement in contested proceedings in the Family Court. She then sought leave under s 58(3)(b) of the Bankruptcy Act to set aside that order and instead order that she be entitled to a percentage of the value of her husband's superannuation entitlement or a specified amount plus interest upon the vesting of the entitlement. Leave was refused on the basis that the proposed proceedings would operate in a way that was contrary to the policy of the Bankruptcy Act. First, his Honour considered that the proposed proceedings would "effectively defer the liability and take it out of the category of provable debts", leaving the bankrupt with a continuing liability when discharged from bankruptcy. Consequently, "[a] grant of leave … would scarcely advance the third purpose of the legislation". Secondly, his Honour considered that the proposed proceedings would give the wife an advantage to the detriment of other creditors. Thirdly, his Honour noted that the wife had been represented by counsel in the Family Court property dispute and had the opportunity there to make submissions as to the form the order should take, and it should have been apparent at that time that the effect of making the orders would be to leave her husband insolvent. 29 The position in the present case is quite different. 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": Macquarie Bank Ltd v Bardetta [2005] FCA 507; 216 ALR 670 at [25], [27] (Conti J). See also Green v Official Trustee in Bankruptcy, in the matter of Schneller (Bankrupt) [2001] FCA 1644 (Hill J). 31 Secondly, while it is preferable that the trustee in bankruptcy bring the action himself, the evidence suggests that Mr Lo Pilato does not propose to bring an action himself, at least not unless he is put in funds and there is no evidence to suggest that he has been or will be. 32 Thirdly, it is clear from his decision not to participate in this proceeding that the trustee does not oppose the grant of leave. 33 Fourthly, Ms Van Dyke had no opportunity to make submissions in the Family Court against the making of the proposed consent orders. 34 Fifthly, insofar as it may be relevant to consider the prospects of success of the proposed application, on the evidence before me Ms Van Dyke certainly has a prima facie case for the exercise of the court's discretion in her favour. 35 Contrary to Mr Sidhu's submission, Ms Van Dyke has standing to bring the application as "a person affected by" the consent orders. Furthermore, although ultimately this will be a matter for the Family Court, contrary to Mr Sidhu's submission, she was a creditor at the time the s 79 application was made because at that time there was a court order that Mr Sidhu pay her equitable compensation and costs; all that remained was for the amounts to be quantified. In any case, if she were not a creditor, she was unquestionably a person affected by the application within s 79(10)(b). She should therefore have been notified of it. 36 The failure to give notice, by itself, may give rise to a miscarriage of justice. Even before the Rules of Court required notice to be given the Full Court of the Family Court observed in Semmens v Commonwealth (1989) 13 Fam LR 715 at 723 that the failure to give notice to a third party whose interests may be adversely affected by the order sought or the terms of an agreement "may almost inevitably in many cases constitute a 'miscarriage of justice' within s 79A". The Full Court said: [I]t must be recognised that the failure to [give notice] in particular cases can severely impinge upon the "legitimate interests of third parties" and may almost inevitably in many cases constitute a "miscarriage of justice" within s 79A. Consequently, in our view, where in a proceeding under ss 79 … it appears to either of the parties that there are interests of third parties which might be adversely affected by the orders which are being sought or the terms of the agreement, justice and common sense dictate that those third parties be given notice. … Failure to do so in a particular case may adversely affect the interests of a third party and, in the long run, may open up the orders which have been made or the agreement which has been approved or registered to challenge … 37 Moreover, on the face of things Ms Van Dyke's interest in the property should have been disclosed to the Family Court. Even if it was not their purpose, one effect of the proposed orders was to put assets beyond the reach of creditors. In addition, I accept Ms Van Dyke's submission that the answer to question 19 is wrong and that the answer to question 71 is incomplete. To this extent, at least, there is a reasonably arguable case that the order was obtained by false evidence. Evidence may be false even if it is not wilfully false: Taylor v Taylor (1979) 143 CLR 1 at 5 (Gibbs J; Stephen J, Mason J and Aickin J agreeing at 10, 13-14 and 22 respectively). 38 Finally, although there has been some delay in bringing the application, I do not consider that leave should be refused on account of it. 39 While I accept that Ms Van Dyke knew that the matrimonial property had been transferred in May 2014, at that time she had no reason to believe that she would not recover from Mr Sidhu the compensation to which the Court would determine she was entitled or, for that matter, her costs. Between May and September 2014 she participated in a mediation with Mr Sidhu, no doubt in the expectation that both parties attended in good faith. After the determination was made in September and the compensation was not paid, a number of garnishee orders were issued and she also applied for an examination hearing, pursuant to the Supreme Court Rules. The principal proceeding in which this interim application is brought was not instituted until December last year. It was in the course of the examination hearing in April 2016 that Ms Van Dyke first saw a copy of the application for consent orders. After the hearing Ms Van Dyke found herself without legal representation when her then counsel Mr Insall SC withdrew. She then tried to find another barrister. In August 2016 her current counsel, Mr Ash, agreed to act for her and the interim application was filed the following month. Thus the delay is largely explained. 40 The delay between March 2015 and the commencement of the current proceeding with the filing of the originating application on 2 December last year, however, is largely unexplained. Be that as it may, I accept Mr Ash's submission that following the bankruptcy it was reasonable for Ms Van Dyke to await receipt of the creditors' report and to rely on the trustee to take appropriate action. In his report, Mr Lo Pilato proposed an application for a public examination and that was the course that was followed. It would appear that the prospect of a s 79A application did not cross anyone's mind until after the examination in April 2016. 41 In any case, I am not satisfied that there is any prejudice occasioned by the delay. Further, relief in the Family Court is also discretionary so that the fact of delay may be raised in the proposed s 79A action if either Mr or Mrs Sidhu seeks to be heard. 42 For all these reasons leave should be granted, conditional upon the undertakings offered. 43 As Mr Ash conceded, the application should be brought in the Family Court (rather than the Federal Circuit Court) as the court which made the orders his client wishes to disturb. I certify that the preceding forty-three (43) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Katzmann.

Bankruptcy Act 1966(Cth)ss 58, 81

(1989) 13 Fam LR 715

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