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Here is our pick of the cases - posted 11 November 2017 - published in the past month by AustLII. Please note that all back issue case notes can be found assembled by topic and with live links and an index at our online members' Archive.  As just a selection of these cases has been added to our looseleaf (and E-Book) service – which concentrate on leading case law – we recommend that you read our looseleaf (or E-Book) in conjunction with our archived case notes. Please also note that our E-Book offers a word/phrase search function and our archive is searchable too once you get to your selected topic. 

Financial agreements – Fiancée (and as wife) wins appeal to High Court – Trial judge’s decision to set aside pre-nuptial and post-nuptial agreements reinstated – Not for duress (as trial judge held) but for undue influence and unconscionable conduct

In Thorne & Kennedy [2017] HCA 49 (8 November 2017) the High Court heard Ms Thorne’s appeal against a decision of the Full Court of the Family Court of Australia. The nature of the appeal was described at [1]-[2] of a joint judgment delivered by (Kiefel CJ, Bell, Gageler, Keane and Edelman JJ):

“This appeal concerns two substantially identical financial agreements, a pre-nuptial agreement and a post-nuptial agreement which replaced it, made under Part VIIIA of the Family Law Act 1975 (Cth). The agreements were made between a wealthy property developer, Mr Kennedy, and his fiancée, Ms Thorne. The parties met online on a website for potential brides and they were soon engaged. In the words of the primary judge, Ms Thorne came to Australia leaving behind ‘her life and minimal possessions ... If the relationship ended, she would have nothing. No job, no visa, no home, no place, no community’ [Thorne & Kennedy [2015] FCCA 484 at [91]]. The pre-nuptial agreement was signed, at the insistence of Mr Kennedy, very shortly before the wedding in circumstances in which Ms Thorne was given emphatic independent legal advice that the agreement was ‘entirely inappropriate’ and that Ms Thorne should not sign it. 

One of the issues before the primary judge, Judge Demack, was whether the agreements were voidable for duress, undue influence, or unconscionable conduct. The primary judge found that Ms Thorne's circumstances led her to believe that she had no choice, and was powerless, to act in any way other than to sign the pre-nuptial agreement. Her Honour held that the post-nuptial agreement was signed while the same circumstances continued, with the exception of the time pressure. The agreements were both set aside for duress, although the primary judge used that label interchangeably with undue influence, which is a better characterisation of her findings. The Full Court of the Family Court of Australia (Strickland, Aldridge and Cronin JJ) [Kennedy & Thorne [2016] FamCAFC 189] allowed an appeal … concluding that the agreements had not been vitiated by duress, undue influence, or unconscionable conduct [saying at [167] that the wife’s ‘real difficulty’ in proving duress was that she had received independent legal advice (against signing either agreement)]. For the reasons which follow, the findings and conclusion of the primary judge should not have been disturbed. The agreements were voidable due to both undue influence and unconscionable conduct.”

Nettle and Gordon JJ agreed with the orders proposed by the majority but gave different reasons.

After a discussion of case law in respect of duress ([26]-[29]), undue influence ([30]-[36]) and unconscionable conduct ([37]-[40]), the majority said (from [54]):

“Any assessment of whether the agreements were vitiated by undue influence must begin by consideration of the findings of the primary judge, with due regard for the advantages enjoyed by the primary judge and the evaluative exercise involved in the primary judge's consideration.

[55] With one exception, none of the findings of fact by the primary judge was overturned by the Full Court. That exception was the Full Court's rejection of the primary judge's finding that there was no outcome available to Ms Thorne that was fair or reasonable. The Full Court erred in rejecting this finding. It was open to the primary judge to conclude that Mr Kennedy, as Ms Thorne knew, was not prepared to amend the agreement other than in minor respects. Further, the description of the agreements by the primary judge as not being ‘fair or reasonable’ was not merely open to her. It was an understatement. [Independent accredited family law specialist] Ms Harrison's unchallenged evidence was that the terms of the agreements were ‘entirely inappropriate’ and wholly inadequate ‘[i]n relation to everything’. She said that the agreements did not show any consideration for Ms Thorne's interests. Even without Ms Harrison's evidence, it is plain that some of the provisions of the agreements could not have operated more adversely to Ms Thorne. For instance, the agreements purported to have the effect that if Ms Thorne and Mr Kennedy separated within three years then Ms Thorne was not entitled to anything at all.

[56] The primary 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. In other words, what the Full Court rightly recognised as the significant gap between Ms Thorne's understanding of Ms Harrison's strong advice not to sign the ‘entirely inappropriate’ agreement and Ms Thorne's actions in signing the agreement was capable of being a circumstance relevant to whether an inference should be drawn of undue influence.

[57] The Full Court also mischaracterised the effect of the primary judge's reasons. As explained above, the primary judge found that Ms Thorne was ‘powerless’ and that Ms Thorne believed that she had ‘no choice’ to do anything other than sign the agreements as presented. The primary judge's finding was, in effect, that Ms Thorne was deprived of the ability to bring a free choice to the decision as to whether to sign the agreements. Ms Thorne's choices about entering the agreements on Mr Kennedy's terms were subordinated to the will of Mr Kennedy. Despite the strong advice from Ms Harrison, Ms Thorne accepted the terms of the agreements in part due to her ‘reliance on Mr Kennedy for all things’. Although the primary judge described her conclusion as one of ‘duress’, for the reasons explained above her conclusion is more aptly described as one of undue influence. It was, therefore, unnecessary for the primary judge to assess the extent to which the pressure upon Ms Thorne came from Mr Kennedy as might be required for the doctrine of duress. It was also unnecessary for the primary judge to consider whether, for the purposes of the doctrine of duress, the pressure that Mr Kennedy exerted upon Ms Thorne was improper or illegitimate. These are matters within the domain of duress rather than undue influence. Contrary to the reasoning of the Full Court, the failure of the primary judge to reach these conclusions was not an error.

[58] Mr Kennedy's executors [who continued the case after Mr Kennedy died when the trial was part-heard] also relied upon the Full Court's reasoning that the primary judge had based her conclusion only upon an inequality of bargaining power. That submission cannot be accepted. Contrary to the reasoning of the Full Court, the primary judge carefully set out the six factors which, together with the lack of a fair or reasonable outcome, led her to the conclusion that Ms Thorne had no choice but to enter the agreements [at [97] of her Honour’s reasons].

[59] The primary judge's conclusions were open to her on the evidence. Each of the factors which the primary judge considered was a relevant circumstance in the overall evaluation of whether Ms Thorne had been the subject of undue influence in her entry into the agreements. In combination, it was open to the primary judge to conclude that Ms Thorne considered that she had no choice or was powerless other than to enter the agreements. In other words, the extent to which she was unable to make ‘clear, calm or rational decisions’ [NA v MA [2007] I FLR 1760 at 1785 [114] per Baron J] was so significant that she could not aptly be described as a free agent. In the Restatement of the Law Third, Restitution and Unjust Enrichment [American Law Institute (2001), §15, comment c] the Reporter said that:

‘Circumstances universally relevant to the proof of undue influence include the relation of the parties; the nature and terms of the transfer in question; the susceptibility of the transferor to the influence of the other; the opportunity of the other to exert undue influence; and the extent to which the transferor acted on the basis of independent advice.’ 

[60] In the particular context of pre-nuptial and post-nuptial agreements, some of the factors which may have prominence include the following: (i) whether the agreement was offered on a basis that it was not subject to negotiation; (ii) the emotional circumstances in which the agreement was entered including any explicit or implicit threat to end a marriage or to end an engagement [Thompson, Prenuptial Agreements and the Presumption of Free Choice: Issues of Power in Theory and Practice, (2015) at 115]; (iii) whether there was any time for careful reflection; (iv) the nature of the parties' relationship; (v) the relative financial positions of the parties; and (vi) the independent advice that was received and whether there was time to reflect on that advice.”

The majority continued at [63]-[65]:

“This appeal should be allowed on the basis that the Full Court erred in concluding that the primary judge's reasons were not adequate and erred in overturning the primary judge's conclusion that, in effect, Ms Thorne was subject to undue influence. As we have explained, it is not necessary to consider the operation of the vitiating factor of duress. This is particularly so in the absence of any detailed argument about the operation of a criterion for duress that the conduct of the dominant party is improper or illegitimate, and the absence of any findings by the primary judge or the Full Court on these matters. In contrast, the issues concerning unconscionable conduct were fully argued. For the reasons which follow, the Full Court also erred in its conclusion that Ms Thorne's entry into the agreements was not procured by unconscionable conduct.

[64] The Full Court recognised that Ms Thorne was labouring under a disadvantage [[138] of the Full Court’s reasons], although the Court did not add the adjective ‘special’, which, as Mason J in Commercial Bank of Australia Ltd v Amadio [[1983] HCA 14] explained, 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 findings by the primary judge that Ms Thorne was subject to undue influence – powerless, with what she saw as no choice but to enter the agreements – point inevitably to the conclusion that she was subject to a special disadvantage in her entry into the agreements.

[65] Ms Thorne's special disadvantage was known to Mr Kennedy. Her special disadvantage had been, in part, created by him. He created the urgency with which the pre-nuptial agreement was required to be signed and the haste surrounding the post-nuptial agreement and the advice upon it. While Ms Thorne knew Mr Kennedy required her acknowledgement that his death would not result in her receiving a windfall inheritance at the expense of his children, she had no reason to anticipate an intention on his part to insist upon terms of marriage that were as unreasonable as those contained in the agreements. Further, Ms Thorne and her family members had been brought to Australia for the wedding by Mr Kennedy and his ultimatum was not accompanied by any offer to assist them to return home. These matters increased the pressure which contributed to the substantial subordination of Ms Thorne's free will in relation to the agreements. Mr Kennedy took advantage of Ms Thorne's vulnerability to obtain agreements which, on Ms Harrison's uncontested assessment, were entirely inappropriate and wholly inadequate. Even within that class of agreement, the agreements which Ms Thorne signed involved ‘gross inequality’ [Gartside v Isherwood (1778) 1 Bro CC 558 at 560-561 per Lord Thurlow LC  [28 ER 1297 at 1298]].

The appeal was allowed with costs.

Property – Case stated – Court has power under s 90AE to direct Commissioner of Taxation to substitute husband for wife in relation to tax debt

In Tomaras & Tomaras and Anor and Commissioner of Taxation [2017] FamCAFC 216 (13 October 2017) the Full Court (Thackray, Strickland & Aldridge JJ) considered a question of law referred by Judge Purdon-Sully as to whether s 90AE of the Family Law Act conferred power on a court to make the order sought by the wife, who owed the Commissioner $256,078 plus interest, that the husband be substituted for her as debtor so that he solely would be liable for the debt. The Commissioner relied on Bropho v State of Western Australia [1990] HCA 24 in arguing that the Court must presume that general statutory provisions like s 90AE do not bind the Crown.

Thackray & Strickland JJ said (from [16]):

“The presumption that the Crown is not bound by a statute applies only to provisions which impose an obligation or a restraint on the Crown ( … )

[17] In our view, it could be reasonably argued that s 90AE can only impose a benefit on the Crown since:

(a) instead of an impecunious taxpayer being responsible for a tax liability, his or her more wealthy spouse may be made solely responsible pursuant to s 90AE(1)(a), thereby increasing the prospects of recovery;

(b) instead of one spouse being responsible for a tax liability, both spouses may be made liable pursuant to s 90AE(1)(b), thereby providing a remedy for recovery that otherwise would have been unavailable;

(c) whilst an order might be made leaving the less wealthy spouse to meet a tax debt, such an order could not be made if it was foreseeable that the order would result in the debt not being paid (s 90AE(3)(b)); and

(d) the legislation permits the court to make such order as it considers just for the payment of the reasonable expenses of the creditor incurred as a necessary result of the order (s 90AJ(2)).

[18] Section 90AE could therefore only ever operate to the detriment of the Crown if the court, in making an order:

(a) relieved a spouse of their obligation to pay tax which they would have paid if the order had not been made; and

(b) instead imposed the obligation on a spouse who, although appearing at the time able to meet the liability in full, ultimately was unable to do so for some unforeseeable reason.

[19] In assessing the likelihood of such an outcome it must be remembered that the Commissioner would be on notice that an order under s 90AE is sought and would be entitled to be heard on the issue of the foreseeability of the tax not being paid if one party were to be substituted for the other.

[20] It can thus be seen that the possibility of the Commissioner being adversely affected by an order under s 90AE does not arise by operation of the Act but only by the happening of an event that could not have been reasonably anticipated. In those circumstances, we see no place for the presumption.”

Determining that the Court had power to make a substitution in respect of the debt, Thackray & Strickland JJ said (from [30]):

“Paragraphs 90AE(4)(a) and 90AE(4)(b) make the ‘taxation effect’ of a substitution order a mandatory consideration before such an order can be made. ( … )

( … )

[42] We accept that a person who has been obliged to assume the tax liability of their spouse may face procedural/evidentiary difficulties in disputing the amount of an assessment. But this would not always be the case, as the party obliged to assume liability may well be the party with more intimate knowledge of the financial/taxation affairs of the marriage.

[43] It is important to observe that procedural/evidentiary difficulties may also arise in respect of debts other than taxation debts. The fact that a debt may be in dispute, and that there may be difficulties in challenging it if an order is made under s 90AE is something a court would take into account prior to making such an order. In our view this again goes to the exercise of the power and not to its existence. Contrary to the submission of the Commissioner, this does not represent the ‘offloading’ of problems to the court but rather involves no more than taking into account one of many potentially relevant considerations.

( … )

[55] … Parliament must be taken to have known that the Commissioner has always been treated as a ‘creditor’ for the purposes of s 79 and s 79A. Had Parliament intended to exclude the Commissioner as a ‘creditor’ when expanding the existing powers of the court, it could have readily done so in precisely the same way that it excluded a species of property from the ambit of the section when enacting s 90ACA
( … )

( … )

[59] For these reasons, with one proviso, we would answer the question posed by Judge Purdon-Sully in the affirmative.

[60] The proviso is that s 90AE(1) would confer power to make only an order that the Commissioner be directed to substitute the first respondent for the applicant in relation to the debt owed by the applicant to the Commissioner. The additional words sought by the applicant in Order 8, namely ‘and the respondent husband be solely liable to the Commissioner of Taxation for the said debt’ have the potential to create the impression that whatever rights the applicant may have had to challenge the debt (which senior counsel for the Commissioner acknowledged might still exist) are extinguished by the making of the order. For the reasons given earlier, we are not entirely persuaded that such rights would be extinguished by an order under s 90AE.”

Aldridge J agreed that the Court had power to make the substitution under s 90AE but disagreed that s 90AE was arguably beneficial to the Commissioner, saying (at [72]-[73]):

“ … [M]y current view is that an order under s 90AE operates to interfere with and vary the legal rights and entitlements of the third party as it ‘imposes obligations or restraints’ or acts ‘to the prejudice’ of the third party … and cannot therefore be regarded as legislation beneficial to the Crown. No longer is the third party entitled to deal with a party or the parties to the marriage in accordance with its legal rights (whether they have arisen by contract or by statute) but rather it must do so subject to the imposition made under s 90AE.

[73] It is true that the clear intent of s 90AE(3) and s 90AJ is that orders should not be made under s 90AE(1) unless the Court is satisfied that it is not foreseeable that under the order to be made the debt will not be paid in full and that the creditor’s expenses of complying with the order will be met. However, that is not the receipt of a benefit because those sections are designed to ensure that … the creditor will be no worse off. Being no worse off is quite different to receiving a benefit. This remains the position even though it is possible that the orders may … have the effect that a creditor may be paid or paid more quickly than otherwise would have been the case if no order under s 90AE(1) be made. It is easy enough, however, to envisage orders being made, albeit for the right reasons and with the best of intentions that, for lack of compliance for example, have the opposite effect resulting in a financial detriment.”

Spousal maintenance – Full Court holds no error in dismissal of husband’s application to vary maintenance order but that the appointment of receivers to collect arrears was not proper where another order such as for sale of jewellery might have been made

In Malloy and Ors & Stopford Malloy [2017] FamCAFC 204 (5 October 2017) the Full Court (Thackray, Strickland & Kent JJ) heard the husband’s appeal against Bryant CJ’s dismissal of the husband’s application for dismissal of Dawe J’s order for an increase of an interim maintenance order and order for the appointment of receivers for enforcement of that order. On 19 October 2015 Dawe J had ordered the husband to pay the wife spousal maintenance of $2,000 per week, which was increased to $2,650 per week by order of 22 April 2016.

The husband owned a property (“Suburb B”) and interests in a family group of companies known as the Malloy Group. Suburb B was encumbered to the EE Bank and to the Malloy Group, the husband’s contention being that he had a shortfall of assets over liabilities and that since 2010 he had relied on his father for financial support such that he owed the Malloy Group significant amounts for his living expenditure.

At first instance Bryant CJ heard the wife’s application for recovery of maintenance arrears of $21,197 and the husband’s application for a variation of the interim maintenance order. The Court dismissed the husband’s application for a variation on the ground that there had been no change of circumstances to justify a variation and appointed receivers to enforce the arrears. The husband appealed.

The Full Court said (from [43]):

“ … [T]he primary issue here is whether pursuant to s 83 of the Family Law Act 1975 … the husband has established a sufficient change of circumstances to justify a variation to the orders for maintenance …

[44] The husband’s case before her Honour in this regard was that since the orders were made, the withdrawal of his father’s financial support, via the Malloy Group of Companies, to enable those orders to be met had changed his financial position such that he was unable to fully comply with them. Indeed, the wife had only been receiving … $650 per week from the Malloy Group of Companies on behalf of the husband for some time prior to the hearing before her Honour.

[45] Her Honour found against the husband, saying this in [164]:

‘I have indicated in my findings that on the evidence, the husband and his father have cooperatively and collaboratively arranged payments for the benefit of the husband (and at times for the wife) to meet his needs including his forensic needs, in the course of these proceedings. I am not satisfied that the husband has demonstrated any change in circumstances since the making of the order on 19 October 2015 as amended by the Orders of 22 April 2016. All of the matters to which the husband deposes were in place as at the date of the order of 19 October 2015, including his father switching on and off financial largesse as the fortunes of the parties’ relationship ebbed and flowed.

( … )

[51] As submitted by the wife, the ‘change of attitude’ on the part of the father and the Malloy Group of Companies did not amount to a change in the relevant circumstances. Those circumstances were that on the basis that his father would continue to provide financial accommodation ‘as he saw fit’, the husband consented to the order. Plainly, when the husband consented to the order in October 2015, he did so well knowing there was a risk that his father might ‘turn off the tap’ at some time into the future. All that has happened is that that has come to pass, and thus there is no change of circumstances.”

The husband also argued that the Court erred in not crediting payments to the wife that he had made during a period of reconciliation, against the arrears. The Full Court said (from [58]):

“The two payments were an amount of $10,000 paid to the wife’s legal representatives for their fees … and an amount of $10,797 paid on 27 January 2016 for the design of a website for the wife.

[59] In addressing the issue of how to treat payments made on behalf of the wife during and immediately after the period of attempted reconciliation, her Honour accepted the contention of the wife that the spousal maintenance orders did not operate during that period, and gave rise to no arrears. Her Honour treated all payments made on behalf of the wife as not being made under the compulsion of a court order, but voluntarily under a different arrangement. ( … )

[60] The husband has provided no basis to suggest that her Honour erred in taking that approach, and we find that it was open on the evidence for her Honour to do so.”

As to the Court’s power to appoint receivers to recover the arrears, the Full Court said (from 69):

“Her Honour applied Chapter 20 of the Family Law Rules 2004 (Cth) (‘the Rules’) in appointing the receivers …

[70] There is no doubt that the Act expressly empowers the court to make rules permitting the appointment of receivers in particular circumstances.

( … )

[79] For the wife’s part she says that Chapter 20 does have application in this case, and it is authorised by s 123(1), s 109A and s 80(3).

[80] The wife submits that s 123(1) is more than sufficient to authorise rules providing for the enforcement of an order of the court by the appointment of a receiver, but submits that Chapter 20 is an example of Rules of Court made pursuant to s 109A.
( … )

[81] The wife accepts that s 80(1)(k) is wide enough in its terms to authorise the appointment of a receiver, however, submits that ‘the powers [under s 80(1)] are conferred on the Court as part of, or in the course of, exercising the powers of the Court under Part VIII, and are designed to facilitate compliance, not to remedy non-compliance’. That description also applies to s 80(3).

[82] Further, the wife submits that s 80(3) is not an exclusive source of power for the Rules made in Chapter 20, and ‘there is no requirement that [those Rules] should have the same necessity condition as is attached to s 80(1)(k)’.

[83] This Court is persuaded by the submissions of the wife. We consider that s 109A does provide the power to make Rules which apply to the circumstances here; that s 80(3) is not an exclusive source of power for the Rules made in Chapter 20 and it does not impermissibly enlarge the court’s jurisdiction; and s 80(1)(k) is not the sole source of power to appoint receivers.

[84] Thus, her Honour was correct in applying Chapter 20 of the Rules of Court, and she was not required to find that the appointment was ‘necessary to make to do justice’ as she would have been if she was limited to applying s 80(1)(k).

( … )

[104] In our judgment, on a proper construction of s 109A of the Act, Chapter 20 of the Rules, including the rule in relation to the appointment of receivers, are rules made pursuant to the extension of the s 123 rule making power to make rules for the enforcement of money and property orders and these rules are available as a source of power to enforce, inter alia, an order for spousal maintenance including, inter alia, by the appointment of receivers.

[105] It is also our view that Chapter 20 is sourced to s 80(3) as well. However, as explained above, s 80(3), has a different reach; it primarily goes to facilitating compliance where there has not yet been non-compliance, but it can still be seen to authorise the rules in Chapter 20 to that extent.

[106] Thus, her Honour was not limited to s 80(1)(k) as being the only source of power to appoint receivers in this case. Further, as we have demonstrated it is not the case that the Rules relating to enforcement made pursuant to s 123(1), s 109A or s 80(3) have the effect of enlarging the court’s jurisdiction such that orders in cases such as the one here are beyond power.”

Having found no merit in the husband’s argument as to the Court’s power to make the orders it did, the Full Court did find error in the application of r 20.47(1) saying (from 118):

“In relatively simple terms, the question is whether, given all of the circumstances, was it necessary, appropriate, or proper (to include all possible scenarios) for receivers to be appointed?

( … )

[120] … [T]he factors that a court must have regard to when considering whether to appoint receivers (r 20.47(1)), namely:

a. the amount of the debt;

b. the amount likely to be obtained by the receiver; and

c. the probable costs of appointing and paying a receiver.

( … )

[130] Significantly, despite her Honour accepting … that there was doubt about whether the husband had any equity in the properties, and indeed expressly making no finding about whether the amount of the arrears could be met from the proceeds of sale … her Honour proceeded to make the orders which could very well lead to sales of those properties.

[131] … [I]t is difficult to see the rationale of appointing receivers if sale of the properties was not contemplated; we ask, where else was the money to come from to meet the arrears? The evidence of the husband was that he had no income, and if it was from the sale of his personal effects, we query the need to look to the real estate given the amount of the arrears.

( … )

[133] … [I]t can immediately be seen that there was an issue of proportionality present. In other words, given the amount of the debt, the amount likely to be obtained by the receivers, and the probable costs of appointing and paying receivers, was it necessary, appropriate, or proper to make the order? In addition, there is the effect on the husband of the appointment of receivers; in the discretion of the receivers all of his assets and any of his income would be received by them. ( … )

( … )

[135] Thus, there is little obvious benefit to the wife but a real risk of severe prejudice to the husband arising out of the orders … It must not be forgotten that courts should be extremely cautious in appointing receivers (National Australia Bank v Bond Brewing Holdings Ltd [1991] VicRp 31; [1991] 1 VR 386) ( … )

( … )

[139] The principal difficulty that we have with these reasons is that nowhere is the issue of proportionality addressed, and there is scant consideration given to the requirements of r 20.47(1). There was also no consideration by her Honour of what other orders might have been made, including for example, an order for the sale of the husband’s jewellery. …

( … )

[144] Whilst we have found that her Honour was correct in dismissing the husband’s application to vary the consent order for spousal maintenance, by taking into account the involvement of the husband’s father at the time the orders were made, and the compliance, or lack of compliance with them, it is an entirely different matter to take the relationship between the husband and his father into account in appointing receivers to receive the husband’s assets and income.”

Property – Order for distribution of sale proceeds set aside as it assumed a sale price as valued, lacking provision for adjustment if the home sold for more or less than its valuation

In Goudarzi & Bagheri (No. 2) [2017] FamCAFC 190 (15 September 2017) the Full Court (Thackray, Ryan & Forrest JJ) heard the wife’s appeal against Cleary J’s property order which effected an overall property division of 55 per cent to the wife and 45 per cent to the husband, where Cleary J ordered that the family home be sold and 65 per cent of the net sale proceeds to be paid to the wife. Although valued by a single expert as being worth $5.5 million, the parties were given leave to adduce their own expert evidence as to the home’s worth, the wife ultimately conceding the husband’s expert’s value of $8.48 million.

The Full Court said at [8]-[9]:

“The effect of the adjustments made pursuant to s 75(2) was to increase the wife’s overall share of the property available for distribution from 35 to 55 per cent. Notwithstanding that the family home, which was valued at $8.48 million was to be sold, the primary judge formulated the orders which would give effect to the 55:45 division as though the wife should receive 55 per cent of $14.46 million. On this formula, the wife would receive 65 per cent of the proceeds of sale of the family home [assuming a sale price of $8.48 million]. It is the wife’s contention that the orders do not give effect to her Honour’s determination as to the percentage distribution of the parties’ property and that she carries a disproportionate risk of financial loss should the family home sell for less than $8.48 million. 

[9] The husband concedes that if it is accepted that the primary judge intended that the wife receives 55 per cent as ‘her overall share of the asset pool’ [163] the form of orders is mathematically flawed.”

The Full Court continued (from [46]):

“ … To achieve an overall property division of 55 per cent to 45 per cent in favour of the wife as intended, the wife would need to receive $5,449,585, which represented approximately 65 per cent of the net proceeds of sale, assuming a sale price of $8.48 million.

[47] We accept the proposition advanced by ground 5 that the fact that a single expert had valued the family home only twelve months earlier at $3 million less than it was valued at the date of trial demonstrated that it was far from certain that the property would sell for $8.48 million. Indeed, even without the earlier opinion, the vagaries of the real estate market means that there will always be uncertainty about the price at which a property will sell until completion of its sale. It is clear that if a lower sale price was realised, as feared by the wife (or indeed, a higher one), this would alter the overall division of the property in percentage terms, with the final result being not as her Honour intended.

[48] The undesirability of making orders which do not account for the possibility of real estate selling for much more or much less than the values relied upon at trial has been consistently discussed in the authorities (Waters and Waters (1981) FLC 91-019, Smith and Smith (1991) FLC 92-261; Docters Van Leeuwen and Docters Van Leeuwen (1990) FLC 92-148; Jarrott & Jarrott [2012] FamCAFC 29. Although these authorities encourage the use of percentages in orders providing for the division of the proceeds of sale of an asset, this should clearly be understood as meaning that the percentage employed should be the same as the overall proposed percentage distribution of the assets. The orders then need to provide for payment by one party to the other (from their share of the proceeds of sale) such adjusting amount as will bring about the desired outcome.

[49] The framing of orders involving the sale of real property was recently considered by the Full Court in Trask & Westlake (2015) FLC 93-662 (‘Trask’). In that case, the primary judge said that the wife should receive 60 per cent of the property, and, noting the division of the parties other property in specie, an order was made that the wife receive 87.43 per cent of the sale proceeds of real estate.

[50] In allowing the appeal the Full Court in Trask said:

‘36. ... It is within discretion for a judge to determine that orders should reflect a division that approximates 60%/40%. If that be the judgment, then small variations in the ultimate percentage received consequent upon the sale of property may not attract the intervention of this court.

37. Axiomatically, however, if that be the judgment, adequate reasons must make that abundantly clear, and all the more so because of the ubiquity of orders intended to reflect, with precision, a result expressed in percentage terms. It is that consideration which finds reflection in Noetel relied upon by the appellant husband. If orders are intended to reflect with precision the judgment expressed in percentage terms, those orders must acknowledge that the property may sell for a price different to the current estimated value.’


41. His Honour’s percentage formula makes no allowance for the fact that, as the assumed values of the two properties rise and fall they bear a greater or lesser proportion of the total value of the pool. That is, using his Honour’s formula would produce the assessed percentage entitlement only if the new values bore the same proportion to the total value of the pool as the original agreed values. Axiomatically, if they have risen or fallen, and the values of the balance of the property remain the same (as is assumed) they do not.

( … )

[52] We accept that the primary judge intended that the wife receive approximately 55 per cent of the parties’ net property and that the orders which give effect to that intention are flawed in the manner contended by ground 6. Consistent with the authorities to which we have referred earlier, the correct approach in this context would have been to allow both parties to retain the property in their name, and to allocate the proceeds of sale in the desired percentage, relevantly for the wife to receive 55 per cent. Then, having calculated the adjusting amount by reference to the retained property for that payment to be made to the wife, the husband to then receive the balance of the proceeds of sale (see the orders in Trask).

( … )

[63] We are also comfortably satisfied that pursuant to s 94(2) we can vary the orders by way of re-exercise so as to give effect to the intention of the primary judge concerning the percentage distribution of the parties’ property and propose to make the order concerning the sale of the family home that should have been made in the first instance. ( … )”

The appeal was allowed in part and the order was varied.

Children – Father loses appeal against order allowing mother’s relocation from Melbourne to a town 60 km away – Trial judge’s finding that mother’s negative attitude towards father would improve post-relocation was open on the evidence – Judge’s application of s 69ZT was unsound

In Groth & Banks [2017] FamCAFC 206 (4 October 2017) the Full Court (Bryant CJ, Ryan & Aldridge JJ) heard the father’s appeal against Thornton J’s final order permitting the mother to relocate the parties’ 6 year old son from a suburb of Melbourne to “Town D”, 60 kilometres away from the Melbourne CBD. The effect of the relocation was to extinguish the appellant’s mid-week time with the child.

While the mother had previously opposed the father’s application to be declared a parent of the child, arguing that he was no more than a sperm donor via assisted reproduction treatment (see Groth & Banks [2013] FamCA 430), and had committed acts of family violence against the father, it was agreed that the child should continue to live with the mother, that the father was child focused, that the child’s relationship with the father was meaningful and that the mother sought to move to Town D to live with her partner. The mother alleged that her attitude towards the father had changed and that relocation would further assist in the improvement of her attitude.

The Full Court said (from [13]):

“ … [I]t is important to acknowledge that it has been necessary for the father to battle the mother so as to establish his relationship with the child. She opposed him being recorded and acknowledged as the child’s father and the process of achieving these outcomes has been very difficult. The first tranche of litigation was concluded after a defended hearing with final orders made in June 2013. Implementation of these orders insofar as they facilitated time between the child and the father was fraught and by July 2014 contact had broken down.

[14] The father and his sister gave detailed affidavit evidence concerning the actions of the mother and her parents at changeovers during 2014 and early 2015 (including conduct by the mother which amounted to family violence) which led to the father’s decision to stop trying to enforce the June 2013 orders and to seek further assistance from the court. …

( … )

[16] At trial it was submitted by senior counsel for the father that this evidence established that the mother is incapable of accepting the father as the child’s parent. When this evidence is dovetailed with her more recent conduct, such as by failing to encourage the child to call his father ‘Dad’ it was argued that the mother lacked the capacity to maintain and support the child’s relationship with the father from Town D.

[17] Notwithstanding the importance of these matters to the father’s case, by reference to s 69ZT of the Family Law Act … her Honour … declined to ‘make any findings about the details of the behaviour of the mother during the controversial changeovers in 2014 and February 2015’ recorded in the evidence of the paternal aunt.

( … )

[19] But for her Honour’s decision to not make specific findings in relation to this unchallenged evidence, her approach was unremarkable. In relation to the relevance and thus necessity to make specific findings as to family violence, her Honour correctly observed … that neither party asserted the child was in need of protection, whether in relation to exposure to family violence or other risky behaviour. This finding informed her Honour’s conclusion that she would not make any findings of family violence [against the mother] ‘because of the seriousness of the allegations which are denied’ [224]. It is difficult to understand what this means. … [I]t seems that the primary judge declined to make the findings for which senior counsel for the father contended because the primary judge either mistakenly believed that it was in the best interests of this child to not make findings about the mother’s conduct during the period in question or that this unchallenged evidence required testing in order to satisfy the evidentiary onus that rested on the father. Neither proposition is sound. Nor was her reliance on s 69ZT. Section 69ZT ‘provides that certain rules of evidence do not apply and neither party sought any other order’ [149]. We do not accept that s 69ZT could justify a decision not to make findings in accordance with unchallenged evidence relevant to the welfare of a child.

( … )

[21] The Full Court decisions in Johnson & Page [2007] FamCA 1235 … Amador [2009] FamCAFC 196 … and … Maluka [2011] FamCAFC 72 … adopt a common approach to s 69ZT. The effect of these decisions as to the purpose of the provision accords with the submission made in the appeal … by senior counsel for the father. Namely:

Rather than operating so as to enable the avoidance of making relevant findings (here such findings were clearly relevant to the s 60CC determination), properly understood s 69ZT is concerned only with the admission of evidence and no more. It operates so as to effectively remove specified rules of evidence in a parenting proceeding absent an order to the contrary.

[22] But for the fact that we are satisfied that this evidence was in fact taken into account, grounds 4 and 5 (erred in failing to accept the evidence of the father and paternal aunt) and ground 7 (failure to make findings concerning this evidence) would have been successful.”

Considering whether the finding that the mother’s negative attitude towards the father was likely to improve was available on the evidence, the Full Court said (from [33]):

“There can be no doubt that throughout his evidence, the single expert was clear that it was a matter for her Honour to decide ‘ ... whether the historical matters and the behaviour of both parents in relation to the transition warrants particular attention’ … In addition that [the single expert] … was concerned about the possibility that the proposed move was in fact ‘the thin end of the alienation wedge’ ( … )

[34] There can be no doubt that her Honour well understood the father’s ‘thin end of the wedge’ concern and those of the single expert. Or that her Honour was concerned about the mother’s ability to facilitate the child’s relationship with the father. … So that it is clear we are completely satisfied that the reason why the primary judge gave such close attention to this issue is because she was similarly concerned about the future of the child’s relationship with the father. The primary judge specifically addressed the mother’s negative attitude and the manner in which it had affected the child. Her decision to distinguish between the mother’s attitudes and conduct pre- and post-February 2015 was available as was the weight she placed on her behaviour during those periods.

[35] However, her Honour also saw advantages for the child in the relocation and in terms of the mother’s attitude towards the child’s relationship with the father and saw the ‘likely potential’ for improvement if the relocation was granted. There can be no doubt that the primary judge’s approach to this difficult issue was nuanced and that her deliberations reflect finely balanced consideration of the evidence. The factors which ultimately weighed in support of her approach to the mother’s attitude to the child’s relationship were relevant considerations and were available on the evidence. It will apparent that the evidence in relation to this issue was complex and provided support for the case advanced by the father as well as that advanced by the mother. Thus her Honour was faced with a difficult decision and there is little reason to doubt that the different judges might have validly reached different decisions. But that is not the point because as we will demonstrate the ultimate decision results from a proper exercise of the discretion entrusted to the primary judge …”

The appeal was dismissed with costs.

Property – No provision for husband who murdered wife after she began property proceedings – Court’s approach to s 79(8) and s 75(2) – Husband’s contributions based entitlement ordered to be paid to intervening creditor to whom husband was liable in damages for having caused her permanent injury

In Neubert (Deceased) & Neubert and Anor (No. 2) [2017] FamCA 829 (18 October 2017) the wife was murdered by the husband in 2015 after the ending of the parties’ 18 year marriage in 2014 when the wife commenced property proceedings in the Federal Circuit Court. Those proceedings were continued by the wife’s estate. In the incident when the husband shot the wife dead he also shot a friend of hers with whom the wife was travelling, permanently injuring her. The case was transferred to the Family Court of Australia. The friend, who intervened in the case, brought civil proceedings in which she was awarded damages of $2.3 million which with taxed costs and interest amounted to a judgment debt of $2.5 million. The husband was found guilty of murder and sentenced to 25 years imprisonment and a cumulative 3 year sentence for grievous bodily harm in respect of the intervenor. The husband was 75 years old and ineligible for parole until he was “almost 90”.

Benjamin J said (from [2]):

“ … The consequence of the orders I intend to make … is that the property owned by the husband will be wholly divided between his late wife and her friend, Ms Curtin (‘the intervenor’). The husband will be left with no property of any value apart from a small monthly pension from Country Y. Given the circumstances, I am satisfied that such an outcome is just and equitable.

( … )

[12] … Mr Burton was appointed as legal personal representative (‘the representative’) for the late wife pursuant to Rule 6.15(3) of the Family Law Rules 2004 (‘the Rules’) and s 79(8) of the Family Law Act 1975

[13] The representative and the intervenor sought orders that there be a property adjustment between the estate of the late wife and the husband on the basis of payment to the late wife of 35 per cent of the net property and payment of the balance of the net property to the intervenor, having regard to the judgment debt.

( … )

[15] … [T]he husband sought an equal division of property between him and the representative.”

Upon considering s 79(8) as to whether a property order would have been made had the wife not dies and whether it was still appropriate to make such an order, Benjamin J said (from [91]):

“Counsel for the representative referred me to a decision of Wilson FM (as he then was) in Cornell & Stokes [2008] FMCAfam 774. His Honour reviewed relevant authorities, including the Full Court in Bourke & Bourke [1998] FamCA 69. Wilson FM summarised the approach to proceedings involving section 79(8) in the following terms:

‘23. From the above authorities, I conclude that the appropriate way in which to deal with a case where one of the parties has died since the commencement of proceedings is as follows:

(a) The party representing the deceased party to the marriage must demonstrate that, at the time of the death of the party so represented, the court would have made an order in favour of that party. In so doing, the party is not limited to the state of evidence at the date of death;

(b) In reaching an opinion about that first prerequisite imposed by s 79(8)(b)(i) of the Act, the Court is not required to determine precisely what orders would have been made in that deceased party’s favour, just that an order would have been made in that party’s favour;

(c) To reach that opinion, the Court must embark upon the exercise in s 79(4) of the Act;

(d) Having determined that it would have made an order in the deceased party’s favour had he or she survived, the Court must then consider whether it is still appropriate to make an order;

(e) In that regard, the Court’s discretion should not be exercised lightly, and should only be exercised in limited circumstances, so as to satisfy moral obligations that remain unsatisfied;

(f) The deceased party to the marriage has a prima facie moral entitlement to his or her contributions based entitlements to matrimonial property;

(g) The size of the pool and the needs of the surviving spouse, including s 75(2) factors must be taken into account in formulating any orders.

24. In this process, the onus of establishing the appropriateness of making a property order post mortem rests on the representative of the deceased party: Tasmanian Trustees Ltd (Administrators of Estate of Gleeson, B J) & Gleeson, D W (1990) FLC 92-156, applied by Carmody J in Rutter [2004] FamCA 424; and by Boland J in Ford & Marchant [2001] Fam CA 1585.’

[92] I accept the approach that exercising discretion to permit the continuation of proceedings is to be undertaken in ‘limited circumstances’ and ‘not lightly’ ( … )

( … )

[94] The representative has demonstrated that at the date of the late wife’s death the Court would have made an order in the late wife’s favour. The intervenor does not cavil with this assertion, nor does the husband.

( … )

[96] The parties had cohabited for over 18 years and during that time the evidence establishes that the late wife made significant contributions, of a direct and indirect nature and of a financial and non-financial nature, to the acquisition, conservation and improvement of property and to the welfare of the family. …

[97] The husband both now and when he filed his response in late 2014 acknowledged that the late wife had an entitlement. But for her death there would have been an adjustment of property having regard to the late wife’s significant contributions over the period of the relationship.

( … )

[100] In regard to whether the estate of the late wife would be entitled to an adjustment of property, I have not exercised that discretion lightly. I have determined there should be an adjustment of property in the light of the findings as to the parties’ respective contributions, including the husband’s significant initial contributions [land which was sold during the marriage for $590,000, savings of $100,000 and shares worth $300,000]. I have not considered it in the context of some moral obligations … I have had regard to the size of the pool [$2,168,153 excluding the judgment debt] and the respective property of the late wife’s estate and the husband.”

Benjamin J continued (from [164]):

“I prefer the late wife’s evidence to that of the husband where there is a conflict and I conclude that during the relationship she made greater contributions in terms of indirect financial contributions, non-financial contributions and homemaker.

( … )

[168] I am conscious that more money paid to the estate of the late wife will be, in part, the more money is gifted to the husband’s grandchildren, and his submissions should be seen in that light and my view as to the reliability of the husband’s evidence. I find that this approach by him is designed to minimise the amount of the judgment debt that would and should be paid to the intervenor and increase the amount to be paid to his grandchildren under the late wife’s will.

( … )

[173] … I accept the submissions by counsel for the representative and counsel for the intervenor that the property ought to be adjusted … as to 35 per cent to the late wife and 65 per cent to the husband … the husband’s share to be paid directly to the intervenor and set off against the judgment debt.”

As to s 75(2) the Court said (from [179]):

“The husband is unable to obtain any alteration in his favour pursuant to section 75(2) factors. As Coleman J said in Homsy v Yassa and Yassa; the Public Trustee (1994) [(1994) FLC 92-442] …

‘In determining what order should now be made, s 75 needs to be considered. It is artificial to have regard to s 75(2) operating in favour as of the deceased. It is rather in this case the operation of s 75(2) as raised by the applicant to increase his entitlement which must be considered. In essence … the applicant maintains that he has needs for accommodation, that he has health problems, that he has limited or no capacity to be employed for a variety of reasons relating to health and his criminal record, and that … s 75 (2) should operate to increase his entitlement beyond that which he achieves by contribution. I do not accept that this is so. In my view, the applicant having terminated the life of the deceased, and thereby rendering inappropriate s 75(2) factors which previously significantly favoured the deceased, cannot himself have the benefit of those factors. To do so would be offensive to justice and equity, whether that is considered in the context of s 79(2) and s 75(2)(o) of the Act.’

( … )

[182] I reiterate the comments of Coleman J that the husband, having murdered the late wife, cannot have the benefit of the s 75(2) factors. If I am wrong in this regard I would not have made an adjustment for such factors because the husband is retired and his earning capacity is irrelevant, furthermore he was sentenced to a 28 year term of imprisonment with a minimum time of 16 and a half years. As such he will be aged over 90 before he can be considered for parole. He will be in the care of the State of Tasmania for most of the rest of the life. …”

Children – Parenting case between birth mother of two children; sperm donor father of eldest and known as father of youngest; and mother’s same sex spouse (NZ) – Mother’s application to relocate with children and spouse to New Zealand dismissed

In Masson & Parsons and Anor [2017] FamCA 789 (3 October 2017) Cleary J heard “applications by three parties for parenting orders in respect of two children, girls aged 10 (‘B’) and almost nine (‘C’). The children live with their mothers known to them as ‘Mummy’ and ‘Margaret’ and spend time with their father and his partner known to them as ‘Daddy’ and ‘Greg’” ([4]).

B was conceived by artificial insemination, the applicant (“Robert”) agreeing to provide his sperm to the mother (“Susan”), who subsequently married her partner Margaret (via a same sex marriage in New Zealand). Robert was not the biological parent of C (who was conceived by a donor program). Robert was on the birth certificate of B while Margaret was on the birth certificate of C. Robert sought an order for shared parental responsibility for both children; that the children live with Susan and Margaret but spend time with him; but that Susan and Margaret be restrained from relocating to New Zealand. Susan and Margaret sought declarations of parentage; that Robert’s name be removed from B’s birth certificate; equal shared parental responsibility without reference to Robert; and that the children be permitted to relocate.

After referring to s 60H of the Act, Cleary J said (from [59]):

“For Margaret to be a legal parent the evidence must support findings that:

(i) She and Susan were in a de facto relationship at the time of conception of B … and

(ii) Susan and Margaret consented to the carrying out of the procedure and Robert consented to the use of his genetic material in the artificial conception procedure.

[60] To determine whether or not there was a de facto relationship between Susan and Margaret at the relevant date (December 2006) I must consider the definition of ‘De Facto Relationships’ ( … )

( … )

[66] It is not controversial that Robert was involved with B from birth and keenly interested in her care. It is improbable that if Susan had wanted only an uninvolved sperm donor but had been forced in some way to accept Robert’s involvement, that she would have asked him, as she later did, to father a second child.

( … )

[74] There were no common assets [between Susan and Margaret], there is no evidence of them being socially known as a committed couple; what they had was a rapidly developing intimate relationship. The settled domestic relationship came later.

( … )

[77] In October 2006 Susan and Robert made their first attempt to conceive a child. They did so alone together, Susan travelling to Robert’s apartment in Sydney. Whether or not Susan suggested they try sexual intercourse as Robert asserts and Susan denies she did, they did carry out an artificial insemination.

[78] It is uncontentious that Margaret was not present. ( … )

[79] Robert asserts and I accept that at the first conception attempt in October 2006 he 'had no knowledge of Margaret whatsoever’. …

( … )

[82] Susan in my view was acting independently of Margaret at that time, keeping faith with what she and Robert had discussed.

[83] In December 2006 the relationship between the two women was new, affectionate and still developing. I conclude that the relationship between the two women had not reached the nature and quality of a couple living together on a genuine domestic basis.

[84] It follows that Margaret does not meet the legislative requirement to be the other intended parent.

[85] For Robert to be a legal parent, I conclude that the evidence must at least support findings that he provided his genetic material for the express purpose of fathering a child he expected to parent, and was unaware of the de facto relationship now asserted to have been in existence at the time of conception.

( … )

[92] With respect I agree that the intention and belief of a party to an artificial insemination process is a factor to be taken into account.

[93] Being a biological parent is not the whole answer to the question who is a parent. Donors of eggs or sperm very often make express disclaimers (for instance in surrogacy agreements) of future involvement in the life of a child. They do so in order to disclaim the rights, obligations and benefits of being a parent.

[94] However where there is a challenge to a biological parent being a legal parent, as there is here, biology is a part of the answer.

[95] In this case if the evidence supports a finding, as I have found that it does, that Robert took part in the artificial insemination process believing that he was fathering a child whom he would help to parent, by financial support and physical care, then absent other legally disqualifying factors, he is a parent in the ordinary meaning of the word.

( … )

[102] Accordingly … taking into account that Robert is the biological father of B I conclude that Robert is a legal parent of B.”

As to parental responsibility and parenting arrangements, the Court said (from [425]):

“Who should have parental responsibility is not simply defined by legal parenthood. I am satisfied that each of the three parties has exercised parental responsibility in respect of the children with a level of consultation and co-operation about decision making for the children being undertaken between the respondents and the applicant in a most successful way prior to these proceedings, or at least since 2014.

[426] I am persuaded … that the most appropriate course is for Susan and Margaret to exercise parental responsibility on an equal shared basis for both children in relation to long term issues.

[427] Although it would be possible to include Robert in shared parental responsibility I consider it would be taking a risk of exposing the children to damaging conflict to do so. The communication is not what it was.

( … )

[433] The present arrangements have worked very well, that is, that they live with Susan and Margaret and spend regular time, including week days, weekends and holidays with Robert and members of his household, Ms F and Mr H.

( … )

[437] The first observation of the single expert about views expressed by the children was that ‘they preferred things to stay the way as they are’. …

( … )

[447] There has been no occasion when any of the adults has failed to take the opportunity to spend time with the children and communicate with them and in the case of Robert, to participate in making decisions when invited to do so in the past by Susan and Margaret.

( … )

[467] There is no doubt at all that each of the parties has the capacity to meet the needs of the children, emotionally, intellectually, physically and financially at a high level.

( … )

[476] I have reached the conclusion that the children will do best if Susan and Margaret make the long term decisions about their future in consultation with Robert. That will be a perpetuation of the arrangement that has been in place in the past until the relationship deteriorated commencing in about 2014.

[477] I have also concluded that the children should live with Susan and Margaret in Australia, not New Zealand, to enable them to spend regular week day, weekend and holiday time with Robert.

[478] Decisions made when the children are living in each household about day-to-day matters can be made without prior consultation.

[479] I have concluded that the risks of devaluation of the children’s relationship with Robert and his extended family is a risk that should not be taken when the children have thrived and done well in the arrangements which all three parties have put in place for them over the years since the birth of each child.”