Property – Contribution assessment of 75:25 where wife’s initial contribution exceeded the net asset pool at trial – Where parties had spent 10 years together and 10 years apart

In Pederick [2022] FedCFamC2F 208 (31 May 2022) Judge Jenkins heard an application for property settlement after a marriage where the parties had lived together for 10 years, but separated for 10 years prior to trial.

The wife had 3 children of a previous marriage; whereas the parties had one child together, aged 19 as at trial.

The net asset pool was $240,323 including superannuation; whereas at the commencement of the parties’ relationship, the wife owned a property in the UK, which sold 4 years’ after the parties’ marriage for $382,000, which in turn, enabled the parties to acquire further real estate interests throughout the marriage.

After finding that the wife’s allegations of domestic violence did not satisfy “the narrow bank of cases to which Kennon applies” ([65]); and that the alleged drawings on the parties’ mortgage to fund the husband’s marijuana habit did not amount to waste to warrant an add-back ([68]), the Court said (from [73]):

“The wife denied the husband made significant contributions to her children. She said he was very critical of the children and that because he was young and regularly using drugs, he did not have the ability to understand what they needed. Her evidence was that it was extremely rare for him to help with day-to-day activities and that he never assisted with cooking or cleaning, although she later qualified this to say she recalled he cooked twice in 10 years. The flavour of her evidence was that the husband made very limited contributions, and it appeared in my view that she was endeavouring to relegate his role to a very minor part in the family. …

[74] I found the husband’s cross-examination with respect to his involvement with the children and the family quite credible. He described having two younger brothers who he looked after, which in his view meant he did not come to this role completely unprepared. …

( … )

[76] I note that pursuant to the case of Robb & Robb [1994] FamCA 136; a step-parent in providing care for step-children is acting essentially ‘as a volunteer’ in assisting the biological parent in the discharge of their legal obligations. Accordingly, it is a matter which the court can take into account under s 75(2)(o).

[77] On balance, I prefer the evidence of the husband on this issue, and find he made significant contributions towards the care and welfare of the wife’s children.

( … )

[79] The wife’s case is that after separation she paid for all of the outgoings, including the mortgage on the Suburb C property and that she received no child-support from the husband. …

[80] In taking all of this into account, and the benefit the wife received from residing in the home, I do not believe the wife should receive an adjustment for her post-separation financial contributions to the Suburb C property.

[81] However, it seems to me on the evidence that the wife was almost entirely responsible for Z’s care after the husband moved out of the home. … I find the wife made a significant contribution to the care of Z post-separation.

( … )

[90] This is one of those cases where unfortunately, the parties have very little to show for their 12 year relationship apart from one adult child. The asset pool is very small and neither party is likely to earn significant income.

[91] It seems, given the parties’ modest income throughout the relationship, and what is now available for division between them, that the parties lived beyond their means.

[92] This is also a difficult case because it is common ground that the wife’s initial financial contribution exceeded the total of the current asset pool. …

[93] It is evident that the wife made an overwhelming contribution to the marriage by virtue of the E Street property. This contribution was not only the ’springboard’ to the current pool but enabled the parties to live with only a modest mortgage, freeing up income for other purposes.

[94] Nonetheless, the husband’s Counsel submitted, and I accept, with reference to the case of Petruski & Balewa [2013] FamCAFC 15, that the correct approach is to evaluate the extent of the contributions of all types made by the parties in the context of their relationship.

( … )

[98] Doing the best I can, weighing all of the parties’ contributions over the years, I am satisfied that those contributions are appropriately assessed as 75 per cent in favour of the wife and 25 per cent to the husband.

[99] It seems to me that in relation to the s 75(2) considerations, the parties are in roughly equivalent circumstances. The wife’s health needs are met by NDIS and the parties otherwise have not dissimilar nett incomes. I am satisfied there is no basis for any further adjustment.”

Children – Vague and contradictory final orders as to reintroduction of maternal time were arguably interim orders – Prescriptive and enforceable orders must be made on either an interim or final basis

In Ajit & Thuvaragesh [2022] FedCFamC1A 80 (1 June 2022), Austin J (sitting in the appellate jurisdiction of the FCFCA) heard a mother’s appeal against orders of the Magistrates Court of Western Australia that the father have sole parental responsibility in respect of 11 and 7 year old children and that they live with the father, with a moratorium on maternal time.

The background included the mother and children staying in New Zealand while the father was living in Perth; the mother being ordered to return the children to Australia pursuant to a Hague Convention application; where the mother returned to Australia to live in Melbourne, not Perth.

The Court’s order annexed a suite of draft terms that had been given to the Court on behalf of the father at trial. The order not only dismissed the proceedings, but also referred to a future re-introduction of the children to the mother with the assistance of counselling; and the means that maternal time arrangements would be determined in the future.

The Court said (from [18]):

“… [T]here in an irreconcilable inconsistency within the orders about whether or not the justiciable dispute between the parties has been finally concluded. The proceedings were ’otherwise dismissed’ by Order 3, but several other orders expressly envisage further forensic contest within the cause. For example:

(a) Order 2.19 provides the Court will later determine how and when the children spend time with the mother ’upon the expiration of the no-contact period’;

(b) Order 2.20 provides that the ‘resumption, timing and nature’ of contact between the children and the mother will be influenced by events over succeeding months – including co-operation with the orders, the result of the counselling, and the input of an ‘after-care professional’ …

( … )

[19] The orders were also attended by notations, two of which were made in these terms:

The Court will determine the conditions, timing, and nature of resumption of contact between the children and the Applicant with the assistance and input from the Family Bridges team leaders, aftercare specialist or Single Expert Witness.

The resumption, timing, and nature of contact between the children and the Applicant will be based on the cooperation of the children and the Applicant with these orders, with the Family Bridges program and with the aftercare specialist.

( … )

[24] The confusion created by the reasons, the orders and the notations means one is unable to objectively discern whether or not the proceedings before the magistrate are concluded. Until the appeal hearing, the father asserted the orders were final, but he was impelled to the concession that the orders regulating the children’s future interaction with the mother cannot be anything other than interlocutory. …

( … )

[32] … The point of orders is to dictate what must happen when the parties cannot agree for themselves. The orders do not say to whom the ’recommendations’ of the therapists and experts are to be given, which party is to procure the new reports from the therapists and experts containing such recommendations, nor what is to be done if their recommendations conflict, nor what is to be done or if one party disagrees with the recommendations, even if they are all uniform.

[33] There is rank inconsistency between some orders. Orders 2.11 and 2.21 both restrain the mother from being within 10 kilometres of the children during the ’no-contact period’, whereas Order 2.37 limits the injunction to a distance of only 200 metres.

[34] Other injunctions appear to be beyond power. Despite Order 2.31 noting that the counselling in which the parties and children must engage is ’reportable’ to the Court, Orders 2.39 and 2.40 purport to restrain the parties from issuing subpoenas requiring the production of the counselling records to the Court as potential evidence. …

[35] Order 2.18 also purports to be a mandatory injunction, requiring the mother to engage in some ill-defined form of therapy with the unidentified after-care professional. However, since the injunction is untethered from any parenting order, there is no source of power for such a stand-alone order and it is invalid (Oberlin & Infeld [ed. [2021] FamCAFC 66]).

( … )

[39] The magistrate needed to make prescriptive and enforceable orders, either on a final or interim basis, explained by satisfactory reasons, which determined the issue according to the evidence adduced and the submissions made. The failure to do so was a material error of law.

( … )

[41] … The finality of the orders is a determined objectively and any error of law with respect thereto may be pursued on appeal even if it was not raised or pursued at trial. For the reasons explained, it is impossible to know what the orders actually mean. …

[42] … [N]one of the mother’s complaints about the orders … expressly or impliedly impugn the two orders which make provision for the children to live with the father and for him to have sole parental responsibility for them … There is no room for objective doubt that the magistrate intended those orders to be final.

[43] All other orders, which in one way or another deal with the manner in which the children might eventually spend time with the mother, are tainted by error and should be set aside … The father can hardly be heard to complain to that extent because the impugned orders were made largely in the guise for which he advocated.”

The appeal was allowed in part. Orders pertaining to issues other than sole parental responsibility and the children living with the father were set aside, those matters being remitted for re-hearing.

Divorce – Division 2 of FCFCA not clearly inappropriate forum to order divorce, despite Indian marriage and matrimonial proceedings in India

In Bakshi & Mahanta (No 2) [2022] FedCFamC1A 90 (17 June 2022), the Full Court (Aldridge, Harper & Riethmuller JJ) heard a wife’s appeal against a divorce order, where the parties were married in India; but had met and lived in Australia, where the parties’ child was born.

The wife had commenced matrimonial proceedings in India as to parenting issues and “ancestral property”. The husband applied to Division 2 of the FCFCA for a divorce order; whereas the wife sought the adjournment of the Australian proceedings pending the outcome of the Indian proceedings (which her counsel submitted would “help settle the matrimonial pool for the purpose of the Australian proceedings” by identifying the alleged property of the husband in India, “including what were called ‘ancestral rights’”) ([55]).

The wife appealed the divorce order, arguing the success of her application in India was contingent upon the divorce order being opposed in Australia; and that Division 2 of the FCFCA was a clearly inappropriate forum ([23]).

The wife also relied upon a letter from Indian lawyers to the effect that an Australian divorce order would not be recognised in India ([25]).

The Full Court said (from [26]):

“Neither the wife nor, as far as we can tell, the authors of the letter of advice, state that the wife has applied for dissolution of the marriage in her Indian proceedings, as opposed to making claims in respect of property and child custody and maintenance.

[27] The admissibility of the letter of the Indian lawyers is open to question. The authors were not single experts appointed in accordance with the rules of court. The opinions they expressed were not qualified as expert opinions by reference to their qualifications or expertise. …

( … )

[29] The primary judge determined that the court’s jurisdiction was attracted by satisfaction of one of the nominated criteria in s 39(3) of the Act, and the ground of irretrievable breakdown and separation for a continuous period of twelve months was established for the purposes of s 48 of the Act.

( … )

[31] There was no dispute that both parties were domiciled in Australia, having lived and worked here since 2004. There was also no dispute that the wife is an Australian citizen … The jurisdiction of Division 2 was clearly engaged.

( … )

[37] … [U]nlike many, if not most, judgments given in Division 2, the decision of the primary judge to grant a divorce order was not discretionary. On the other hand, his refusal to stay or dismiss the application for divorce on forum non conveniens grounds may be seen as a discretionary refusal to exercise a discretionary power …

( … )

[47] The power to dismiss or stay proceedings on grounds of forum non conveniens is ‘an aspect of the inherent or implied power of a court which, in the absence of some statutory provision to the same effect, every court must have to prevent its own processes being used to bring about injustice’: CSR Ltd v Cigna Insurance Australia Ltd (1997) 189 CLR 345 at 391. As Oceanic Sun Line makes clear at 247–248 [ed. full citation: Oceanic Sun Line Special Shipping Company Inc v Fay [1988] HCA 32], the power should be exercised with great caution and only in a clear case …

( … )

[51] Despite some earlier suggestion that the local court should engage in some analysis of the foreign litigation … it now appears settled that the focus is on the inappropriateness of the local court. The focus is not upon the appropriateness or comparative appropriateness of the foreign forum, but on assessing whether there are enough factors indicating that the local forum is clearly inappropriate, in which case a stay should be granted …

[52] There is no doubt that the wife bore the onus of establishing Division 2 as a clearly inappropriate forum …

( … )

[54] … [I]t is clear from the transcript of the hearing … that there were, and presumably are, property adjustment proceedings between the parties in Division 2 under Part VIII of the Act. The primary judge heard and determined the contested divorce in the context of an application by the wife to adjourn those property adjustment proceedings pending an outcome in the Indian courts.

[55] … [A]t the hearing, both parties were represented, and the primary judge was told by the wife that the Indian proceedings were commenced to help settle the matrimonial pool for the purpose of the Australian proceedings, so as to reach a just and equitable outcome according to Australian legislation in the Australian court, that is, under Part VIII of the Act. …

( … )

[60] … [I]t is significant that the evidence did not demonstrate the wife had asked for a divorce under Indian law. Indeed, her submissions to the primary judge that the sole purpose of the Indian proceedings was to identify property interests of the husband in India, was inconsistent with any application for divorce under Indian law. …

( … )

[62] We are satisfied the primary judge considered and rejected the contention that the Australian forum was clearly inappropriate and that the husband’s divorce application should be dismissed as vexatious.

[63] There was indeed ample reason for the primary judge to reach that view. The parties had lived in Australia for many years, the wife was an Australian citizen and the husband a permanent resident, they both had employment in Australia, and the former matrimonial home was located in Australia. The divorce application had been regularly commenced by the husband in Division 2. There were other proceedings for property adjustment in Division 2, and the only purpose of the Indian proceedings was said to be identification of Indian property interests of husband for the purposes of the proceedings in the Australian court. … [U]nder Australian law the existence of proceedings in India did not of itself require the stay or dismissal of the husband’s divorce application, and there was no evidence that an Indian court had granted an anti-suit injunction restraining the husband’s proceedings in Australia.”

The wife’s appeal was dismissed.

Property – Wife receives 100 per cent of net asset pool where net equity in former matrimonial home was $38,000 – No order made as to joint debt in favour of wife’s parents, leaving each liable and with a net deficit

In Chan & Lee [2022] FedCFamC1A 85 (3 June 2022), the Full Court (Tree, Gill & Wilson JJ) heard an appeal from a decision of Rees J, where the wife appealed orders where she was to receive 100% of the net asset pool, where the effect of the further order that she indemnify the husband as to debts was that she would retain a net deficit overall.

The net pool was primarily comprised by a $570,000 property (at Suburb C); subject to a $440,000 mortgage; there being conflicting evidence of loans owed to the wife’s parents, with $92,000 owed via a deed of loan agreement in respect of the property; and $30,500 for “various living expenses and support for the parties” ([99]).

The wife argued that the primary judge had misconstrued her case, where she sought that the husband pay the mortgage ([17]); and had erred when ordering her to indemnify the husband as to her parents’ loan ([12]).

Tree & Gill JJ said (from [39]):

“… [I]t should be observed that the primary judge was dealing with a case with little clarity, sparse evidence, and … in her words, was forced to do the ‘best I can’ to formulate a balance sheet …

( … )

[55] The primary judge concluded that the husband was not aware of what he was executing in the Deed of Loan, and that he would simply sign whatever the wife asked him to, as English was not his first language. Accepting this to be the case, it still leaves the proposition that the Deed of Loan demonstrates, that as early as 2013, it was being maintained by the wife and her parents that these amounts were loans.

( … )

[92] It should be observed that a correct understanding of the evidence as to debt identifies that the parties are in parlous financial circumstances, with little equity in the real property that they acquired during the relationship and outstanding personal debts that exceed what equity there is. …

[93] … [T]he orders made by the primary judge concluded that the contributions made by the wife favoured her 80 per cent to 20 per cent. …The error made by the primary judge as to the level of debt does not detract from this assessment of contributions. It should be adopted.

[94] The primary judge also concluded that there should be a further adjustment of 20 per cent in favour of the wife taking into account the factors within s 75(2) of the Act. Again this conclusion is unassailable, given the matters recited, including the care the wife will be required to provide for their child and the monies removed from the parties’ savings by the husband. …

[95] It may be observed that the effect of this analysis, being that the wife should receive the whole of the property, remains the appropriate outcome …

[96] Although the wife sought … that an obligation should be placed upon the husband to pay the mortgage for that property, this is not a sustainable position. If the husband were to be required to hold the obligation for either the secured or unsecured debts in relation to that property he would effectively be required to bring property into existence that does not at present form a part of the parties’ pool of property. The Full Court in Shan & Prasad [2018] FamCAFC 12 at [97] observed that an order that required a party to receive more property than existed, and the other party to in effect ‘create property’ to comply with the orders constitutes a flawed approach.

[97] It may also be observed that such is also the effect of Stanford [2012] HCA 52 which identifies that orders are to be made in relation to the legal and equitable property interests. … [S]uch an order would be unlikely to end financial relations between the parties and avoid further proceedings between them, as the Court is enjoined to try to do by s 81 of the Act.

[98] The debt related to the property is constituted by $440,000 secured by mortgage and $92,000 unsecured but owed to the wife’s parents, totalling $532,000 in relation to a property valued at $570,000, leaving a net equity of $38,000. Where the wife is to retain the … Suburb C property, she should indemnify the husband in respect of all debt associated with the property, both as secured by mortgage to the bank and unsecured to her parents.

[99] The balance of the debts total a $26,826 student loan taken out by the wife and $30,500 borrowed from her parents for various living expenses and supports for the parties.

[100] Given that the wife has obtained and retained the qualification connected with that loan it would be inappropriate to cause the husband to indemnify the wife in respect of such.

[101] However, insofar as the orders required the wife to indemnify the husband in respect of the non- B Street, Suburb C property related debt to the parents, this should not be the case. Rather, no provision should be made for indemnification in respect of this debt. This leaves the husband also indebted, and both parties in a net debt position. Such an outcome does not offend s 81 of the Act.

[102] Whilst this may seem a minor benefit to the wife, given her parlous financial circumstances, it is potentially significant, and not mere tinkering. Moreover, it properly reflects the reality of the position arrived at (correctly) by the primary judge that the orders should reflect a 100 per cent adjustment to the wife. That position does not warrant an indemnification in relation to debts from the relationship that exceed the pool of property where those debts are truly those of both parties. Such an outcome is just and equitable.”

Wilson J dissented, where the “primary judge was confronted at trial with a badly prepared case” [(111]), finding the wife’s grounds of appeal were “little more than a grievance about the ultimate result” ([163]).

Property – Injunction – Freezing orders are to preserve the status quo, not change it in favour of the party who seeks the order – Court erred in assuming the wife could recall monies transferred to relatives in China

In Qian & Xue [2022] FedCFamC1A 93 (21 June 2022), Aldridge J (sitting in the appellate jurisdiction of the FCFCA) considered a “suite of interim freezing orders”, including an order that the wife pay $850,000 to the husband’s solicitors trust account within 7 days ([2]).

Contested property settlement proceedings had been on foot since 2019; where the husband brought an application for injunctions in anticipation of the wife receiving monies on 24 August 2021; the wife received the $850,000 on 30 August 2021, but transferred $735,000 to her brother, sister and father in China, prior to the listing of the application in November.

The wife said the transfers were to repay loans; the husband seeking injunctions on the basis that “the disposition of the funds would put them beyond the jurisdiction of the court and diminish the property pool” ([15]).

Aldridge J said (from [12]):

“For reasons that are not apparent, no application for interim ex parte relief was made, for which, in the circumstances, there would have been justification and instead, rather perplexingly, the application was listed for hearing on 22 November 2021. At that hearing, an oral application was made so as to expand the application to include the order for the return of the funds.

( … )

[17] It is clear enough, as is accepted by the wife, that there was some basis for making a freezing order against the funds still held by the wife.

[18] As to the money transferred to the wife’s brother, sister and father, the primary judge found:

– The return of the funds was necessary to protect the property pool (at [7]);

– At the time of the payments, the wife was aware of the injunction sought in the husband’s Application in a Case (at [8]);

– There was no evidence that the wife was required to make the payments (at [9]); and

– There was no evidence that justified the amount of the payments (at [10]– [12]).

( … )

[22] A freezing order ‘operates to preserve the status quo and not to change it in favour of the party who seeks the order’ per Gageler, Keane, Gordon and Gleeson JJ in Deputy Commissioner of Taxation v Huang [2021] HCA 43; (2021) at [29] (emphasis added).

[23] The order made by the primary judge for the payment of $850,000 exposed the wife to the risk of punishment for contempt in the event it was not complied with, and indeed, the husband has brought such an application.

[24] As Deane J explained [ed. in Jackson v Sterling Industries Ltd [1987] HCA 23], the purpose of a freezing order is to maintain the status quo and not to improve the security position of the applicant or to render the respondent liable for imprisonment for debt. The order should only have been considered if it was clear that it could be complied with …

[25] It follows … that the wife did not need to adduce evidence to show that her relatives were unable to or would not return the funds. …

[26] It also has to be accepted that whilst there may have been a basis to prevent the funds from being transferred, absent an order from the Court preventing her from doing so, the wife was free to deal with her funds as she saw fit. …

[27] The primary judge assumed that the wife could recall the funds paid, at will. Presumably this was because there was no satisfactory evidence establishing the existence of loans and there was some evidence … which suggested that there were none. Accepting that to be so, it does not follow that the sister, brother and father could repay the funds ….

( … )

[29] The fact that an injunction could have been obtained preventing … [a] person from transferring funds, but was not, does not automatically lead the proposition that, having permissibly done so, they must now reacquire the funds and possibly be held in contempt for not succeeding in doing so. As Deane J explained, that is not the purpose of a freezing order.”

The order that the wife pay $850,000 was set aside and replaced with an order that the wife pay $100,000 to the husband’s lawyers’ trust account, being the amount still held by the wife.

Property – Trust property excluded from asset pool and treated as a financial resource – Despite her role as appointor, wife never had control of the trust and third parties contributed to trust property

In Barrett & Winnie [2022] FedCFamC1A 99 (1 July 2022), the Full Court (McClelland DCJ, Baumann  & Hartnett JJ) heard a husband’s appeal against a decision of Kent J declining to make property adjustment orders in the context of a 14 year marriage, where the husband had spent “significant periods of time overseas” ([14]); where there was “regular volatility … leading to various periods of separation” ([15]); and periods where the couple were “separated under the same roof” ([54]), where they finally separated in 2005.

Subsequent to their separation, the parties’ only child lived with the wife ([17]); there was an informal settlement whereby the husband demanded and received the wife’s interest in a jointly owned property ([91]); where the wife was also removed as appointor of a trust called “the Winnie Family Trust” in February 2008 ([100]).

The husband unsuccessfully sought to set the wife’s removal aside pursuant to s106B. Kent J excluded the trust’s property from the matrimonial asset pool, otherwise finding that the husband already retained property of $419,130 and superannuation of $311,283, making up 95.61% of the existing net asset pool.

The Full Court said (from [99]):

“The primary judge accepted the evidence of … [the] respondents as to the adverse impacts of the 2007/2008 global financial crisis … The primary judge accepted the evidence that, to stave off economic collapse, the … respondents … took effective action including by way of selling properties at a loss. … [T]he primary judge found that a substantial part of the asset base that currently exists in the trusts, in particular, the Winnie Family Trust, accrued in the period subsequent to the global financial crisis and, necessarily, post the separation of the parties to the marriage.

( … )

[107] … [T]he solicitor advocate for the appellant conceded that in order to obtain an outcome such that there would be a distribution of property to the appellant, it would be necessary to achieve an outcome whereby the assets of the Winnie Family Trust are included in the property pool of the parties to the marriage …

[108] … [T]he appellant conceded that, for the Winnie Family Trust assets to be considered as constituting part of the property pool available for distribution between the parties to the marriage, it was necessary for the appellant to succeed in respect to his applications pursuant to s 106B of the Act …

[109] For reasons which we explain, we are of the opinion that the primary judge correctly excluded the trust property from the matrimonial property pool …

( … )

[137] … [T]he primary judge found that the [wife] … ‘has never had control of the Winnie Family Trust as she has always been one of two or more directors of the trustee’ … The primary judge found that, while the [wife] … has benefited from the Winnie Family Trust, together with other family members who are beneficiaries, ‘this was obviously always in contemplation by the formation of the [Winnie Family Trust] itself.’ In other words, the primary judge found, as a matter of fact, that the Winnie Family Trust had never operated as or been treated as the alter ego of the [wife] …

[141] It is apparent by the use of the expression ‘the court may set aside’ in s 106B(1) of the Act that the power is discretionary …

[142] The appellant, who carries the persuasive onus of establishing such error, has failed to do so. In declining to make the order pursuant to s106B of the Act, the primary judge found … that the appellant … ‘made no contribution of any significance to the property of the [Winnie Family Trust]’ and ‘overwhelming[ly,] contributions ha[d] been made by the first respondent and, significantly, third parties to the marriage’. This factual finding distinguishes the case from Kennon v Spry [2008] HCA 56 … (‘Kennon v Spry’), where it was found that both parties to the marriage had contributed to the property of the relevant trust throughout the course of their marriage …

[143] Further, as noted by French CJ in Kennon v Spry … a trial judge exercising their discretion to consider whether an order should be made pursuant to s 106B of the Act may legitimately take into consideration the equitable entitlement of other existing beneficiaries to due consideration in the administration of the trust. Relevantly, in this case the primary judge …, appropriately in our view, gave consideration to the contributions made by third parties … who had ‘devoted their working lives’ to contributing to the property of the Winnie Family Trust. … Those findings further distinguish the facts of this case from Kennon v Spry at [113] where, in that case, the primary judge … found that the children whose interests were impacted by the s 106B order ‘had no direct input in accumulating’ the property of the trust.

( … )

[145] In our view, the primary judge in the present case appropriately had regard to the interests of other third parties and the significant contributions that they made to the trust property in determining whether it was appropriate to exercise his discretion to set aside the Deed. The appellant has failed to establish that the primary judge acted other than properly exercising his discretion in considering the matters to which we have referred. …”

As to whether the wife’s interest as a beneficiary of the trust was property, the Full Court said (at [155]):

“… [T]here was no evidence presented to the primary judge as to what the value of such a right to ‘due consideration and due administration’ would be … In the absence of evidence of any such value of the interest held by the [wife] … the primary judge, appropriately, in our view, excluded the trust property from the property pool but had regard to the trust assets as being a significant financial resource available to the [wife] … No error has been demonstrated on the part of the primary judge in taking that approach.”

The appeal was dismissed with costs, fixed at $23,580.51.

Children – Assessment of unacceptable risk is a predictive exercise that includes mere possibilities – Oxymoron to expect possibilities to be forensically proven on the balance of probabilities  

In Isles & Nelissen [2022] FedCFamC1A 97 (1 July 2022), the Full Court (Alstergren CJ, McClelland DCJ, Aldridge, Austin & Tree JJ) heard a father’s appeal from orders made by McGuire J that 4 children live with the mother and spend supervised time with the father.

The eldest child who was 10 at the date of trial, had disclosed sexual abuse by the father in front of witnesses; and again in one of three police interviews ([61] – [62]). The father had been charged with rape of the child in criminal proceedings that had been discontinued for “lack of specificity” in the evidence ([63]).

The parents entered into consent orders that included unsupervised paternal time, resulting in the State child welfare agency securing child welfare orders for supervised paternal time ([65]). The father then brought proceedings under Part VII of the Family Law Act with the Department of Communities agreeing to same on the condition of it being a party.

At first instance, McGuire J found it could not make a specific finding of sexual abuse; but found the father presented an unacceptable risk of harm ([72] – [73]).

After citing M v M (1988) 166 CLR 69 as to the distinction between the evidence required to establish a finding of sexual abuse; distinct from that necessary to establish an unacceptable risk of harm, the Full Court noted cases (including Potter and Potter [2007] FamCA 350; Johnson and Page [2007] FamCA 1235; and the majority in Fitzwater v Fitzwater [2019] FamCAFC 251) had gone so far as to posit that (from [6]):

“[T]he risk of … abuse … must be proven on the balance of probabilities according to the civil standard of proof, in just the same way as facts are proven. We consider that statement of principle to be incorrect and now state it to be so …

[7] Once it is accepted courts should (and do) react to dangers in the form of risks of harm which may merely be possibilities, it is an oxymoron to expect such possibilities to then be forensically proven on the balance of probabilities according to the civil standard of proof. By definition, possibilities are not, and could never be, probabilities. Risks of harm are not susceptible of scientific demonstration or proof (CDJ v VAJ (1998) HCA 67 at [151]), but are instead postulated from known historical facts and present circumstances.

( … )

[34] Bant v Clayton [2015] FamCAFC 222 … was an appeal concerning the alleged unacceptable risk of the father abducting and withholding the child from the mother, with deleterious emotional consequences for the child. In that context the majority said:

… in assessing whether there is a risk that something may happen, ‘possibilities’ are a legitimate basis for finding that there is such a risk (Malec v J C Hutton Pty Ltd [1990] HCA 20), as long as there is a proper basis for those ‘possibilities’. …

( … )

[37] Summarising then, in Partington & Cade (No 2) [[2009] FamCAFC 230], Nikolakis & Nikolakis [[2010] FamCAFC 52], Bant v Clayton, and Oswald & Karrington [[2016] FamCAFC 152], the Full Court clearly emphasised how the possibility of abuse could be enough to vindicate a finding that an unacceptable risk of harm exists.

( … )

[50] In Fitzwater, Austin J [ed. in dissent] rejected the proposition that a finding of unacceptable risk needs to be made according to the civil standard of proof, saying:

( … )

The assessment of risk is a predictive exercise and while it is … liable to be influenced by factual findings about past events, the contemplation of risk entails the foresight of possible harm. It is an oddity to expect that the mere possibility of future harm can or should be proven as a probability, as has been implied before (Potter and Potter [2007] FamCA 350 at [110], [129]). Risks of harm must be heeded even if they are improbable eventualities.

Speaking of the risk of some future occurrence is just another way of expressing the chance of it happening. The concept of chance lies along a continuum, encompassing all outcomes which lie in the range between highly probable and remotely possible, assuming the polar extremes of certainty are ignored. In the current context, the higher the chance of the children’s sexual abuse, the greater the risk of their physical or psychological harm. At some point on the continuum the risk of such harm becomes so potent it cannot be tolerated: it is unacceptable.

( … )

[51] We agree with and adopt that commentary as being a correct statement of the law.

( … )

[56] It is trite but true to observe that the law is as the High Court states it to be, so the principles enunciated in M v M about ‘unacceptable risk’ were woven into the fabric of family law in instances of alleged actual and prospective child sexual abuse. The Full Court later extended such principles to cases involving allegations of children being at risk of physical or emotional harm for other reasons (A v A [1998] FamCA 25 … ).

( … )

[58] Specifically in respect of parenting proceedings, Pt VII of the Act is now drafted much more comprehensively and prescriptively than it was when M v M was decided. The phrase ‘unacceptable risk’ did not then appear within the Act. … But now, s 60CG of the Act exhorts courts to avoid making orders which expose any person to an ‘unacceptable risk of family violence’ and, when determining how children’s best interests will be advanced, s 60CC(2)(b) of the Act obliges courts to heed any need to protect children from physical or psychological harm through their subjection or exposure to ‘abuse’, ‘neglect’ or ‘family violence’ …

[59] … The provisions of ss 60CC and 60CG of the Act are wide enough to embrace most, if not all, assertions of an ‘unacceptable risk’ of harm to children and so it is preferable for litigants to conduct their parenting disputes by reference to the express provisions of the Act.

( … )

[81] The [father’s] submissions asserting the need to make any finding of ‘unacceptable risk’ on the balance of probabilities according to the civil standard of proof are wrong and are rejected, as is the ground of appeal.

[82] Correctly, the primary judge … distinguish[ed] positive findings of sexual abuse from findings of unacceptable risk of harm …

[83] Though both are evidence-based, the primary judge correctly approached the two separate questions without conflation: on the one hand, whether or not allegations of abuse are proven on the balance of probabilities; and on the other, whether or not an unacceptable risk of harm is demonstrated, regardless of the finding made in respect of the frank allegations of abuse.

[84] In this instance, the primary judge inferred the existence of an unacceptable risk of harm to the children from a combination of facts and circumstances, including: the elder child’s plausible but unproven allegations of sexual abuse by the father; the evidence of the father’s sexual interest in other adolescents; and evidence of the father’s interest in child exploitation material.

[85] The assessment of risk is an evidence-based conclusion and is not discretionary. … The finding about whether an unacceptable risk exists, based on known facts and circumstances, is either open on the evidence or it is not. It is only the overall judgment, expressed in the form of orders made in the children’s best interests, which entails an exercise of discretion. …”

The appeal was dismissed with no order as to costs.

Property – Husband’s rights under four discretionary trusts “property” – Right to due consideration and due administration capable of valuation

In Woodcock (No 2) [2022] FedCFamC1F 173 (30 March 2022) Wilson J heard a wife’s application for determination of a preliminary issue in a property case in the Major Complex Financial Proceedings List, being whether the husband’s interests in a collection of discretionary trusts was “property” for the purpose of s 79 of the Family Law Act 1975 (‘the Act’) capable of valuation.

The husband argued that his interests under the trusts amounted to no more than rights with respect to due administration and consideration of the relevant trusts and such rights were incapable of valuation ([2]).

Two questions were posed to the Court by the parties (at [9]):

(1) whether the husband’s equitable right to due administration and his right to due consideration was “property” for the purpose of s 79 of the Act; and

(2) whether such rights were “property” capable of valuation.

Wilson J said (from [46]):

“Counsel for the wife argued that this Court has accepted that rights to due consideration and due administration are property: Ingles & Ingles [2019] FamCA 33 … and that the husband’s interests in the trust in that case was brought to account in the balance sheet …

[47] … In written submissions filed on behalf of the husband … it was argued that the husband’s right to due consideration and his right to due administration under the relevant trusts are rights only, not property, and that those rights are not capable of valuation.

( … )

[51] Relying on the decision of this court in Harris & Dewell [2018] FamCAFC 94;  counsel on behalf of the husband argued that property ostensibly of a trust can only be treated as property for the purpose of s 79 where a person has complete legal or de facto control over the assets of the trusts and can appoint them to their benefit or to the benefit of a party to the marriage ( … )

( … )

[73] … [It] seems to me that according to existing statements of principle of the High Court, the equitable choses in action of due consideration and due administration under a discretionary trust of the sort illustrated by [the husband’s trusts] are in fact and in law ‘property’ within the meaning of s 4 and s 79 of the Act. I say that for several reasons. In each of the four trusts, the husband retained power permissibly exercised over a certain thing … He held what certain of the authorities describe as a ‘bundle of rights’. The husband enjoys a position of considerable influence … and historically the husband has received distributions of approximately $15 million. He also has the ability to block. To my way of thinking the husband enjoys a legally endorsed concentration of power over things or resources … “

After reviewing the husband’s interests in each of the trusts and the evidence of the adversarial experts, Wilson J continued (from [103]):

“So far as the question of whether the husband’s rights are ‘property’ was concerned, [the wife’s expert] Mr T expressed the view that they were, whereas [the husband’s expert] Mr U expressed the view that such a question was a legal question to be determined by the court.

[104] So far as the value of the husband’s rights were concerned, Mr U expressed the view that those rights could not be sold. He opined that if the property is not capable of being sold, which he said is the case with the husband’s rights, there will be no market value and, as there is no reasonable basis for estimating the expected cash flows from the husband’s rights, the value to the owner is not capable of being determined.

[105] Mr T took the view … that the husband’s ongoing level of influence and past distributions provide a prima facie reasonable basis to incorporate various uncertainties into the valuation of the husband’s rights.

( … )

[112] … [I]n my view, not only should the debate in this litigation about whether the husband’s rights are property be fully ventilated at trial but the value of those rights should also be fully ventilated at trial. I am not willing to hold at this interlocutory juncture in this litigation that Mr U is necessarily correct when he asserts that the husband’s rights cannot be valued. I take the view that there is real merit in the wife’s criticism of Mr U’s report in connection with valuing the husband’s interest … [I]n my view, the husband’s contention that no arguable case can be advanced about the ability to value the husband’s equitable choses in action have not been made out, at least not on this application. The case, and that issue in particular, must go to trial.”

His Honour determined that the husband’s interests under the trusts were property as defined in s 4(1) of the Act and were capable of valuation.

Property – Court erred by refusing wife’s application to adduce updated valuation evidence when it had permitted husband to adduce updated evidence – Further error to include a statute-barred loan

In Halstron [2022] FedCFamC1A 65 (13 May 2022) the Full Court (McClelland DCJ, Austin & Gill JJ) considered a decision of McEvoy J that dismissed the wife’s application to adduce updated valuation evidence of the former matrimonial home (at “Suburb J”), which was the major asset of the $16.16 million property pool.

The husband was allowed to adduce updated valuation evidence in relation to shares which had increased in value following the Covid-19 pandemic.

The wife’s appeal included grounds that His Honour erred by:

i) rejecting her application to call updated evidence of the Suburb J property;

ii) including a $330,000 loan from the husband’s brother in the balance sheet, in circumstances where the loan was unenforceable.

McClelland DCJ and Austin J said (from [37]):

“The difficulty that arose in this case was due to the protracted length of the hearing which … extended from June 2019 until May 2021. In the context of that delay … the respondent successfully applied for leave to tender updated evidence regarding the value of the parties’ shareholdings.  … [H]is Honour stated that such leave was given having regard to ‘the time that has passed since the conclusion of the trial, the significant increase in the value of the relevant shares in the post COVID-19 share market recovery, and the difficulties presented by different cost bases, capital gains tax and realisation costs.’

[38] … [H]is Honour declined to grant similar leave to the appellant to obtain an updated valuation of the Suburb J property.

( … )

[43] In considering the appellant’s application to reopen evidence for the purpose of presenting an updated valuation of the Suburb J property, the primary judge appropriately gave consideration to the potential prejudice to the respondent if that application was granted … [H]is Honour noted the respondent’s contention that he would suffer ‘significant prejudice’ as there had been … ‘significant renovations to the property’ in the period subsequent to the valuation that was presented to the Court during the course of the trial. … [H]is Honour determined that the admission of that fresh evidence would require the proceedings to be reopened for the purpose of re-examination of both parties’ financial circumstances. This, his Honour was unwilling to do.

[44] … [I]in focusing primarily on the issue of prejudice to the respondent, his Honour erred in failing to apply the primary guiding principle in deciding whether to grant leave for a party to re-open evidence. That guiding principle ‘is whether or not the interests of justice are better served by allowing or rejecting the application’: EB v CT (No. 2) [2008] QSC 306 …

( … )

[46] … The parties’ initial agreement about the value of the Suburb J property was struck before the trial started. That valuation was two years out of date by the time the appealed orders were made. Once an order was made permitting the respondent to rely upon an updated valuation of his shares … that determination then became a relevant consideration in his Honour’s consideration of the appellant’s application to rely upon an updated valuation of the Suburb J property.

[47] … [T]he risk of undervaluing the Suburb J property … had the potential to result in the respondent alone receiving a fortuitous windfall through that increase in value without the appellant sharing in that gain.

( … )

[51] The failure of the primary judge to permit the appellant to present such updated valuation evidence in those unique circumstances constitutes an appellable error.”

As to the loan from the husband’s brother, McClelland DCJ and Austin J said (from [65]):

“ … The issue is whether the primary judge erred in including the $330,000 loan, in circumstances where it had become statute barred by the operation of the Limitation Act 1969 (NSW) (‘Limitation Act’) prior to the parties’ confirming their agreement in writing on 27 March 2018.

( … )

[68] In United Pacific Finance Pty Ltd (Receivers and Managers Appointed) v Govindasamy [2020] NSWSC 128, Henry J stated … :

174. The time at which a cause of action accrues in relation to amounts due under a loan contract is determined by the repayment terms in the relevant contract: Peter Handford, Limitation of Actions, The Laws of Australia(4th ed, 2017, Lawbook Co) at [5.10.640].

175. A loan which is payable on demand creates an immediate and enforceable debt and the cause of action arises as soon as the money is advanced: Young v Queensland Trustees Ltd [1956] HCA 51 at 566; Ogilvie v Adams[1981] VR 1041 …

( … )

[70] Accordingly, the respondent’s brother permitted the statute of limitations to extinguish any claim that he otherwise would have had in respect to monies advanced by him to the respondent in 2007 due to the operation of … the Limitation Act. That had occurred prior to the parties entering into the written agreement on 27 March 2018. The … loan should not, therefore, have been included on the balance sheet.

( … )

[72] The fact that the primary judge found that the respondent’s brother expected payment of the $330,000 and the respondent expected that he would, in the future, repay that sum … meant that any obligation of repayment existed as no more than a moral obligation.

[73] The High Court in Stanford made it clear that mere ‘moral obligations’ did not come into consideration in the Court undertaking that task of identifying the existing legal and equitable interests of the parties in the property … the plurality in Stanford stated that those legal and equitable rights of the parties ‘were to be determined according to law, not by reference to other, non-legal considerations’ including merely moral claims …

( … )

[76] It is possible that the Court may, in an appropriate case, give consideration to a party’s perceived moral obligation to repay funds to another person in considering those matters set out in s 75(2) of the Act.

( … )

[79] The authorities are, in our view, quite clear that the discretionary exercise of giving consideration to those matters set out in s 75(2) does not take place until the Court has undertaken the task of firstly identifying the property of the parties according to ordinary common law principles. At that first stage, perceived moral obligations are not relevant. … [H]is Honour erred in undertaking that first task because he included on the balance sheet a putative liability of the respondent to repay his brother the sum of $330,000 in circumstances where, as a matter of law, that liability did not exist and was merely a moral obligation.”

Gill J dissented in relation to the issue of the updated valuation but otherwise agreed with McClelland DCJ and Austin J.

The appeal was allowed and the case remitted for rehearing. The husband was ordered to pay the wife’s costs fixed in the sum of $30,000.

Children – Evidence – Failure to accept witness’ account does not permit conclusion that witness is untruthful – Establishing untruthfulness requires additional determination

In Blass [2022] FedCFamC1A 63 (13 May 2022) the Full Court (McClelland DCJ, Gill & Schonell JJ) heard an appeal from a decision of Judge Terry where the Court reversed the care of 11 and 8 year old children to live with the father and that he have sole parental responsibility for them.

The mother had not complied with final orders made in 2018 (whereby the children lived with her and spent time with the father), where she applied to limit paternal time, alleging abusive and sexually aggressive behaviour by the elder child which she attributed to the child’s time with the father.

Judge Terry found that the mother’s account of problematic sexual behaviour was untruthful and made orders for reversal of care.

The Full Court said (from [19]):

“It may be observed that central to the grounds was the finding that the [mother’s] evidence of child X engaging in problematic harmful sexual behaviours was untruthful. … This finding was key to the primary judge’s conclusion that it was necessary to order the reversal of the children’s arrangements as in their best interest.

( … )

[34] The primary judge concluded that the sexualised conduct by child X had not been established on the balance of probabilities. It should be observed that there had been scarce attention paid to this issue in the cross-examination of the appellant. …

[35] … Even on the assumption that the conclusion that the appellant had failed to establish the behaviours was correct, it was the primary judge’s use of that failure that was problematic.

[36] This was a conclusion that was highly significant to the result in this case. Although the primary judge subsequently identified that she was not satisfied that the [mother] had been malicious in doing so, the primary judge treated the [mother’s] assertion of sexualised conduct as a fabrication, and thereby abusive of the children, particularly in her engagement of the children in counselling for such and in the labelling of child X as having engaged in such conduct.

[37] Such a characterisation of abusive behaviour was well open for the primary judge’s consideration if the [mother] had, in fact, fabricated the descriptions of the behaviour. However, the reasoning process for the intermediate conclusion of untruthfulness or fabrication was not available.

[38] The terms of [90] indicate that the intermediate conclusion of the [mother’s] untruthfulness was treated as the corollary of her failure to establish the behaviours on the balance of probabilities. It was not.

[39] The grave allegation of untruthfulness and its concomitant finding of abuse of child X as essential aspects of the determination of the case constituted, in accordance with s 140 of the Evidence Act 1995 (Cth), a factual conclusion that required persuasion, itself, on the balance of probabilities. It was not established on the mere failure by the [mother] to prove that the behaviours had in fact occurred to that same standard.

[40] While the failure to accept a witness’s evidence is a necessary component of a finding of untruthfulness or fabrication, such mere failure is less than a finding of untruthfulness; untruthfulness is a further fact that is required to be found.

[41] Insofar as the primary judge’s reasoning as to untruthfulness is expressed as the result of the failure to accept the [mother’s] evidence on the balance of probabilities, it is a conclusion that cannot stand.”

The appeal was allowed and the case was remitted for re-hearing with the final orders set aside “from the point at which a judge of Division 2 of the Federal Circuit and Family Court of Australia makes further orders” ([50]). Costs certificates were ordered.