Case: Macks v Edge [2006] FCA 1077 ; (2006) 156 FCR 302
Outcome: cited
summary the case of the respondent is as follows: The Carrara property was jointly owned by Mr Jensen and the respondent. The applicant makes no challenge to the financial arrangement of 22 January 2002, nor is it pleaded that the financial agreement was not one to which Part VIIIA of the Family Law Act applies, or that the agreement failed to comply with requirements of the Family Law Act . In the absence of such a challenge it is not open to the applicant to have the transfer effected by Mr Jensen of his former half interest in the property declared void. By force of the financial agreement the respondent became equitable owner of the land. Under the Family Law Act : financial agreements can only be set aside by the Family Court under s 90K ; financial agreements can only be terminated by the parties pursuant to s 90J ; financial agreements have a special status by reason of the provisions of the Family Law Act . In Official Trustee in Bankruptcy v Mateo [2003] FCAFC 26 ; (2003) 127 FCR 217 the Full Court of the Federal Court held that the effect of consent orders of the Family Court made under s 81 of the Family Law Act pursuant to which the Family Court ordered that the husband transfer his half interest in jointly-owned land to the wife was that the Family Court orders themselves vested in the wife all of the husband's equitable estate in the land. The Full Court also held that the transfer by a person having a bare legal title perfected the title of the equitable owner of the property, was not a transfer of property within the meaning of s 121 of the Bankruptcy Act . The application by the Official Trustee should have been to the Family Court to set aside the orders under s 79A of the Family Law Act . In these proceedings the critical divesting event with respect to the Carrara property was the financial agreement, which resulted in the equitable estate in the Carrara property passing to the respondent in January 2002. The actual transfer, executed by Mr Jensen on 28 August 2002, was of no significance because Mr Jensen had already divested himself of his interest in the property pursuant to the financial agreement. If the matter is dealt with by the Family Court, both the interests of the respondent and the creditors can be brought into account. The present proceedings are calculated to bring only the interests of creditors into play. If the transfer to the respondent of the interest in the matrimonial home is to be set aside, the whole matter will have to be reviewed, and that review can only occur in the Family Court. To hold otherwise runs contrary to Mateo . In Macks v Edge [2006] FCA 1077 ; (2006) 156 FCR 302 Besanko J declined to transfer proceedings by a trustee under s 120 and s 121 of the Bankruptcy Act to the Family Court but primarily because of the lateness of the application. His Honour reached no conclusion as to any of the legal issues involved. The decision of Ryan J in Rambaldi (as Trustee of Bankrupt Estate of Volkov) v Volkov [2008] FCA 1957 is authority for the proposition that if a trustee in bankruptcy seeks to utilise s 121 of the Bankruptcy Act in the context of any existing financial agreement, the trustee needs to confront the financial agreement itself. The Bankruptcy and Family Law Legislation Amendment Act 2005 (Cth) amended the term "maintenance agreement" in the Bankruptcy Act to delete the term "financial agreement". This simply means that the automatic exemption of financial agreements from the operation of s 120 of the Bankruptcy Act was removed it does not have the effect of declaring that the fact that a transaction occurred in pursuance of a financial agreement ceases to have any relevance. Financial agreements continue to retain all the protection that the Family Law Act expressly or implicitly provides. The amendment does not envisage the circumvention of s 90K of the Family Law Act by applications made with respect to "trust transfers". In any event, the exemption in favour of financial agreements only ever applied to claims made with respect to s 120 it never extended to claims under s 121. The applicant's case The facts in Macks v Edge [2006] FCA 1077 ; (2006) 156 FCR 302 were more similar to those in contention before me. In that case a husband and wife entered an oral "separation agreement" by which the husband agreed to transfer his interest in property to the wife. The agreement was entered in or about September 2002. On 22 May 2003 the parties entered a written financial agreement giving effect to the oral agreement. A sequestration order against the estate of the husband was made on 31 July 2003. The trustee in bankruptcy commenced an action in the Federal Court to have the transfers set aside on the basis that no or inadequate consideration was given by the wife for the transfer of the properties, and that the transfers were void within the provisions of s 120 or s 121 of the Bankruptcy Act . The wife issued proceedings in the Family Court against the trustee in bankruptcy and the husband seeking certain orders under the Family Law Act , including a declaration that the financial agreement and transfers were valid and binding, or, in the alternative, if the transfers were void, an order pursuant to s 90K(1)(b) and (c) of the Family Law Act terminating the financial agreement and such order as was just and equitable pursuant to s 90K(3) preserving the rights of the wife in relation to the property the subject of the terminated binding financial agreement. Besanko J considered in some detail historical legislative developments, including amendments to s 79 of the Family Law Act , the accretion of jurisdiction to the Family Court in relation to bankruptcy matters in terms of s 35 of the Bankruptcy Act , and the enactment of s 35A of the Bankruptcy Act which empowered the Federal Court to transfer matters to the Family Court. However as his Honour continued: At the same time, there is nothing to suggest that this Court does not have jurisdiction over the trustee's claim and I reject the submission that the trustee has issued proceedings in the wrong court. The Family Court has jurisdiction to alter the trustee's rights with respect to vested bankruptcy property, but this Court retains jurisdiction to determine the prior questions of whether the transfers are void because they fall within the provisions of s 120 or s 121. ... It follows from what I have said that the first issue in proceedings between the Trustee and Mrs Edge is whether the trustee's claim under the provisions of the Bankruptcy Act ought to be upheld. If the trustee is successful then Mrs Edge may make an application against the trustee under s 79(1) of the Family Law Act , with respect to the freehold property, leasehold property and speedboat, seeking an order "altering the interests of the bankruptcy trustee in the vested bankruptcy property". It seems to me that that is the substance of any proceedings she may bring in the Family Court. Her claim is in a sense a contingent claim in that it only becomes relevant if the trustee's claim is successful. If the trustee is unsuccessful then Mrs Edge's claim falls away because there is no relevant vested bankruptcy property. Should the trustee be successful, the Family Court has the power to alter the interests of the trustee in the vested bankruptcy property. In those circumstances, whether the order for transfer should be made comes down to whether it is appropriate in the exercise of the discretion to make the order for transfer. This Court can hear and determine the trustee's claim, but it cannot hear and determine Mrs Edge's claim should it become necessary to do so. If I make the order for transfer, the Family Court can hear and determine both claims. That is a powerful reason for making an order for transfer. On the other hand, the proceedings in this Court are nearly ready for hearing and, so far as I can see, involve some fairly concise issues. The hearing of the trustee's claim should not take very long. If the trustee's claim is unsuccessful, there will be no need for Mrs Edge to pursue the claim against the trustee in the Family Court. On balance, I am of the opinion that the proceedings should not be transferred to the Family Court. (at 311-312) I do not accept Mr Griffin QC's interpretation of the decision in Mateo as submitted namely that if the financial agreement and the transfer are separated, the second part of the transaction is not a "transaction" within the meaning of s 120 and s 121 of the Bankruptcy Act because the relevant estate has already been transferred by force of the financial agreement (cf TS p 48 ll 27-38). Rather, as submitted by Mr McQuade, I consider the correct approach to be that in considering an application under s 120 and s 121 of the Bankruptcy Act , the Court considers the creation or transfer of the interest which is sought to be avoided, not the provision in the legal document (or other mechanism) which has created it. To illustrate this principle I need look no further than Rambaldi [2008] FCA 1957. The respondent in these proceedings claimed that Rambaldi [2008] FCA 1957 is authority that an applicant seeking to set aside a transaction pursuant to a financial agreement needs to "confront the financial agreement itself". However the clear outcome in Rambaldi [2008] FCA 1957 was that the Court set aside the purported equitable interest in the relevant property sought to be created by the financial agreement, not the financial agreement itself (cf [2008] FCA 1957 para [47]). While the terms of the financial agreement in Rambaldi [2008] FCA 1957 were clearly critical to the questions whether the relevant provisions of the Bankruptcy Act were satisfied and accordingly whether the interest of the non-bankrupt spouse should be set aside, the orders of the Court in Rambaldi [2008] FCA 1957 with respect to the financial agreement were limited to the validity of the creation of an interest in land purportedly created by the financial agreement. This outcome did not require an order that the financial agreement be avoided pursuant to s 120 or s 121. I consider that similar principles apply in the case before me. Whether the "transfer" in this case was the creation of an equitable interest in the Carrara property in favour of the respondent, or the actual transfer effected by the form 1 (an issue I need not resolve for the purposes of this notice of motion) the transfer can nonetheless be the subject of challenge pursuant to s 120 or s 121 of the Bankruptcy Act without the applicant being required to make application to set aside the financial agreement executed by Mr Jensen and the respondent. I consider that this approach is consistent with the findings of this Court in Macks v Edge [2006] FCA 1077 ; (2006) 156 FCR 302 and Rambaldi [2008] FCA 1957 , as well as the Full Court in Mateo [2003] FCAFC 26 ; (2003) 127 FCR 217. In summary, I do not take the view that the Federal Court, in which the applicant commenced substantive proceedings, is the "wrong court" in this case, for the same reasons as those given by Besanko J in Macks v Edge namely that the Family Court has jurisdiction to alter the trustee's rights with respect to vested bankruptcy property, but this Court retains jurisdiction to determine the prior question of whether the transfer pursuant to the financial agreement was void because it falls within the provisions of s 120 or s 121 of the Bankruptcy Act ( Macks v Edge [2006] FCA 1077 ; (2006) 156 FCR 302 at 312). This approach is echoed in observations of Wilcox J in Mateo [2003] FCAFC 26 ; (2003) 127 FCR 217 (at 237-238). It is not necessary for the applicant to apply to the Family Court to have the financial agreement between Mr Jensen and the respondent terminated as a necessary element of an application to have the transfer of the Carrara property set aside pursuant to s 120 and s 121 of the Bankruptcy Act .