Case: Official Trustee in Bankruptcy v Mateo [2003] FCAFC 26 ; (2003) 127 FCR 217
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 In Official Trustee in Bankruptcy v Mateo [2003] FCAFC 26 ; (2003) 127 FCR 217 a husband and wife jointly owned land which had been their matrimonial home. They separated and applied to the Family Court for consent orders in relation to that property. The Family Court ordered the husband to transfer to the wife his interest in the property, and the wife to pay money to the husband. The husband executed a transfer of his interest in the property to the wife, and later became bankrupt. The Official Trustee, as trustee in bankruptcy of the husband, issued a notice requiring the wife to pay the value of the husband's interest in the property or to transfer to the Official Trustee a half interest in the land, on the basis that the transfer by the husband was void as against the Official Trustee pursuant to both s 120 and s 121 of the Bankruptcy Act . The Full Court dismissed an appeal by the Official Trustee, although for reasons other than given by the trial judge. The judges acknowledged that, in addition to unsecured creditors, the wife and children of the bankrupt had an interest in his estate. However the key reason for the decision of the Full Court in Mateo [2003] FCAFC 26 ; (2003) 127 FCR 217 was the fact that orders had been made by the Family Court, and a transfer was made by the husband who eventually became bankrupt pursuant to such orders (Wilcox J at 235, Branson J at 248-249, Merkel J at 254). Accordingly, the transfer of the husband's interest in the matrimonial home had not been "by a person who later becomes a bankrupt" for the purposes of s 120 and s 121. No order was made either at first instance or on appeal for the matter to be transferred to the Family Court. The respondent points to the decision of the Full Court in Mateo [2003] FCAFC 26 ; (2003) 127 FCR 217 as authority for the proposition that, in the context of an application by a trustee in bankruptcy under s 121 , the "transfer" consists of the whole transaction ranging from the signing of the consent orders (or in this case, the execution of the financial agreement) through to the completion of the transfer of the interest by the husband, and that accordingly it is not possible for this Court to make a determination as to the transfer of the Carrara property without disturbing the financial agreement as a whole. However to the extent that this was the finding of the judge at first instance in Mateo (see in particular Mateo v Official Trustee in Bankruptcy [2002] FCA 344 ; (2002) 117 FCR 179 at 186) the Full Court were by no means supportive of this proposition (see for example Wilcox J at 235, Branson J at 249). Indeed as Wilcox J observed at 234: [Tamberlin J at first instance took the view that] it was artificial to "isolate one individual component of the transaction as in itself comprising the transfer", rather than to "look at the overall transaction which has been implemented". He found support for this approach in Silvera v Savic . 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 any event, as I have already observed, the key principle in my view emerging from the decision in Mateo [2003] FCAFC 26 ; (2003) 127 FCR 217 is that where property is transferred pursuant to orders of the Family Court and accordingly, the transfer of property is not "a transfer of property by a person who later becomes a bankrupt" for the purposes of s 120 and s 121 of the Bankruptcy Act the appropriate remedy of a trustee in bankruptcy seeking to have those orders set aside is to make application to the Family Court for variation of those orders (per Wilcox J at 236, Branson J at 252, Merkel J at 258). The facts in Mateo [2003] FCAFC 26 ; (2003) 127 FCR 217 are clearly distinguishable from the case before me in these proceedings the Carrara property was not transferred pursuant to orders of the Family Court, but pursuant to a financial agreement under the Family Law Act (which is very different from orders made by a superior court). Further, in my view the current legislative framework applicable to financial agreements contemplates that a trustee in bankruptcy may make application pursuant to both s 120 and s 121 of the Bankruptcy Act in the Federal Court to set aside a transfer pursuant to a financial agreement executed by the parties. In relation to the trustee's application pursuant to s 120 of the Bankruptcy Act in the instant proceedings, it is clear that: The inference necessarily drawn as a result is that the legislature intended that a transaction pursuant to a financial agreement would not be protected in circumstances where subsequently a trustee in bankruptcy of a party to such an agreement seeks to have transactions set aside pursuant to s 120 of the Bankruptcy Act . This is notwithstanding the operation of s 90G of the Family Law Act , which provides that financial agreements are binding on the parties thereto without the necessity for an order of the Family Court. 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 .