FEDERAL COURT OF AUSTRALIA Official Trustee in Bankruptcy, the Trustee of the Property of Phillip Martin Higgins v Higgins [2000] FCA 1850 BANKRUPTCY – application to set aside a transfer of property from a husband to his wife – whether the provisions of the Bankruptcy Act relating to voidable dispositions are subservient to the Family Law Act – where the transfer was made pursuant to orders of the Family Court JURISDICTION – bankruptcy – whether the Federal Court has jurisdiction to set aside a transfer of property – whether, as a matter of discretion, the Federal Court should transfer the matter to the Family Court – where the transfer was made pursuant to orders of the Family Court – where the transferor subsequently became a bankrupt Family Law Act 1975 ss 79 & 79A Bankruptcy Act 1966 ss 35A & 120 Re Sabri; Ex parte Brien v Australia and New Zealand Banking Group Ltd (1996) 21 Fam LR 213 cited Silvera v Savic (1999) 46 NSWLR 124 cited Re Baxter; Ex parte Official Receiver v Baxter (1986) 10 FCR 398 not followed Re Sabri; Ex parte Sabri v Brien (1995) 60 FCR 131 followed Noakes v Harvey Holmes & Son (1979) 26 ALR 297 followed IN THE MATTER OF PHILIP MARTIN HIGGINS OFFICIAL TRUSTEE IN BANKRUPTCY, THE TRUSTEE OF THE PROPERTY OF PHILLIP MARTIN HIGGINS, A BANKRUPT v DIANE TRACEY HIGGINS N7800 OF 2000 TAMBERLIN J SYDNEY 15 DECEMBER 2000 IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY 7800 OF 2000 IN THE MATTER OF PHILLIP MARTIN HIGGINS BETWEEN: OFFICIAL TRUSTEE IN BANKRUPTCY, THE TRUSTEE OF THE PROPERTY OF PHILLIP MARTIN HIGGINS, A BANKRUPT APPLICANT AND: DIANE TRACEY HIGGINS RESPONDENT JUDGE: TAMBERLIN J DATE OF ORDER: 15 DECEMBER 2000 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The application is transferred to the Family Court of Australia. 2. The costs of the proceeding in the Federal Court are to be costs in the cause of the trustee's application which is the subject of the transfer. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY 7800 OF 2000 IN THE MATTER OF PHILLIP MARTIN HIGGINS BETWEEN: OFFICIAL TRUSTEE IN BANKRUPTCY, THE TRUSTEE OF THE PROPERTY OF PHILLIP MARTIN HIGGINS, A BANKRUPT APPLICANT AND: DIANE TRACEY HIGGINS RESPONDENT JUDGE: TAMBERLIN J DATE: 15 DECEMBER 2000 PLACE: SYDNEY REASONS FOR JUDGMENT 1 The Motion before me arises in an application for a declaration that a transfer of residential property ("the property") by Phillip Higgins, the bankrupt husband of the respondent, to the respondent is void as against the applicant trustee. 2 The question for determination on the Motion is whether the Federal Court has the power to order a transfer of the property to the applicant without Consent Orders made under s 79 of the Family Law Act 1975 on 11 October 1999 ("the Consent Orders") in the Manly Local Court have been set aside. The effect of the Consent Orders was that the property be transferred from her husband ("the bankrupt") to her. 3 On the hearing before me the parties requested the Motion be heard on the basis that the bankrupt had transferred his interest in the property to the respondent on or about 4 January 2000 in circumstances which were caught by ss 120(1) and 121(1) of the Bankruptcy Act 1966 ("the Act"). Agreed facts 4 The parties have agreed on the following Statement of Facts. "STATEMENT OF AGREED FACTS 1. On 29 October 1990, by Real Property Act 1900 (NSW) Transfer Z307897 ("First Transfer") the property described in Folio Identifier 2/7934546, being legal title to property known as 28 Peppermint Grove, Engadine, NSW ("Property") was transferred from the NSW Land and Housing Corporation to Phillip Martin Higgins ("Bankrupt") and to Diane Tracey Higgins ("Respondent") as joint tenants as to two-thirds, and to Myrtle Olive Bloomfield as to the remaining one-third share, as tenants-in-common. 2. The Bankrupt was, at all relevant times, a director of a company styled Comsite Glass & Glazing Pty Limited ("Comsite"). 3. Before September 1999, the Deputy Commissioner of Taxation ("DCT") prepared and issued to the Bankrupt a Director Penalty Notice complying with the Income Tax Assessment Act 1936 (Cth) ("Director Penalty Notice") for the amount of $136,616.22 ("Director Liability"). 4. Before September 1999, the Bankrupt received the Director Penalty Notice. 5. The Bankrupt failed within 14 days of receipt of the Director Penalty Notice, to: (a) place Comsite into voluntary administration; or (b) place Comsite into liquidation; or (c) discharge the taxation liability of Comsite to the DCT. 6. By September 1999 and as a result of not complying with the Director Penalty Notice, the Bankrupt became personally liable to the DCT for the Director Liability, as a debt due to the Commonwealth ("Director Liability"). 7. On 11 October 1999, the Bankrupt commenced proceedings against the respondent in the Local Court of NSW at Manly, exercising jurisdiction under the Family Law Act 1975 (Cth), in proceedings 125/990152 ("Family Court Proceedings"). 8. Pursuant to the Family Court Proceedings and on 11 October 1999, the Bankrupt and the Respondent filed in the Family Court Proceedings an Application for Consent Orders pursuant to Order 14 Rule 2 of the Family Law Rules ("Application"). 9. Pursuant to the Application the bankrupt and the Respondent submitted consent orders to Manly Local Court providing that, inter alia, within 30 days of the making of those orders or such other date agreed in writing, the Bankrupt would do all the necessary acts and things and sign all necessary documents to transfer to the Respondent the whole of the Bankrupt's right, title and interest in the Property ("Consent Orders"). 10. The Local Court of NSW at Manly granted the Application, and made the Consent Orders on 11 October 1999. 11. The Bankrupt transferred the whole of his interest in the Property to the Respondent on or about 24 January 2000, pursuant to the Real Property Act 1900 (NSW) Transfer 6507510 ("Second Transfer"). 12. The Respondent gave no consideration for the interest in the Property which was transferred to her pursuant to the Second Transfer unless the Consent Orders, or the consent underlying them constitutes consideration. 13. At the time of making the Consent Orders, the Bankrupt was unable to pay his own debts, including the Director Liability, from his own moneys as and when they fell due. 14. At the time of lodging the Second Transfer, the Bankrupt was unable to pay his own debts, including the Director Liability, from his own moneys as and when they fell due. 15. At the time of registration of the Second Transfer, the Bankrupt was unable to pay his own debts, including the Director Liability, from his own moneys as and when they fell due. 16. On 11 February 2000, Phillip Martin Higgins ("Bankrupt") became bankrupt, upon the acceptance of the Bankrupt's Debtor's Petition by the Official Receiver ("Debtor's Petition"). 17. At the time of filing, the Debtor's Petition was accompanied by the statement of the Bankrupt's Affairs, signed by the Bankrupt on 10 February 2000 ("Statement of Affairs") … 18. The Bankrupt and the Respondent are currently married, and reside at the Property." sUBMISSIONS 5 The applicant trustee submits that because the bankrupt has fully complied with the Consent Orders they are spent and that therefore a subsequent order made by the Federal Court requiring the respondent to transfer the property to the trustee would not be inconsistent with the Family Court order. The applicant points to the policy goals which he says, underlie the Court's desire to void inconsistent judgments and submits that these do not apply. More specifically, the applicant submits that: · in the present case the claim does not depend on or seek to challenge the bankrupt's ownership of the property at the commencement of the bankruptcy; · the applicant's claim could not have been raised by him in the Family Law proceedings; · neither of the parties in the Family Court could have asserted the applicant's claim now before me, and · although the wide discretionary considerations contemplated under, for example, subs 79(2) of the Family Law Act may have allowed the Family Court to consider the husband's inability to pay his debts as and when they fell due, it could not be said against the applicant that the point should reasonably have been raised in those proceedings such that an estoppel is raised. 6 In support of this submission the applicant points to the decision of Chisholm J in Re Sabri; Ex parte Brien v Australia and New Zealand Banking Group Ltd (1996) 21 Fam LR 213, and the decision of Hodgson CJ in Eq in Silvera v Savic (1999) 46 NSWLR 124. 7 The applicant makes a further submission that even if a declaration that the transaction was void was inconsistent with the Consent Order made under the Family Law Act the declaration would prevail. The applicant points to the fact that ss 120(2)(b) (undervalued transactions) and 123(6) (protection against relation back) provide express protection for transfers made pursuant to a maintenance agreement or maintenance order. Maintenance agreements and maintenance orders are defined in s 5 of the Family Law Act. The applicant points to the fact that there is no similar saving provision in s 121 of the Act, which is concerned with transfers made with the main purpose of hindering the rights of creditors. The applicant says that this omission together with the fact that s 123(6) declares that the protection it offers is "subject to s 121" means that s 121 was intended to operate on orders made under the Family Law Act. 8 The respondent submits that the avoidance of the transfer of the property under ss 120 and 121 of the Act cannot be entertained by the Federal Court because of the continuing operation of the Consent Orders.It is said that the jurisdiction of the Federal Court does not include matrimonial causes which are subject to the Family Law Act, and that the Federal Court has no jurisdiction to entertain an application under s 79A of the Family Law Act to vary the Consent Orders. In any event no such application has been made. Past practice, it is said, has been to transfer matters such as this to the Family Court under s 35A of the Act where that is appropriate. The respondent submits that orders made by the Family Court must be given full faith and credit by the Federal Court and, until they are set aside, they must be obeyed. It is said that an order in this matter by this Court that the respondent transfer the property to the applicant would be inconsistent with the Consent Orders. Accordingly, it is said that the proper procedure to be followed is that the proceedings should be referred to the Family Court, which has the jurisdiction to set aside the Consent Orders and to apply ss 120 and 121 of the Act. The law 9 The relevant provisions of the Family Law Act are: "79(1)In proceedings with respect to the property of the parties to a marriage or either of them, the court may make such order as it considers appropriate altering the interests of the parties in the property, including an order for a settlement of property in substitution for any interest in the property and including an order requiring either or both of the parties to make, for the benefit of either or both of the parties or a child of the marriage, such settlement or transfer of property as the court determines. … (2) The court shall not make an order under this section unless it is satisfied that, in all the circumstances, it is just and equitable to make the order. 79A (1) Where, on application by a person affected by an order made by a court under section 79 in proceedings with respect to the property of the parties to a marriage or either of them, the court is satisfied that: (a) there has been a miscarriage of justice by reason of fraud, duress, suppression of evidence, the giving of false evidence, or any other circumstance; … the court may, in its discretion, vary … or set the order aside and, if it considers appropriate, make another order under section 79 in substitution for the orders so set aside." (Emphasis added) 10 As regards the transfer of the matter to the Family Court, the Act provides: 35A(1) Subject to subsection (2), where a proceeding is pending in the Federal Court, the Federal Court may, on the application of a party to the proceeding or of its own motion, transfer the proceeding to the Family Court. … 35A(3) Subject to subsection (4), where a proceeding is transferred to the Family Court: (a) the Family Court has jurisdiction to hear and determine the proceeding; (b) the Family Court also has jurisdiction to hear and determine matters not otherwise within its jurisdiction (whether by virtue of paragraph (a) or otherwise): (i) that are associated with matters arising in the proceedings; or (ii) that, apart from subsection 32(1) of the Federal Court of Australia Act 1976, the Federal Court would have had jurisdiction to hear and determine in the proceeding; (c) the Family Court may, in and in relation to the proceedings: (i) grant such remedies; (ii) make orders of such kinds; and (iii) issue, and direct the issue of, writs of such kinds; as the Federal Court could have granted, made, issued or directed the issue of, as the case may be, in and in relation to the proceeding; …" 11 As regards avoidance of transfers of property, the relevant provision of the Act are: "120(1) A transfer of property by a person who later becomes a bankrupt (the transferor) to another person (the transferee) is void against the trustee in the transferor's bankruptcy if: (a) the transfer took place in the period beginning 5 years before the commencement of the bankruptcy and ending on the date of the bankruptcy; and (b) the transferee gave no consideration for the transfer of gave consideration of less value than the market value of the property. 120(2) Subsection (1) does not apply to: … (b) a transfer to meet all or part of a liability under a maintenance agreement or a maintenance order; or … 121(1) A transfer of property by a person who later becomes a bankrupt (the 'transferor') to another person (the 'transferee') is void against the trustee in the transferor's bankruptcy if: (a) the property would probably have become part of the transferor's estate or would probably have been available to creditors if the property had not been transferred; and (b) the transferor's main purpose in making the transfer was: (i) to prevent the transferred property from becoming divisible among the transferor's creditors; or (ii) to hinder or delay the process of making property available for division among the transferor's creditors. 123(6)Subject to section 121, nothing in this Act invalidates, in any case where a debtor becomes a bankrupt, a conveyance, transfer, charge, disposition, assignment, payment or obligation executed, made or incurred by the debtor, before the day on which the debtor became a bankrupt, under or in pursuance of a maintenance agreement or maintenance order." 12 In Re Baxter; Ex parte Official Receiver v Baxter (1986) 10 FCR 398 Northrop J considered an application by the Official Trustee in Bankruptcy challenging the validity of an order by the Family Court. The Family Court had declared a wife to be the sole proprietor of the matrimonial home. Her interest had previously been that of a tenant in common with her bankrupt husband. His Honour said, at 401: "… The question is whether the Federal Court should refrain from hearing and determining the application of the trustee under the Bankruptcy Act while the Family Court Order remains in existence. In my opinion it should. The general rule is that once an order of a court has been entered, except by way of appeal, no court has power to review that order … … … If the Federal Court proceeded to hear and determine the application, of necessity, conflicting orders would be made. The Family Court order may not be binding upon the trustee, but until it is set aside, it is binding upon the wife. Any order of the Federal Court made in the application by the trustee would be binding upon the wife. That illustrates the practical results arising from conflicting judgments. The Federal Court has no jurisdiction or power to set aside the order of the Family Court. Even though the order made by the Family Court on 22 October 1984 may have been beyond the power of that Court to make, and I express no view on that question, nevertheless the order remains in existence. …" (Emphasis added) 13 The above reservations were cited and applied by O'Loughlin J in Official Trustee in Bankruptcy v Turner (1999) 94 FCR 512 at 520-521, where his Honour said, at 520: "Even though it has submitted that the Family Court order was irregularly or improperly obtained … it is clear that the order of the Court is to be obeyed until such time, if at all, it is set aside: Isaacs v Robertson [1985] AC 97; Re Zagoridis; Ex parte Q-Plas Group Pty Ltd (1990) 27 FCR 108 at 117-118." 14 In Re Sabri; Ex parte Sabri v Brien (1995) 60 FCR 131, Davies J made some pertinent observations in relation to the way in which the Federal Court should exercise its discretion under s 35A of the Act in an application to transfer proceedings to the Family Court from the Federal Court. In that case an order had been made under the Family Law Act for the transfer of property from a husband to his wife in circumstances where the husband subsequently became bankrupt. An application was made under the Act for an order that the wife transfer the property to the Trustee in Bankruptcy in reliance, inter alia, on the provisions of s 121. His Honour decided that it was appropriate for the bankruptcy proceedings to be transferred to the Family Court and he said, at 133: " … if this Court were to make orders in favour of the Trustee, it is likely that those orders would appear, on the face of them, to conflict with the order of the Family Court. Mr Thomson, counsel for the Trustee, has submitted that there would in fact be no actual conflict, for the orders would have been made under different statutes and would each have different effects. Nevertheless, on the face of the matter, if an outsider, not knowing either the terms of the Family Law Act 1975 (Cth) or the terms of the Bankruptcy Act, simply looked at the two orders, there would certainly be a likelihood of an appearance of conflict. Matters of conflict should, if possible, be avoided. If this matter can be transferred to the Family Court so that all orders in relation to the matters are made by the Family Court, then the potential for an appearance of conflict will disappear." (Emphasis added) 15 In stating his conclusion that the matter should be transferred to the Family Court his Honour observed that when the Family Court exercises jurisdiction in the transferred matter it would be exercising the jurisdiction of the Federal Court and would be bound to apply the provisions of the Act. His Honour remarked that discretionary powers, such as are conferred on the Family Court by s79 of the Family Law Act, would not be applicable. His Honour referred in this respect to the High Court's decision in Ascot Investments Pty Ltd v Harper (1981) 148 CLR 337 at 354 and to Deputy Commissioner of Taxation (NSW) v Swaine (1988) 20 FCR 507 at 514. 16 The observations of Davies J were subsequently followed and applied by Sundberg J in Carter v Vos [1999] FCA 1703 at pars 6-8. That case involved an application to transfer under s 35A. REASONING 17 In the present case the applicant does not contend that this Court can or should vary or set aside the Consent Orders pursuant to s 79A of the Family Court Act. Rather, it seeks an order under the Act, which is within the Court's jurisdiction and which will have the effect of avoiding not merely the transfer but also the transaction or arrangement underlying the transfer: cf Turner v Official Trustee in Bankruptcy (1999) 97 FCR 241 at 245. 18 The terms of s 121 of the Act are not limited or restricted by reference to any exemption or particular protection afforded to consent or other orders under the Family Law Act. The submissions of Counsel for the respondent in effect called for the introduction into the section of such a protection. Counsel for the applicant has pointed to the provisions of ss 122(2) & 123(6) which expressly provide protection in respect of maintenance orders or maintenance agreements in certain circumstances. Particularly in view of these express provisions, it is not, in my opinion, appropriate to place a gloss on the words of s 121 and exempt the Consent Orders from the section's operation. 19 I accept that strictly speaking it might be said that there is no conflict between the order sought in the Federal Court and the Consent Orders because either the Consent Orders were "spent" upon the transfer having been effected: Silvera v Savic at 139; or alternatively the transfer to the wife pursuant to the Consent Orders was subject to the provisions of the Act which defined what was the property which could be transferred by the bankrupt: see Re Sabri; Ex parte Brien v Australia and New Zealand Banking Group Ltd at 217-218. In that case Chisholm J said, at 218: "… Section 79 allows the court to make orders relating to the property of the parties or of either of them. Any interest created in the wife by the s 79 order must, I think, be by way of transfer from the husband. If he had the interest immediately prior to the orders, his interest, like his other property, would have been caught by the doctrine of relation-back. In my view, therefore. there is no inconsistency between the orders made by the Family Court and the ordinary operation of the bankruptcy law." (Emphasis added) 20 In Silvera v Savic Hodgson CJ in Eq considered that the order of the Family Court was "spent" upon the transfer having been effected and that there was nothing to prevent an order being made by the Supreme Court requiring the re-transfer of the property pursuant to s 37A of the Conveyancing Act 1919 (NSW) which is directed to the avoidance of fraudulent transfers. 21 However, as Davies J pointed out in the passage I have cited from Re Sabri, Ex parte Sabri v Brien, on their face, the Consent Orders and any order requiring the retransfer of the property by the respondent gives at least an appearance of conflict which should be avoided if possible. The Consent Orders in this case were made pursuant to s 79 of the Family Law Act which requires the Court to exercise a discretion before making the orders. Although the orders were consent orders they were not simply a matter of course or a mere administrative action but they involved the approval of the Court: subs 79(2). It cannot be said that the Court, in making the orders, was engaged in an executive exercise. The Court in making the orders was exercising a judicial discretion in the exercise of federal jurisdiction with respect to matrimonial causes. 22 In my view, the position in the present case is that the Federal Court has both the power and jurisdiction to make an order under s 121 in a case such as this. In this respect I do not agree with the remarks of Northrop J in Baxter's case. However, as a matter of discretion, for the reasons given by Davies J in Re Sabri; Ex parte Sabri in Brien it is desirable in this case not to do so where there the Family Court has power to both set aside or vary the order under s 79A and to exercise jurisdiction under the Act. Such a course will avoid the appearance of conflicting orders between the two courts. 23 No Motion was made by the parties for the transfer under s 35A but, having heard the submissions, I am satisfied for the reasons given above that such a transfer should be ordered. 24 It was suggested that the matter could and should not be transferred because there was no current existing proceeding before the Family Court. Section 35A imposes no such requirement and I do not accept this as a persuasive reason against a transfer. It is not necessary that the transferred proceedings should attach to some existing proceeding before the Family Court. In any event, a new proceeding could be instituted by the applicant to vary the earlier Court Order before the transfer takes effect. 25 A further submission was made that the trustee is not a "person" affected by the Consent Order within the meaning of s 79A of the Family Law Act. It was suggested that the creditors are the real parties affected. There is no force in this submission because the Official Trustee in Bankruptcy is the representative of the creditors for the purpose of the proceeding: see Noakes v Harvey Holmes & Son (1979) 26 ALR 297 at 303-304 (per Brennan J, with whom Deane and Fisher JJ agreed). 26 In the course of submissions reference was also made to s 22 of the Federal Court of Australia Act 1976 which requires this Court to avoid multiplicity of proceedings and to grant all remedies to which any of the parties appears to be entitled in respect of any claim properly brought forward in the proceeding. That section, however, does not confer jurisdiction on this Court and could not, of course, confer jurisdiction to set aside the Consent Orders under s 79A of the Family Law Act: cf Philip Morris Inc v Adam P Brown Male Fashions Pty Ltd (1981) 148 CLR 457 at 489. Nor could s 22 require this Court to make orders under the Act where it considers that it is more appropriate that a bankruptcy proceeding should be transferred under s 35A to the Family Court. The Court can transfer on its own motion under that section. Conclusion 27 The application should be transferred to the Family Court of Australia. The costs of the proceedings in this Court should be costs in the cause of the trustee's application that has been transferred. I certify that the preceding twenty-seven (27) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Tamberlin. Associate: Dated: 15 December 2000 Counsel for the Applicant: P M Taylor SC Solicitor for the Applicant: Kemp Strang Counsel for the Respondent: B Skinner Solicitor for the Respondent: Somerville & Co Date of Hearing: 4 December 2000 Date of Judgment: 15 December 2000