Report 113 (2006) - Relationships - Law Reform Commission : Lawlink NSW

11.2 Neither the PRA nor the Regulations made under it explicitly require the parties to proceedings under Part 3 to disclose their financial position fully and frankly. However, it seems clear that such an obligation does exist. In the English case of Livesey v Jenkins, Lord Brandon said:

11.5 Where it is apparent to the Court that a party to the proceedings has failed to make complete disclosure of assets, the Court may draw the inference that complete disclosure would not have assisted the party’s case.⁵ In particular, the Court may find that the value of an item that a party has not adequately established is as high as is consistent with the description that the Court has of it.⁶ Where the Court makes an order under s 20 (or s 27) on this basis, the party who has failed to make full disclosure cannot complain if the order is more generous to the plaintiff than it might have been if the defendant had chosen to make full and complete disclosure of relevant information.⁷ The Family Court has taken a similar approach in making orders under s 79 of the Family Law Act 1975 (Cth) (“the FLA”).⁸

11.6 Rule 13.01 of the Family Law Rules 2004 (Cth) expressly imposes on each party a duty to the Court and to the other party to make full and frank disclosure of all relevant information in a timely manner. The duty starts with pre-action procedure and continues until the case is finalised.

11.7 Rule 13.04 particularises that duty in financial cases (which include actions under s 79 of the FLA, the equivalent of s 20 of the PRA), in the following way:

11.9 Queensland also requires the parties to proceedings for property adjustment orders to disclose their financial circumstances in accordance with procedures laid down in the rules or a practice direction of the relevant Court. Indeed, the Court is prevented from making any order for property adjustment unless such order is complied with.⁹

11.10 Under s 41 of the PRA, the Court can vary or set aside an order under s 20 or s 27 of the Act (whether the result of contested proceedings or by consent)¹⁰ where:

11.13 All submissions addressing the disclosure issue took the view that that parties to proceedings under the PRA should be required to disclose their financial positions fully and frankly.¹⁴ New South Wales Young Lawyers would qualify the obligation for reasons of cost or efficiency to the extent to which the parties agree otherwise.¹⁵ The Equity Division of the Supreme Court pointed out that the principles that enable a Court to draw inferences that complete disclosure would not have assisted the case of a party failing to make such disclosure is not adequate “to deal with the situation where the evidence does not disclose the existence of some category of assets, which has been imperfectly described or valued”. Moreover, those principles when applied can only produce “a very rough justice” with potential for unfair consequences.¹⁶

11.14 The Victorian Bar was of the view that the most appropriate way to give effect to the obligation to make disclosure was by amending the relevant Rules of Court to require the parties to sign a “Statement of Financial Circumstances”, in the same way that people are required to do under the Family Law Rules.¹⁷

11.15 All submissions addressing this point supported the proposition that non-disclosure should be a ground for setting aside or varying an order. Some submissions would limit this to the situation where the non-disclosure is “material” or “significant”, or, as the New South Wales Law Society put it, where the non-disclosure was “trivial or not significant”, the Court should exercise its discretion.¹⁸

11.16 The task of the Court in making an order under Part 3 of the PRA that is just and equitable is rendered more difficult if the parties fail to disclose all relevant information about their financial positions. While there is little doubt that parties are already under an obligation to disclose all relevant information, the Commission believes that a legislative statement of this important obligation would have the effect of reinforcing it. The Commission favours the statement of the general obligation in the Act itself (as is the case in Queensland), the detailed application of the obligation in financial adjustment proceedings being set out in the Regulations (as they are in the Family Law Rules).

11.17 In our view, the statement of the general obligation should be to the effect that a party to proceedings under Part 3 must make full and frank disclosure of all information relevant to the case in the manner prescribed by the Regulations. The Regulations that give effect to this should mirror the provisions of Rr 13.04 and 13.05 of the Family Law Rules 2004 (Cth). The illustrative financial circumstances that a party is required to disclose under R 13.04 are equally appropriate to a claim under Part 3 of the PRA with the qualification that the reference to “the party’s child” should refer not only to any legal child of the party but also to a functional child as defined in Recommendation 17 of this Report. It is appropriate that, as under the Family Law Rules, the Regulations should provide a standard form Financial Statement to assist parties in meeting disclosure requirements, whether in contested proceedings or in applications for consent orders under Part 3.

11.18 As to the failure of a party to comply with the disclosure obligations, we agree with the Equity Division of the Supreme Court that the adverse inferences that a Court may draw where there is a failure to make complete disclosure are of limited benefit. Although the current legislation arguably already supports this outcome, we favour an amendment of the PRA to clarify that the non-disclosure of relevant facts is a ground upon which a Court may set aside or vary an order under s 20 or s 27. This is most easily accomplished by bringing the PRA into line with the FLA by adding to s 41(1)(a) of the PRA after the phrase “suppression of evidence” the following words in parenthesis: “(including failure to disclose relevant information)”.

11.19 The grounds upon which an order made under Part 3 can be set aside or varied are specified in paragraph 11.10. Those grounds do not include a failure to give sufficient recognition or protection to the interests of third parties. In DP 44 the Commission expressed concern that a Part 3 order transferring property could possibly defeat the interests of a bona fide purchaser of the property or some other third party as a result of a couple colluding to mislead the Court into making an order, most likely by consent, for the purpose of avoiding the claims of the third party. If the Court makes these orders, unaware of the competing claims, it could be seen to be a party to the sham.

11.20 The FLA likewise contains no specific ground to deal with such a case. It does, however, have a provision which states that, when setting aside or varying orders on one of the grounds listed in s 79A, the Court shall have regard to, and protect the rights of, bona fide purchasers or other interested persons.¹⁹ This is not a ground in itself for setting aside or varying agreements, but rather a factor for the Court to consider in exercising its discretion.

11.21 In DP 44, the Commission asked whether it was appropriate to amend the PRA to allow the Court to vary or set aside an order under the Act where the order interferes with the rights of a third party.²⁰

11.22 New South Wales Young Lawyers submitted that interference with the rights of a third party is a factor that should be considered, but it is not appropriate for it to be a specific ground in and of itself.²¹ Likewise, the New South Wales Law Society stated that while interference with the rights of third parties should not be a ground itself, it should be a factor to be considered when determining whether to set aside or vary an order.²²

11.23 The Supreme Court’s Equity Division did not, however, favour this proposal. It pointed out that many orders under the PRA will interfere with rights of third parties in a manner which is “quite unexceptional”; and that the particular mischief to which the Commission drew attention in DP 44, that is the collusive consent order whose primary aim is to remove assets from the reach of a third party, can be handled by the Court’s inherent jurisdiction to avoid abuse of process. Moreover, the Equity Division pointed out that so far as the Commission’s proposal was that orders interfering with the interests (as opposed to the rights) of third parties could be set aside or varied, it was too imprecise to be in legislation. If there was to be another ground for setting aside or varying an order, it should relate to property rights of third parties that the Court was unaware of at the time it made the order.²³

11.24 The Commission is generally persuaded by the submission of the Equity Division of the Supreme Court. Moreover, in our view, the PRA already provides sufficient protection for the rights (and any relevant interests) of third parties. It does so as a factor that the Court may take into account in the variation and setting aside of orders. Section 43 of the PRA provides:

11.26 The PRA confers a personal statutory right that abates on the death of either party. The Law Reform Miscellaneous Provisions Act 1944 (NSW) provides for the survival of personal causes of action in certain cases. However, it expressly excludes claims made under Division 2 of Part 3 of the PRA. Apart from the specific provisions of PRA s 24, this confirms that a general doctrine of abatement applies to proceedings under the PRA.

11.27 Section 24(1) of the PRA provides that an application for a property order under s 20 that has already been filed may be continued by the personal legal representative of the deceased party.²⁴ An interlocutory application, such as one for leave to bring a substantive s 20 application out of time, would appear to be sufficient to invoke s 24(1).²⁵ It would also appear that the mere filing of an application will suffice to constitute the commencement of proceedings; service of the originating process is not likely to be a condition precedent to there being proceedings pending.²⁶

11.28 Section 24(1) of the PRA provides the only circumstance in which a s 20 order can be made after the death of a party.²⁷ Under s 24(2), a Court is entitled to make an order under s 20 where it is satisfied that it would have adjusted interests in property if the deceased had not died, and it is still appropriate to adjust those interests despite the death of the deceased party.²⁸

11.29 Where a property adjustment application under s 20 has not been commenced before the death of one of the parties to the domestic relationship, a surviving partner can, of course, have recourse to the provisions of the Family Provision Act 1982 (NSW), and may rely on such other actions available at general law that are not affected by the death of the other party to the proceedings.

11.30 Whether s 24 applies in a situation where both parties die during proceedings, but before an order is made, is in some doubt. In Werner-Zolotuchin v Public Trustee, Master McLaughlin expressed a tentative view that s 24 probably did not apply. He said that a literal interpretation of the section, which is expressed in the singular, probably contemplates only the situation where one of the parties dies. Despite his misgivings, he went on to determine the proceedings, ultimately dismissing the action on the basis that no order for property adjustment was appropriate even if the applicant had not died. Master McLaughlin added that even if there were justifiable grounds to adjust property interests, he would not exercise his discretion to make a s 20 property order as such an order could be of no benefit to the deceased applicant. Any such order would merely be a windfall to her legal personal representative.²⁹

11.31 Under s 79(8) of the FLA, which is to the same effect as s 24 of the PRA, it appears that proceedings cannot continue after the death of both of the parties.³⁰

11.32 The Commission’s view is that proceedings should not be capable of being continued where both parties die before an application under s 20 of the PRA is determined.

11.33 An order for property adjustment under s 20 of the PRA can be enforced by or against the estate of the deceased partner who died after the application was brought but before the order was made.³¹

11.34 Where, however, one of the parties dies after the order was made, the PRA expressly provides that the order may be enforced against the estate of the deceased party.³² It seems anomalous that the PRA does not accommodate the enforcement of the order by the estate of the deceased party. For the avoidance of doubt, the Commission believes that the PRA should be amended to make express provision for the enforcement of an order by the legal personal representative of the deceased party where that person has died after an order is made.

Table of contents

1. [1985] AC 424 at 437 (Lord Brandon). This was a case of financial provision under Matrimonial Causes Act 1973 (UK) s 25(1). See also Dowrick v Sissons (1996) 20 Fam LR 499 at 472-473.

3. Parks v Thompson (1997) DFC �95-182 at 77579. See also, in the context of family provisions claims, Fraser v Venables (NSWSC, 30 September 1998, No. 1847/95 unreported, Master MacLaughlin), cited by Acting Master Berecry in Foster v Foster [1999] NSWSC 1016. See also the similar statements in Killiner v Freeman [2000] NSWSC 263 at para 13.

4. Steinbarth v Peters [2005] VSC 87 at 8 where the Court held that it was both appropriate for it to refer to Family Court decisions which imposed a duty of disclosure on the parties, and consistent with its power under Property Law Act 1974 (Vic) s 285 to make such property adjustment orders as appear just and equitable.

5. Applying the rule in Jones v Dunkel (1959) 101 CLR 298. See D Byrne and J D Heydon, Cross on Evidence (looseleaf edition) at para 1215.

8. In the Marriage of Chang and Su [2002] FamCA 156 at para 72 (“more robust view”); Kannis v Kannis [2002] FamCA 1150 headnote (“appropriate to err on the side of generosity to the party who might otherwise be seen to be disadvantaged by the lack of complete candour”).

10. PRA s 38(1)(j) expressly confers power on the Court to make an order by consent.

12. Pelerman and Pelerman [2000] FamCA 881; Morrison and Morrison (1995) FLC 92-573; Suiker and Suiker (1993) FLC 92-436.

14. Equity Division of the Supreme Court of NSW, Submission at para 55-58; Law Society of NSW, Submission at 8; Victorian Bar, Submission at para 57; NSW Young Lawyers, Submission at 8.

18. Law Society of NSW, Submission at 8. See also NSW Young Lawyers, Submission at 11.

25. Reid v George (1996) 20 Fam LR 374 (Young J). In this case, the plaintiff, by summons, brought an application under s 18 for leave to be granted to bring a claim out of time as well as a substantive claim under s 20. The plaintiff died before the leave application was heard. Young J said there was some authority for the argument that the term “application” included the interlocutory stages of the application. He also referred to the long-standing practice of the Court, particularly in Family Provision Act cases, to permit applications for leave to commence proceedings and the substantive application in the one summons.

26. See In the Marriage of Love (1989) Fam LR 263 and In the Marriage of Mason (1993) 17 Fam LR 269 (which considered the equivalent provisions under the FLA s 79(8)(a)).

27. Reid v George (1996) 20 Fam LR 374 at 377, citing Skene v Dale [1990] VR 605.

28. Similar provisions apply in the FLA s 79(8)(a) and in other State de facto relationship legislation: eg, Relationships Act 2003 (Tas) s 44(2); Property Law Act 1958 (Vic) s 289(2); De Facto Relationships Act 2003 (NT) s 22(2).