A whole stream of case law makes it plain that a claim under s 79 of the Family Law Act (‘the Act’) does not in itself give rise to a caveatable interest. Accordingly, if you lodge a caveat on behalf of a client citing their right to seek an order under s 79, not only will the caveat be fatally susceptible to a lapsing notice, but you may be exposing yourself to an allegation of impropriety.
So does that mean that the only way of protecting a client’s rights to matrimonial real property is to race off and seek injunctive relief from a Court exercising jurisdiction under the Act?
It seems not.
According to one line of case law, a spouse can indeed lodge a caveat over property in the other spouse's name provided the caveat is based on the principles of constructive trust rather than s 79. While there's no doubt that a s 79 application doesn't itself found a caveat, that's not the same thing as saying that the Act extinguishes equities as between the parties to a marriage or de facto relationship, or prevents those equities arising in the first place, which is what would need to happen to forbid the lodging of a spouse's caveat.
The fact that a matrimonial cause can only be prosecuted in a court having jurisdiction under the Act means that if there is an argument about, say, the effect of an equitable right between spouses, then that is a matter which has to be brought under the Act. If a spouse has an equitable chose in action, then that's clearly property, and s 79 tells the court how to deal with that property as between the spouses.
In Kennon & Spry the wife possessed equitable choses in action to be considered by her husband qua trustee as a potential beneficiary, and for due administration of the trust. The husband held, again qua trustee, the right to appoint the property of the trust. Those three rights were found by the High Court all to constitute 'property' for the purposes of the Act.
Now, Mrs Spry's two equitable choses in action against her husband were not extinguished merely because of her application under s 79. The fact that her relief could only lie at the hands of a court exercising jurisdiction under the Act certainly had an effect on choice of venue. The legal processes that would be employed to determine what would happen next would have to be determined according to the principles set down in ss 78 and 79 (unless you accept what Kiefel J said and believe that s 85A is also relevant on the basis that the contributions to the assets of the trust from other property of the marriage constituted ongoing 'settlements').
But her equitable choses in action were triggered during the marriage, remained intact throughout the marriage, survived separation, and subsisted after the commencement of her s 79 Application. Certainly, if the Spry Family Trust had had its interests tied up in a parcel of real estate, Mrs Spry could still not have filed a caveat, as she was a mere beneficial object under a discretionary trust; but if she had actually been a beneficiary then she could at any time have filed a caveat over that real estate citing that interest, so long as the ground stated in the caveat referred properly to the relevant equitable interest and not to her 79 application. And in a fight over a lapsing notice the proper venue would be a court exercising jurisdiction under the Act since that argument would itself be a matrimonial cause.
If the relevant trust is alleged to be a Baumgartner type constructive trust, then there's no doubt that in just about every circumstance the only way of dealing with the situation is to file under s 79 (or now 90SM). The considerations of contribution to the property then proceed as dictated by the Act. But surely, that's not the same as saying that a spouse's various equitable choses in action as a beneficiary flowing from the existence of a constructive trust are extinguished or never came into existence in the first place; they must still be 'property' within the meaning of the Act (just as Mrs Spry's chose in action for due consideration was property), but simply 'property' that's irrelevant because the facts that ground the spouse's choses in action under a constructive trust are identical to the facts that ground the 79 application.
Nevertheless, in a few circumstances constructive trusts may still be relevant. One of those is if a 79 application is filed out of time and leave to bring the action is refused (never mind that that never seems to happen...it could happen). In that case the only remedy would be to run a constructive trust argument.
Unless of course a constructive trust really can't arise between spouses.
But Chisholm J decided it can. In 1997 His Honour dealt with one of the other issues where a constructive trust might be relevant as between spouses: bankruptcy.
The relevant case is Re Sabri; ex parte Brien (1997) FLC ¶92-732. In that case (from p. 83,861), under the relating back provisions of the Bankruptcy Act, the husband’s trustee in bankruptcy was seeking to set aside a transfer from husband to wife pursuant to a s 79 order obtained prior to the sequestration order. The s79 order itself provided no defence against the relating back provisions of the Bankruptcy Act; nevertheless the s 79 order had been grounded on the same facts that would ordinarily give rise to a constructive trust.
Chisholm J held that the wife in fact had an interest under a Baumgartner constructive trust during the course of the marriage. Because of that, the wife's interests in the property were protected when the husband contracted debts, as he could not dispose of any greater interest in the property than he actually had, and he therefore held the property subject to the wife's interests under that constructive trust.
Because Chisholm J held that there was indeed a constructive trust in favour of the wife, so far as the trustee in bankruptcy was concerned:
[w]hile the Trustee has not acted improperly in a personal sense, in my view it would be unconscionable for the Trustee in effect now [after the finalisation of the s 79 proceedings] to take a better title than the husband had at the date of the act of bankruptcy [prior to the institution of 79 proceedings]. Justice and equity now require that the Trustee hold the title subject to an equitable interest in the wife arising by way of constructive trust.
Since equity regards as done that which ought to be done, no order is required to trigger the creation of a constructive trust, even though it is undeniably remedial in nature. The trust therefore normally arises contemporaneously with the conduct that gives rise to its imposition. Significantly there is nevertheless a good argument that this is subject to the interests of third parties not being affected; if they are there is a suggestion that the Baumgartner trust arises from the date of curial determination (although note that the appropriate reason for the delay in remedy may relate to the allocation of priorities rather than to the arising of the trust: see the interesting discussion of this in Ward J's judgment in Australian Building & Technical Solutions Pty Limited v Boumelhem; Boral Australia Limited v Boumelhem; Boumelhem v Jones & Ors [2009] NSWSC 460).
From all of this it seems that if a party lodges a caveat over the other party’s property citing facts that would give rise to a Baumgartner constructive trust (that is, direct and indirect contributions to the real property held in the name of the other party) rather than referring to a s 79 application, then the caveator will have been acting appropriately.
Bryant CFM (as she then was) in W, RL and D, TTT (2003) FLC ¶93-166 at paragraphs 15 to 17 accepted a similar line of reasoning in finding that she had exclusive jurisdiction to deal with a dispute over a caveat:
There are other cases in which the Court has held that an equitable interest can co-exist with the inchoate interests which arise under s 79. The decision of Chisholm J in Re Sabri; ex parte Brien (1997) FLC ¶92-732 is such a case.
Thus where a party relies upon an equitable interest to support the lodging of a caveat such an equitable interest can co-exist with a claim under s 79 of the Act, and form part of the proceedings to be dealt with by a Court exercising jurisdiction under the Family Law Act.
That being the case the Court has exclusive jurisdiction arising from s 4(1) of the Family Law Act to deal with the relief sought and an application in the same circumstances cannot be made to the Supreme Court (see Lansell v Lansell (1964) 110 CLR 353).
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