Guan v Li

1. [1]

   BELL CJ: Mr Frank Tang (Mr Tang) and Ms Yanjuan Guan (Ms Guan) are husband and wife, having married in China on 9 October 2010. They claim that, since 1 September 2020, they have been separated, albeit they continue to live in the matrimonial property at Oatlands (the Oatlands property) but occupy separate rooms.

2. [2]

   On 1 September 2021, they purported to enter into a binding financial agreement (the BFA) in accordance with s 90C of the Family Law Act 1975 (Cth). The BFA noted that the Oatlands property (of which Mr Tang and Ms Guan were joint tenants) had a value of $2,200,000 and was subject to two mortgages collectively totalling $1,381,000. The BFA made provision, inter alia, for the transfer of Mr Tang’s interest in the Oatlands property to Ms Guan.

3. [3]

   On the day prior to entry into the BFA, Schmidt AJ had entered judgment for Mr Weijian Li (Mr Li) against Mr Tang in the sum of $1,909,356.39: Li v Tang [2021] NSWSC 1011 (the Tang proceedings). Ms Guan was also a defendant in those proceedings but no orders were made against her.

4. [4]

   Mr Li, unaware of the BFA, proceeded to register a writ of execution against the title of the Oatlands property on 28 October 2021.

5. [5]

   Subsequent to entry of judgment, on 19 November 2021, Mr Tang filed for bankruptcy and a trustee in bankruptcy was appointed. He subsequently called for proof of debts and, according to a preliminary report, Mr Tang’s estate had unsecured creditors whose claims amounted to $8 million.

6. [6]

   Ms Guan’s solicitors wrote to the trustee, drawing attention to the BFA and calling on him to transfer Mr Tang’s interest in the Oatlands property to Ms Guan. Subsequently, in March 2022, Ms Guan and the trustee entered into a deed of settlement and release (the Settlement Deed) pursuant to which the trustee agreed to transfer Mr Tang’s interest in the Oatlands property to Ms Guan for a consideration of $135,000 payable in two instalments. These have subsequently been paid.

7. [7]

   Relevant terms of the Settlement Deed included the following:

8. [8]

   On 21 April 2022, Ms Guan filed a notice of motion in the Supreme Court seeking the removal of the writ of execution registered on the title of the Oatlands property by Mr Li.

9. [9]

   On 20 May 2022, Mr Li filed an application in the Federal Circuit and Family Court of Australia (FCFCOA) seeking leave to commence proceedings against the trustee in bankruptcy in accordance with ss 27(1) and 58(3)(b) of the Bankruptcy Act 1966 (Cth). That leave has since been granted.

10. [10]

    In those proceedings, Mr Li seeks orders under s 90K(1)(aa) of the Family Law Act to set aside the BFA between the bankrupt Mr Tang and Ms Guan and, upon the Court setting aside the BFA, pursuant to s 90K(3) of the Family Law Act, for such order or orders as the Court considered just and equitable for the purposes of preserving or adjusting the rights of persons who are parties to the BFA and any other interested persons including:

11. [11]

    It is apparent that, by the FCFCOA proceedings, Mr Li seeks to use the provisions of the Family Law Act to set aside or overcome the arrangement which would result in Ms Guan owning all of the Oatlands property (subject to mortgages) in circumstances where, on the date of the judgment Mr Li secured against Mr Tang, he was a joint tenant of the Oatlands property.

12. [12]

    Also on 20 May 2022, Mr Li filed a Notice of Motion (subsequently amended) in the Tang proceedings, seeking orders that Ms Guan be restrained from taking any steps to register the transfer of Mr Tang’s interest in the Oatlands property to Ms Guan and from taking any step to deal with or encumber Mr Tang’s interest in the property.

13. [13]

    In this context, where a judgment has been given by the Supreme Court, Uniform Civil Procedure Rules 2005 (NSW) (UCPR) r 25.14(5)(a)(i) permits the Court to make a freezing order or an ancillary order or both against a person other than a judgment debtor (the third party) if the court is satisfied, having regard to all the circumstances, that there is a danger that a judgment will be wholly or partly unsatisfied because the third party holds or is using, or has exercised or is exercising, a power of disposition over assets of the judgment debtor. UCPR r 25.14 does not affect the power of the court to make a freezing order or ancillary order if the court considers it is in the interests of justice to do so: r 25.14(6).

14. [14]

    By ex tempore judgment delivered on 15 June 2022 and upon Mr Tang through his counsel giving the usual undertaking as to damages, Cavanagh J (the primary judge) granted the freezing order sought: Li v Guan [2022] NSWSC 834.

15. [15]

    In opposing the orders sought by Mr Li before the primary judge, Ms Guan advanced the submission that Mr Li did not have reasonable prospects of succeeding in his claim in the FCFCOA, as s 90K of the Family Law Act did not confer jurisdiction on the FCFCOA to set aside the Settlement Deed (as distinct from the BFA).

16. [16]

    Section 90K relevantly provides:

17. [17]

    The term “financial agreement” is defined in s 4 of the Family Law Act to mean “an agreement that is a financial agreement under section 90B, 90C or 90D”, but does not include an ante-nuptial or post-nuptial settlement. It does not appear to be in dispute that the BFA was a financial agreement within the meaning of s 90C, but the Settlement Deed was not. Ms Guan submitted, therefore, that even if Mr Li were successful in setting aside the BFA in the FCFCOA, the transfer of Mr Tang’s interest in the Oatlands property would remain effective by virtue of the Settlement Deed.

18. [18]

    Mr Li, on the other hand, contended that the power conferred upon the FCFCOA by s 90K(3), to make “such orders… as it considers just and equitable for the purpose of preserving or adjusting the rights of persons who were parties to [a] financial agreement and any other interested persons”, would authorise the Court to set aside the Settlement Deed after having set aside the BFA.

19. [19]

    In the course of his reasons, the primary judge noted at PJ [47] that Ms Guan submitted that there was no evidence of a prima facie case that the Settlement Deed could be set aside, that Mr Li was not seeking any orders in the FCFCOA which would allow that Court to set aside the Settlement Deed and that the FCFCOA did not have the power to do so.

20. [20]

    At PJ [53], his Honour emphasised that he was “not at this stage determining the meaning or effect of the application which the plaintiff is pursuing in the FCFCOA”.

21. [21]

    In further response to this argument, his Honour said that he was not satisfied that there was no reasonable argument that orders setting aside the Settlement Deed could be obtained from the FCFCOA and noted that the issue was considered by the Family Court in Grainger v Bloomfield & Anor (2015) 304 FLR 351; [2015] FamCAFC 221 at [69]: PJ [56]–[57]. He continued by observing that (PJ at [59]–[63]):

22. [22]

    The “no utility” point was an argument that had been advanced on behalf of Ms Guan as a reason why the primary judge would not exercise the discretion he had to make freezing or asset preservation orders in relation to her dealing with the Oatlands property.

23. [23]

    As noted above, the primary judge made the freezing or asset preservation order sought by Mr Li. His dispositive reasoning at PJ [77]-[80] was as follows:

24. [24]

    It is from this decision that leave to appeal is now sought.

The Draft Notice of Appeal

1. [25]

   The Draft Notice of Appeal was in the following terms (with emphasis added):

2. [26]

   In her summary of argument in support of the Summons for Leave to Appeal, Ms Guan submitted, amongst other matters, that the primary judge should have held that s 90K(3) of the Family Law Act did not empower the FCFCOA to set aside the Settlement Deed.

3. [27]

   In responsive submissions, Mr Li contended that ground 1 of the proposed appeal “raises, as a matter for determination, a matter arising under the [Family Law Act]”, and that, as such, this Court would have no jurisdiction to hear the application for leave to appeal by reason of s 7(5) of the Jurisdiction of Courts (Cross-Vesting) Act 1987 (Cth) (Cross-Vesting Act). That sub-section provides:

4. [28]

   Mr Li also submitted that proposed appeal grounds 2(a)-(b) and 6(a), which concerned the primary judge’s assessment (or otherwise) of the strength of Ms Guan’s case to set aside the Settlement Deed, involved the determination of a matter that arose under the Family Law Act and thus deprived this Court of jurisdiction.

5. [29]

   In light of a question as to the Court’s jurisdiction to hear the application for leave to appeal having been raised, the parties were directed to file written submissions directed to the competency of the appeal in the event that leave to appeal were granted. This was consistent with the approach that has been taken in other cases: see, for example, Eberstaller v Poulos (2014) 87 NSWLR 394; [2014] NSWCA 211 (Eberstaller).

6. [30]

   These reasons for judgment concern only the preliminary question of whether this Court is competent to hear the application for leave to appeal, or whether, as submitted by Mr Li, the application must be heard in the Full Court of the FCFCOA.

Parties’ submissions

1. [31]

   At the outset of the hearing, Mr Condon SC, who appeared with Mr Gee for Ms Guan, indicated that his client did not press ground 1 of the Draft Notice of Appeal. That ground had been the principal focus of Mr Li’s jurisdictional attack in writing and, in submitting that the primary judge should have held that s 90K(3) of the Family Law Act did not empower the FCFCOA to set aside the Settlement Deed (see [26] above), it is plain that serious questions arose as to whether that ground constituted a matter for determination in the appeal proceedings which arose under the Family Law Act.

2. [32]

   Mr Reynolds, who appeared for Mr Li, contended that the jurisdictional consequences of Ms Guan having formulated and included ground 1 in her Draft Notice of Appeal were fatal and could not be cured by its abandonment subsequent to the institution of the appeal proceedings. Mr Reynolds emphasised that the appeal proceedings should be taken to have been instituted by the filing of the Summons for Leave to Appeal, citing in support of this contention, this Court’s decision in Bramco Electronics Pty Ltd v ATF Mining Electrics Pty Ltd (2013) 86 NSWLR 115; [2013] NSWCA 392 at [49] (Bramco). That decision is undoubtedly authority for the proposition for which it was cited.

3. [33]

   A logical difficulty arises. If s 7(5) of the Cross-Vesting Act is satisfied, the proceedings should never have been instituted in this Court. Plainly enough, however, they have been (as they had been in Bramco: see at [53]). It was in this context that I inquired of the parties whether the Court was not in the territory of s 7(7) of the Cross-Vesting Act which relevantly provides that where the Court of Appeal “commences to hear a proceeding by way of an appeal”, and before the Court determines the proceeding, it appears to the Court that the proceeding is a proceeding to which subsection (5) applies,

4. [34]

   Both parties, however, insisted that the relevant statutory provision was s 7(5), relying upon the difference between the institution of proceedings and the Court having commenced to hear proceedings. Their joint contention was that debate as to the competency of the application for leave to appeal did not mean that the Court had commenced to hear “a proceeding by way of an appeal” (notwithstanding the breadth of what is comprehended to be involved in the institution of the appeal). This fine distinction accords with the approach taken by the Court in Grace v Grace (2014) 85 NSWLR 688; [2014] NSWCA 86 (Grace) at [25] and in Eberstaller at [28], [32].

5. [35]

   Mr Reynolds ultimately accepted that if, by reason of the inclusion of ground 1 of the Draft Notice of Appeal, this Court lacked jurisdiction to entertain any aspect of the application, it would be open to Ms Guan to file a fresh summons for leave to appeal omitting ground 1 from the Draft Notice of Appeal. Mr Reynolds accepted that his client could not claim to be prejudiced by that course, if it were followed. This concession was consistent with s 56(3) of the Civil Procedure Act 2005 (NSW).

6. [36]

   With the possible exception of costs, therefore, nothing ultimately would turn upon Mr Condon’s abandonment of ground 1 of the Draft Notice of Appeal although procedural orders will need to be made to reflect the point raised by Mr Reynolds in [32] above. These are dealt with below.

7. [37]

   Because, however, Mr Reynolds contended that the matters raised in appeal grounds 2(a) and (b) and 6(a) were also matters that would bring the proceedings within s 7(5) of the Cross-Vesting Act, it is convenient to deal with his contentions in that regard as if the Draft Notice of Appeal never contained ground 1.

Consideration

1. [38]

   The issue for the Court’s consideration therefore reduced to one of whether grounds 2(a), 2(b) and 6(a) of the Draft Notice of Appeal raised matters for determination in the appeal which arose under the Family Law Act. The first two of those grounds related to whether the primary judge had erred in not taking into account whether Mr Li had established an arguable case to set aside the Settlement Deed pursuant to s 90K(3) of the Family Law Act and the third of the grounds went directly to the strength of any such case.

2. [39]

   Mr Reynolds’ short contention was that these matters which fell for determination were matters which arose under the Family Law Act.

3. [40]

   I do not agree. Just because a matter may involve or relate to a particular statute, does not mean that it arises under that statute.

4. [41]

   Consideration of the concept of when a matter arising under a particular enactment in the context of s 7(5) of the Cross-Vesting Act has been considered by this Court on numerous occasions. It is necessary to look at all the issues arising on appeal, before they are determined; if one of them is a matter arising under a specified federal enactment, the section applies: Boensch (as trustee of the Boensch Trust) v Pascoe (2016) 349 ALR 193; [2016] NSWCA 191 at [18] per Leeming JA (Boensch). The analysis necessarily turns upon the nature of the appellant’s claims in the appeal: Boensch at [20].

5. [42]

   In Bramco, Meagher JA held (at [5]) that the expression “arising under” in s 7(5) of the Cross-Vesting Act is to be given the same meaning as it has in Chapter III of the Constitution; see also Grace at [16].

6. [43]

   In Karlsson v Griffith University (2020) 103 NSWLR 131; [2020] NSWCA 176, Payne and White JJA considered whether a claim was one arising under the Trade Marks Act 1995 (Cth). Their Honours observed that s 7 of the Cross-Vesting Act presupposed that an appeal may contain a number of matters for determination and operates if any matter that falls for determination in the appeal is one that may be said to arise under a specified enactment: at [10].

7. [44]

   In R v Commonwealth Court of Conciliation and Arbitration; Ex parte Barrett (1945) 70 CLR 141 at 154; [1945] HCA 50, Latham CJ famously observed of the words “arising under” in s 76(ii) of the Constitution that:

8. [45]

   In CGU Insurance Limited v Blakeley (2016) 259 CLR 339; [2016] HCA 2 at [29], the plurality elaborated on this observation, stating that:

9. [46]

   Particular emphasis was placed by Mr Condon on the decisions of the High Court in Anderson v Eric Anderson Radio & TV Pty Ltd (1965) 114 CLR 20 at 45; [1965] HCA 61 (Anderson) and Felton v Mulligan (1971) 124 CLR 367; [1972] HCA 39 (Felton) which emphasised the distinction between a matter arising under an enactment and a matter involving its interpretation.

10. [47]

    In Anderson, Windeyer J rejected the contention that a State court was exercising federal jurisdiction when it entertained a claim in tort which had occurred in the Australian Capital Territory. (This was at a time when the choice of law rule for torts for the purposes of conflict of laws in Australia was governed by the double-actionability rule associated with Phillips v Eyre (1870) LR 6 QB 1; now see John Pfeiffer Pty Limited v Rogerson (2000) 203 CLR 503; [2000] HCA 36.) Windeyer J said (at 45):

11. [48]

    In the same case, Taylor J said at 37 that the plaintiff sued to enforce a right given him by the law of New South Wales before going on to say that:

12. [49]

    In Felton at 388, Windeyer J referred to his earlier observations in Anderson and also cited the observations of Cardozo J in Gully, State Tax Collector for Mississippi v First National Bank in Meridian (1936) 299 US 109 that “[n]ot every question of federal law emerging in a suit is proof that a federal law is the basis of the suit” and that it is not so if “[t]he most one can say is that a question of federal law is lurking in the background”. His Honour went on (at 388-9) to observe that:

13. [50]

    Menzies J in the same case observed at 382 that “a matter may arise under a law made by the Parliament in a proceeding which does not arise under that law”, citing Collins v Charles Marshall Pty Ltd (1955) 92 CLR 529 at 537; [1955] HCA 44. His Honour had also observed (at 382) that:

14. [51]

    What is involved is essentially an exercise in characterisation of the particular matter falling for determination in an appeal and whether or not that matter arises under the Family Law Act.

15. [52]

    The matters for determination in the proposed appeal are identified in the Draft Notice of Appeal. Putting to one side the abandoned ground 1, it is not necessary for a court disposing of this application, or of the proposed appeal, to determine the existence of Mr Li’s right to seek an order under s 90K(3) of the Family Law Act, nor is that Act the direct source of any defence by Ms Guan to the freezing orders made in favour of Mr Li. The remaining impugned appeal grounds do not require the determination of a right or duty owing its existence to the Family Law Act, or which depends on that Act for its enforcement, even if and to the extent that they may involve some interpretation of s 90K of the Family Law Act.

16. [53]

    In this context, grounds 2(a) and 2(b) assert only that the primary judge erred in failing to take into account the viability and strength of Mr Li’s case in the FCFCOA. These grounds, in effect, would require this Court to do no more than determine whether these matters were mandatory relevant considerations for the primary judge in determining whether to make a freezing order, whether his Honour did, in fact, take those considerations into account and, if he did not, whether this caused his discretion to miscarry in granting the freezing orders. It is strongly to be doubted that these questions even give rise to matters concerning the interpretation of s 90K of the Family Law Act.

17. [54]

    In short, it cannot be said that the questions raised by appeal grounds 2(a) and 2(b), namely whether the primary judge erred by not taking into account whether Mr Li had established an arguable case for relief under s 90K(3) of the Family Law Act, or the strength of that case, were matters for determination which “arose under” that Act.

18. [55]

    Ground 6(a) goes somewhat further, asserting that the primary judge “ought to have held” that Mr Li’s case to set aside the Settlement Deed in the FCFCOA was not arguable or weak. In disposing of this ground, it may be accepted that it would be necessary to form a view about whether the interpretation of s 90K(3) sought by Mr Li in the FCFCOA was reasonably open (as did the primary judge in the passage extracted above at [21]). However, to do so is not to determine a matter arising under s 90K(3) of the Family Law Act. The exercise to be undertaken by the Court would merely involve an assessment of the strength of an argument founded in a federal law, as a step in determining the availability of a remedy created by and referable only to the laws of New South Wales.

19. [56]

    In this respect, the process of reasoning required of the Court by ground 6(a) arguably has a weaker nexus to a federal law than that considered in Anderson. In that case, as I have explained, the District Court was held not to be exercising federal jurisdiction when forming a view about whether certain conduct was wrongful under the laws of the Australian Capital Territory, in the course of determining a cause of action under New South Wales law. Here, in order to dispose of ground 6(a), this Court would not be required to determine that certain conduct did or did not engage the provisions of a federal Act, but merely whether an action founded in federal law was arguable.

20. [57]

    Neither the primary judge nor this Court determined or will determine any matter under the Family Law Act. The primary judge expressly did not do so (see [20] above) and this Court will not do so, even if it were to find that the primary judge should have assessed the strength of Mr Li’s case under the Family Law Act as not arguable or weak. That does not involve determining Mr Li’s pending application to the FCFCOA, nor was Mr Li seeking to vindicate any rights he may have under s 90K(3) by applying for the freezing and asset-preservation relief which he obtained from the primary judge and is seeking to uphold in this Court.

21. [58]

    What Mr Li is seeking is the preservation of the status quo pending the determination of a right under s 90K(3) of the Family Law Act in the FCFCOA, and he is doing this in pursuance of his statutory right under UCPR r 25.14(5) and common law rights consistent with the decision in Cardile v LED Builders Pty Ltd (1999) 198 CLR 380; [1999] HCA 18 to restrain an abuse of process.

22. [59]

    It is important to emphasise that the strength of any claim under the Family Law Act could only be relevant to a discretionary consideration whether or not to grant the freezing order sought. The question of the strength of that claim was not in any sense jurisdictional. In this respect, the matter may be contrasted to an application for a freezing order made in anticipation of a judgment being entered where the strength of the prospective claim which may lead to a judgment must be taken into account: see UCPR r 25.14(3) and cf PT Bayan Resources TBK v BCBC Singapore Pte Ltd (2015) 258 CLR 1; [2015] HCA 36.

23. [60]

    The present case may also be readily distinguished from the facts of Boensch, in which Leeming JA found that this Court had no jurisdiction to entertain an appeal against a decision dismissing the applicant’s claim that his former trustee in bankruptcy had lodged or maintained a caveat over certain property without reasonable cause. There, the interest in property sought to be protected by the caveat was said to exist pursuant to s 58(1)(a) of the Bankruptcy Act. On appeal, the applicant contended, inter alia, that the primary judge erred in finding that the trustee had a caveatable interest pursuant to s 58 of the Bankruptcy Act: see at [8]. Clearly, in order to dispose of that appeal, it would have been necessary for the Court of Appeal to determine the existence of a right having its source in the Bankruptcy Act (which is also listed in the Schedule to the Cross-Vesting Act).

Conclusion and orders

1. [61]

   On the footing which I consider to be correct, and as Mr Reynolds submitted, that the abandoned ground 1 of the Draft Notice of Appeal raised a matter for determination in the appeal that arose under the Family Law Act and thus meant that this Court had no jurisdiction, the appropriate course is for the Summons for Leave to Appeal to be dismissed, for Ms Guan to be given leave to file within 7 days a fresh application for leave to appeal coupled with a draft Notice of Appeal omitting ground 1, and for Ms Guan to pay costs thrown away by the making of any fresh application for leave to appeal. Given the late abandonment of ground 1, those costs should include the costs of the hearing on 26 August 2022.

2. [62]

   In the event that a new Summons is filed with a Draft Notice of Appeal identical to that previously filed but which does not contain ground 1, it follows from the above reasons that any challenge to the competency of such proceedings would be unsuccessful.

3. [63]

   WARD P: I agree with Bell CJ.

4. [64]

   MEAGHER JA: I agree with Bell CJ.