What is the impact of a failure to disclose an asset or a debt when filing a consent order?
When a client reaches an agreeme
nt with their former partner about the division of their property, we make it our first point to say congratulations as it means they can finally draw a line in the sand and start to move on with their life.
As part and parcel with that agreement, you and your former partner must ensure you have provided full disclosure to each other of your assets, liabilities and superannuation, no matter when acquired. To learn more about your Duty of Disclosure, check out or article on this topic.
But what if you and/or your ex partner fail to disclose an asset or a debt in the consent order that is relevant and significant to the outcome of the matter?
In these circumstances it is possible for the agreement to be varied or set aside so that the disadvantaged party can re-open all or part of the property settlement, pursuant to section 79A Family Law Act 1975.
But what if both parties are conscious of the suppression of evidence of a debt in their application for consent orders such that arguably neither party is disadvantaged directly in the consent orders being made and neither party wants the consent orders set aside?
Beware, whether you or your ex partner hides a relevant fact, asset or debt, in appropriate circumstances, even where you have no knowledge of the failure to disclose, you could find yourself in the same position as the parties in the matter of Trustee of the Bankrupt Estate of Hicks & Hicks and Anor [2018] FamCAFC 37 or the case of Cantrell & North and Anor [2020} FamCAFC 175 where on both occasions, the consent orders were set aside, due to the consent orders being obtained based on false information for the purpose of defeating creditors.
Read on to find out what the parties did in both cases to derail their own consent order agreements.
Case Study 1: Failure to Disclose 606K debt to creditor in application for consent orders
In Trustee of the Bankrupt Estate of Hicks & Kicks and Anor [2018] FamCAFC 37 the majority of the Family Court allowed an appeal by the Trustee in Bankruptcy against a decision of the Primary Judge to dismiss an application by the Trustee in Bankruptcy to set aside consent orders made by Mr and Mrs Hicks.
The trustee argued at trial that the consent orders should be set aside as the parties had entered into the consent orders with the intention to defeat a creditor by applying for those orders without divulging to the Court in the consent orders that “Mr S” was suing Mr Hicks for $606,000 (judgment was entered against him a week after the orders were made) or notifying Mr S of the orders they proposed.
At first instance, Mrs Hicks conceded that there was a miscarriage of justice but she persuaded the Court not to set aside the consent orders.. The Trial Judge found that Mrs Hicks had no involvement in Mr Hicks debt to Mr S, the debt was not incurred for a matrimonial objective and the trustee of bankruptcy would find itself in no better position if the order were set aside.
The Court of Appeal however found that the Trial Judge had not taken into account the likely outcome of the property settlement proceedings if the orders were set aside. It was further held that the debt of $606K was incurred during the marriage and the projects which were linked to the loan (for which the judgement debt of 606K became payable) were intended to benefit the marriage relationship.
In conclusion, Justice Murphy stated:
“ . . . It would in my view be . . . a highly exceptional case for a conscious abuse of the court’s process – in effect a fraud on the court – to not result in orders being set aside . . .”
Case Study 2: Failure to disclose $381K debt to creditor in application for consent orders
In Cantrell & North and Anor [2020} FamCAFC 175, the Full Court heard a case where a couple had entered into consent orders and transferred the former matrimonial home to the Wife.
The Supreme Court of New South Wales later declared that the transfer was void against a creditor of the husband pursuant to section 37A of the Conveyancing Act 1919 (NSW) and set aside the order pursuant to s79A.
The Wife appealed the decision of the Court to set aside the consent orders. At the date of the appeal, the creditor was owed $381,000 plus interest, primarily made up of costs orders against the husband in commercial litigation. The effect of the consent order was to leave the husband without property in Australia, while the Wife would retain the matrimonial home in which she had lived for 20 years. In the original application for consent orders, the parties “wrongly and misleadingly answered ‘No’ as to whether there were any creditors entitled to become a party to the case [36].
The Supreme Court had by this stage appointed a receiver to sell the home. The Wife said based on her homemaking and family welfare contributions, that the Supreme Court had erred in setting the orders aside as it had not considered whether substantially different orders would have been made, had there been proper disclosure.
The Full court said (from [58]):
“ … [W]e do not accept that where there has been a failure to disclose to the Court the existence of a significant creditor who was entitled to join the proceedings, the Court must proceed to consider what final property settlement orders would have been made under s 79 or s 90SM of the Act assuming proper disclosure and, whether the postulated orders would be substantially different to those that were made, in order to determine whether the orders should be set aside. This is because the creditor has been deprived of his, her or its right to intervene in the proceedings and assert whatever rights they might have or take steps in other jurisdictions to enforce payment. In such circumstances, the proceedings are thereby tainted with procedural unfairness. The Court has also been misled and has made orders on a false basis which cannot be permitted to stand.
[59] Whilst it is ultimately a matter for determination on the facts in each particular matter, where consent orders have been obtained from the Court on the basis of false information for the purpose of defeating creditors, in most circumstances, this will be sufficient to justify an order varying or setting aside the order under s 79A of the Act.
( … )
[61] We accept, of course, that there is abundant authority that supports the wife’s contention that in many cases of non-disclosure, the Court should consider what effect the non-disclosure had on the orders, but they are cases involving non-disclosure inter partes and not the deliberate failure to identify a person entitled to become a party when asking the Court to make consent orders. …
( … )
[72] The Full Court in Biltoft and Biltoft [1995] FamCAFC 45 … (‘Biltoft’) said:
‘4. There is an obligation on both parties to disclose any significant creditors or any significant claim against them by a third party. If, as a result of the order of the Court in the property proceedings, the ability of a creditor or claimant to recover his or her debt or claim is likely to be affected, notice of the Family Court proceedings must be given to that creditor or claimant. He/she may then intervene in the Family Court proceedings and either seek a stay of those proceedings or some appropriate order which recognises his/her rights.
(Emphasis added)’
[73] The word ‘affected’ used in Biltoft has a wide meaning and goes further than the ultimate recovery of debt … and includes, for example, the ease with which the debt might be recovered and the consequential issues of cost, delay and uncertainty.
( … )
[76] … [A] significant creditor or claimant must be given notice of the property settlement proceedings so that the creditor or claimant may exercise the rights that they have, which includes the right to intervene in the proceedings so as to avoid the impact that those proceedings might otherwise have upon them. A creditor or claimant entitled to become a party under s 79(10) of the Act loses that right if the creditor or claimant is not given notice of the proceedings. Such proceedings include, of course, an Application for Consent Orders.
( … )
[78] It is now well established that procedural unfairness strikes at ‘the validity and acceptability of the trial’ in the same manner that a finding of apprehended bias does and that the remedy for this is a retrial (Royal Guardian Mortgage Management Pty Ltd v Nguyen [2016] NSWCA 88; … ). Consistently, where a creditor has been denied procedural fairness because they have not been notified of the proceedings and where the debt has not been disclosed to the Court, thus affecting the right to recover it, the process leading to the consent orders being made is similarly invalid and unacceptable.
[79] The wife’s submission, however, is that the Court should only act under s 79A(1)(a) of the Act if it is satisfied that the orders that should have been made, assuming proper disclosure, were substantially different to those that were made.
[80] We do not agree. The Court should not readily be the vehicle by which the legitimate rights of third party creditors should be defeated or delayed. Such creditors are likely to have little knowledge of the parties’ matrimonial affairs and are not in a position easily to demonstrate what orders would be just and equitable as between the parties to a marriage or de facto relationship, taking into account the debt owed to the creditor. It is unreasonable to impose such a burden on them.
( … )
[83] The final [s 79A(1)(a)] step [as to assessing a miscarriage of justice] may involve a comparison between the orders that were made and those that were likely to be made, absent any relevant default, but that is not the only means by which a Court could be satisfied that it was just to vary or set aside the orders. A denial of procedural fairness of the kind just discussed is, in our view, sufficient to be able to justify such a course without such comparison, because the failure to disclose and notify the creditor is a circumstance leading to a miscarriage of justice which, of itself, justifies the setting aside of the orders.
[84] This is not to say that every failure to disclose and notify a creditor, in any sum whatsoever, must lead to the setting aside of consent orders. Not every denial of procedural fairness leads to a new trial …”
What have we learned?
When parties approach the court seeking that consent orders be made:
- When filing the application for consent orders, there is an obligation on both parties to disclose any significant creditors or any significant claim against them by a third party
- A significant creditor or claimant must be given notice of the property settlement proceedings so that the creditor or claimant may exercise the rights that they have, which includes the right to intervene in the proceedings so as to avoid the impact that those proceedings might otherwise have upon them (this is known as procedural fairness);
- The test for determining whether notice of the creditor is required to the court is – if, as a result of the order of the Court in the property proceedings, the ability of a creditor or claimant to recover his or her debt or claim is likely to be affected, notice of the Federal Circuit & Family Court proceedings must be given to that creditor or claimant. The creditor may then intervene in the Family Court proceedings and either seek a stay of those proceedings or some appropriate order which recognises his/her rights;
- Failure to disclose a debt in a consent order that is relevant and significant to the outcome of your matter, the effect of which is to deprive the third party creditor of his or her right to intervene in the proceedings and assert whatever rights they might have or take steps in other jurisdictions to enforce payment, means the proceedings are tainted with procedural unfairness, the Court has been misled and the orders will be set aside.
Beware of any failure to disclose
If you have reached an agreement with your ex partner in relation to the division of your assets, it is important that you seek legal advice with respect to the nature of the agreement and the drafting of the agreement to ensure it ticks all the boxes and that there is no risk your agreement will later be set aside by your ex partner or a third party creditor.
Want more information?
Check out the Federal Circuit & Family Court fact sheet entitled Duty of Disclosure.
We also have a helpful article which answers all your questions on your Duty to disclose to your former partner.
Contact us
Contact us today to book in a reduced rate initial consultation with one of our experienced Brisbane Family Lawyers and you will receive information about your duty of disclosure, your rights and entitlements as well as practical and strategic advice as to the steps you need to take to achieve the best practical outcome.
