Lin & Ruan (2021) FamCAFC 90

In the case of Lin & Ruan [2021] FamCAFC 90, the Full Court considered an appeal against orders made in July 2020.  The appeal was allowed with no order as to costs.

Although the parties owned their former family home, when the wife commenced proceedings, she joined the husband’s mother to the proceedings due to her proprietary interest in another residential property which the wife asserts is held on trust for the husband and is therefore property available for division between the spouses.  The husband and his mother hold the property as tenants in common with the husband owning 5% and his mother 95%. He asserts he holds his 5% beneficially for his mother.

The wife has sought orders for the sale of this jointly owned property and for the sale proceeds to be applied to discharge the mortgage over the property which she occupies with the parties’ son.

Those proceeds are to be used conditional upon the husband’s default of an obligation to do so from his own resources.

The wife, in her material, did not specifically identify any equitable cause of action nor any statutory power which might have been available under ss.90AE, 90AFF or 106B of the Act.

The husband was ordered to meet the mortgage payments over the family home, he fell into default.

Orders were made and the husband’s mother was restrained by injunction which overrode her proprietary interest from alienating or furthering encumbering the home she held 95% of the title to.

The interim hearing resulted in the orders made on 29 July 2020 which are the subject of this appeal.

Those orders required the conditional sale of the property owned by mother and son, and the use of the sale proceeds to defray the mortgage registered on the family home provided the husband failed to rectify the mortgage arrears.

The wife was also given the power to lodge an appeal over the property owned by mother and son.

Importantly, at paragraph 9, the Full Court said:

Nobody – not even the wife – applied for interim orders in those terms.”

The leave was granted, and the appeal was allowed.

The mother was joined as a necessary party and the wife’s former lawyers were also joined on an application by them to intervene under s.92 of the Act to advance their own claim against the spouse’s property to satisfy unpaid legal fees.

At paragraph 19, the Full Court said:

The appellant (the mother) enjoys 95 per cent legal ownership of the property and the primary judge was obliged to assume she holds the corresponding equitable interest in the property. The wife’s attempt to demonstrate otherwise in the pursuit of her application for final relief would have to wait until the trial. Although the wife alleges the appellant only holds her legal share of the property beneficially for the husband, at this point in time, that remains a bare assertion…”.

The primary judge was aware that there had to be a recognition of the appellant’s property rights.

At paragraph 23, the Full Court said:

Unfortunately, such caution was not then exercised.”

The primary judge produced a machinery provision to remedy the husband’s falling into arrears which involved the sale of the home he owned with his mother and then to use “at least the husband’s 5% legal entitlement to pay the outstanding mortgage costs”.

The husband only owned 5% but the appealed orders authorised the use of the entire net proceeds to rectify the husband’s default.

The primary judge did not identify the source of power to make the orders nor did that judge satisfy himself that the preconditions for its exercise were fulfilled.

In the absence of the regular exercise of statutory power, the primary judge could not “make an order impinging upon the appellant’s property rights”.

The primary judge called them machinery provision orders, but they had a substantive effect upon a third party, even if only in a conditional sense.

Orders were made to conditionally enforce an order requiring the husband to pay the family home’s mortgage.  They were “no made in the guise of warrant for enforcement or as attachment, sequestration, or receivership orders, which r 25B.11 of the FCC Rules envisages as being the only available forms of order to enforce an obligation to pay money pursuant to the power reposing in s 105 of the Act“.

The Full Court identified s 90AE and s 90AF as being “The only other conceivable sources of power“.

The Full Court said, the pre-conditions for the exercise of power under either of those provisions were not considered, let alone found to be fulfilled”.

There was no indication in the Reasons for Judgment as to the application of either of these sources of power.

The Full Court then considered the order permitting the wife to lodge a caveat.

At paragraph 41, the Full Court said:

Pursuant to Pt 7A of the Real Property Act 1900 (NSW), caveats may be registered on the title to land in which the caveator claims a legal or equitable estate or interest. But the wife claims no legal or equitable estate or interest in the property at all. She only asserts the husband’s equitable interest in the property exceeds his five per cent legal interest in it. Even if that proves to be true, the wife does not thereby derivatively enjoy some form of inchoate equitable interest in the property.“

At this point in time, the court expressed that her claim is speculative and depends upon a favourable exercise of discretion under Pt VIII of the Act to adjust the spouses’ then existing property interests.”

The primary judge was wrong to consider that the injunction made restraining the mother from alienating or encumbering the property incidentally invested the wife with a legal or equitable interest in the property.

The wife had no proprietary interest capable of supporting a caveat.

 The primary judge could have created a caveatable interest in the property for the wife, such as by way of an equitable charge to secure the husband’s payment of the existing spousal maintenance liability (s 80(1)(c) of the Act, but that was not done.” 

Although this was a decision of the Full Court, it is a judgment of Austin J who dealt with similar issues in the case of Sarto & Sarto.