The Full Court of the Family Court sheds more light on Stanford and the 4 step process

The High Court decision in Stanford[i] makes it clear the requirement for the court to determine whether it is “just and equitable”[ii] to make a matrimonial property adjustment order is a “precondition” to exercising the power conferred by section 79(4).[iii]

Arguably this should be obvious from a perusal of the section. Section 79(2) reads:

“The court shall not make an order under this section unless it is satisfied that, in all the circumstances, it is just and equitable to make the order” (my emphasis)

As was pointed out by Professor Parkinson in his article “Family Property Law and the Three Fundamental Propositions in Stanford and Stanford”, the notion of Section 79(2) being a positive requirement rather than a restraint on the power is not new, and similar comments had been made in high profile decisions over the years including in Mallet v Mallet.[iv]

The difficulty for lawyers with the idea of the “justice and equity” requirement being considered first is that a long line of decisions notably set out in Hickey and Hickey[v] made it clear the preferred approach to exercise of the discretion in section 79 followed 4 steps, the last step of which was the “justice and equity” step:

“The case law reveals that there is a preferred approach to the determination of an application brought pursuant to the provisions of s.79. That approach involves four inter-related steps. Firstly, the Court should make findings as to the identity and value of the property, liabilities and financial resources of the parties … Secondly, the Court should identify and assess the contributions of the parties …Thirdly, the Court should identify and assess the relevant matters referred to in… s.75(2)…Fourthly, the Court should consider the effect of those findings and determination and resolve what order is just and equitable in all the circumstances of the case.”[vi] (My emphasis)

To add to the confusion, Stanford sets out how the justice and equity statutory precondition ought to be satisfied by having regard to “3 fundamental propositions” which in some respects resemble the 4 step process. The three fundamental propositions are:

1. Begin by considering whether it is just and equitable by identifying according to common law and equitable principles the existing interests of the parties;
2. The exercise of discretionary power pursuant to section 79 must be exercised according to legal principles and not in an unguided manner. The judge exercising the power is not entitled to do “palm tree justice”;
3. The court can not begin from the starting point of assuming any adjustment of proprietary interests is necessary. A determination that a party has a right to a property adjustment only fixed by reference to the matters in section 79(4) and without separate consideration of section 79(2) would erroneously conflate what are distinct statutory requirements.[vii]

So what of Hickey and the 4 step process?

Fortunately for those of us in the trenches wondering whether we still ought to be explaining the four step process to our clients, the Full Court of the Family Court has come to the rescue with Bevan & Bevan [2013] FamCAFC 116 delivered 8 August 2013.

This decision examines Stanford and provides guidance as to how treating section 79(2) as a precondition may be reconciled with the 4 step process.

In Bevan the Full Court noted the High Court in Stanford had not disavowed (nor approved) the 4 step process[viii].

In examining the post Stanford approach to the preliminary justice and equity question, Bevan makes a number of important points. The Full Court said:

• It would be a “fundamental misunderstanding to read Stanford as suggesting the matters referred to in section 79(4) should be ignored” in determining the preliminary justice and equity question. While the Court recognised the warning in Stanford not to conflate the section 79(2) and section 79(4) issues, it was recognised in the majority of cases the justice and equity preliminary issue will be readily satisfied.[ix]

The second and third fundamental principles seem to invite an examination of section 79(4) with respect to the preliminary question, and add further resemblance to steps 2 and 3 of the 4 step process. It is submitted the reference to “legal principles” and not doing “palm tree justice” as well as not “beginning from the starting point of assuming any adjustment of proprietary interests is necessary” seem to be most appropriately grounded in section 79(4) i.e. an examination of contribution and section 75(2) matters.

The Full Court referred at 88 to a paper by Martin Bartfeld QC where he opined there was scope for considering section 79(4) matters in section 79(2).

Mr Bartfield QC says the contribution and section 75(2) factors must be treated as having 2 characteristics. Firstly, a discretionary characteristic used to identify those matters relevant to enliven the exercise of the discretion i.e. contributions over a long period may provide a basis for a finding it is just and equitable to make an order in accordance with the statutory precondition in Stanford. Secondly, an evaluative characteristic to measure, weigh or quantify the effect of the contribution or future factor (i.e. steps 2 and 3 of the 4 step process – assessment of contributions and future factors).

• At 87 the Court referred to the decision of Strauss J in Ferguson and Ferguson where His Honour said that section 79(2) “is directed to both the questions of whether an order should be made at all, and what order should be made, if one is made at all.”[x] Thus the Stanford precondition to determine whether an order should be made is not inconsistent with the fourth step in Hickey.

The Full Court said:

“We do not consider it helpful, and indeed it is misleading, to describe this separate enquiry as a threshold issue…the justice and equity requirement is therefore not a threshold issue, but rather one permeating the entire process.”[xi]

So what is the process?

It is submitted two separate exercises are required:

• Firstly to determine the justice and equity preliminary question in accordance with the 3 fundamental principles from Stanford (which requires an examination of section 79(4) from the perspective of whether it is just and equitable to make an order);
• Secondly, if the first question is answered in the affirmative, to follow the 4 steps referred to in Hickey culminating in again considering whether the orders proposed to be made are just and equitable. This is because the requirement to do justice and equity is not a threshold issue but rather one permeating the entire process.

In practice the first exercise will often rarely need to be conducted on other than a cursory level. The Court in Bevan[xii] referred to paragraph 42 of Stanford where it was acknowledged:

In many cases where an application is made for a property settlement order, the just and equitable requirement is readily satisfied by observing that, as the result of a choice made by one or both of the parties, the husband and wife are no longer living in a marital relationship. It will be just and equitable to make a property settlement order in such a case because there is not and will not thereafter be the common use of property by the husband and wife…Hence it will be just and equitable that the court make a property settlement order. What order, if any, should then be made is determined by applying s 79(4).

Thus in practice it is submitted unless the preliminary justice and equity question can be flagged by unusual factual circumstance (such as those in Stanford and Bevan) the preliminary question can be swiftly resolved in the mind of the lawyer; before moving on to provide the client with advice, usually following the 4 steps in Hickey as to a range of outcomes that would be just and equitable.

Most importantly it is submitted these decisions highlight the practice of not overlooking the importance of section 79(2) in favour of moving directly towards assessing a client’s case under section 79(4). Of this the Court said in Bevan:

“It appears to have been routinely assumed by litigants, certainly in recent times, that justice and equity requires the court to assess their claims by reference to section 79(4)…”[xiii]

It is also submitted this practice may have come about by only regarding justice and equity as the final step in the four step process, after a “result” had been determined.

In practice for the future the consequences of Stanford may be more far reaching than simply being alert to justice and equity issues in some matters. One consequence may be greater scrutiny of circumstances such as short marriages with no children, or where finances are kept separate, where previously some entitlement may have been assumed.