We are increasingly seeing applications to join third parties in matrimonial and de facto property court proceedings.
This is because in 2004 Part VIIIAA was introduced to the Family Law Act, giving the Court powers to make orders and injunctions against third parties. A third party can be defined as a person or entity other than the two people in the intimate relationship.
Who can be a third party?
Third parties can be:
- a company or trust entity that is directly related to the parties (for example, a company of which they are both directors); or
- an unrelated entity (for example, where the parties have a financial relationship with the entity but are not an office holder of that entity); or
- an individual such as parents, children, siblings and business partners of either party to the relationship.
It is common for a long standing family business to play a leading part in the assets and financial resources of the relationship. This means elderly parents of a separated child can be drawn into court proceedings as the trustees or appointors of a family trust and/or directors and shareholders of a family company that their child worked for during the relationship.
Why is a third party joined to proceedings?
This can happen for a number of reasons, including:
- that the orders sought can only be carried out by the third party;
- a transaction occurred that was designed to defeat a spouse’s claim;
- the third party needs to be restrained from doing something (eg selling or encumbering an asset) for an order sought to be effective;
- an order or declaration is sought against a third party to determine what’s in the asset pool.
Before the introduction of Part VIIIAA in 2004, the Court could make orders altering the property interests of a party to the marriage, either as part of a property settlement or to protect property by way of an injunction. These new laws give the Court the power to make an order binding on individuals and entities not a party to the marriage under section S90AE or S90AF, but only if:
- it is reasonably necessary, reasonably appropriate or adapted to effect a division of property;
- if the order concerns a debt, it is not foreseeable at the time of making the order that the order would result in the debt not being paid in full;
- the third party has been afforded procedural fairness;
- the court is satisfied it’s just and equitable in all the circumstances;
- the court is satisfied that the order takes into account the following factors:
- the taxation effect on all the parties;
- the social security effect on the parties to the marriage;
- the administrative costs of the third party in relation to the order;
- the capacity of the party to the marriage to repay the debt after an order is made;
- the economic, legal or other capacity of the third party to comply with the order;
- any other matters raised by a third party after being accorded procedural fairness.
The power of Part VIIIAA of the Family Law Act is so vast that an order made under this section can override any other law of the Commonwealth, State or Territory, as well as override any trust deed or other written agreement. A third party cannot be deemed to be breaching any other law or agreement by complying with an issued order.
Given the significance of this power, the Court is careful not to be ‘trigger happy’. Judges go to great lengths to explain in their judgments that the power and discretion of the Court:
- is carefully controlled and confined;
- can only be used in relation to matrimonial and de facto causes;
- can only be used where they are sufficiently connected to the division of the property between the parties.
To join a third party to proceedings, naming the person or entity as a respondent in their Initiating Application, or amending their Initiating Application later requesting the third party be joined is sufficient. It is therefore relatively simple to bring another person or entity into a property dispute. However, a third party has the right to be heard as to whether they should be joined, if they believe their connection to the division of property is tenuous. They can also ask the Court to exercise their discretion not to make orders that will affect them.
To be successful in obtaining an order affecting a third party, an applicant must prove that S90AE or S90AF should be invoked by showing that:
- there are matrimonial property proceedings under S79 of the Family Law Act or de facto property proceedings under S90SM of the Act.
- any requests relating to the alteration of a third party’s rights, liabilities or property interests and the thing or things the third party is directed to do are only in relation to the marriage or de facto relationship.
Further, Rule 6.01 of the Family Law Rules says,
“A person whose rights may be directly affected by an issue in a case, and whose participation as a party is necessary for the court to determine all issues in dispute in a case, must be included as a party to the case. ”
It is important to note that before joining a third party, consideration must be given to the costs that are likely to be incurred by third parties through their involvement. Their costs have to be compared against what might be gained financially by an application to include them. Put simply, the net gain must be significant because the third party can obtain an oppressive costs order against the applicant, should the applicant be unsuccessful in their action against the third party.