Third Parties in Property Disputes
Typically family court proceedings in a property matter involve two parties. However, the Family Law Act 1975 allows the court to join a third party to a proceeding and make orders that affect the rights of the third party.
Who can be a third party?
A third party can be:
- a company or trust that is directly related to the parties (such as a company that has both parties as directors)
- an unrelated entity (such as an entity with which the parties have a financial relationship e.g. a bank or superannuation fund)
- a person such as a parent, child, sibling or business partner of either party.
Why is a third party joined to proceedings?
Rule 6.01 of the Family Law Rules states: “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.”
There are many reasons a third party may be or want to be joined to proceedings, including:
- the orders sought need to be carried out by the third party;
- there has been a transaction designed to defeat a party’s claim; the third party needs to be restrained from an action (such as selling an asset) for the order sought to be effective;
- an order is sought against a third party to determine what is in the asset pool;
- the third party is a business partner, creditor or trustee in bankruptcy of a party;
- the third party claims ownership of an asset and wants it removed from the property pool;
- the third party’s rights will be affected by the order sought (such as debt recovery).
Part VIIIAA of the Act provides the court with the power to bind third parties to a proceeding. Under sections 90AE or 90AF, the court can make an order that is binding on a person or entity that is not a party to the relationship, but only if:
- it is reasonably necessary and appropriate;
- 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 is just and equitable in all the circumstances;
- the order takes into account:
- any taxation effect on all the parties;
- the social security effect on the parties to the relationship;
- the administrative costs for the third party;
- if the order concerns a debt, the capacity of the party to the relationship to repay a debt;
- the capacity of the third party to comply;
- any other matter raised by the third party after being afforded procedural fairness.
The court can make an order:
- for a creditor of the parties to substitute one party for both parties in relation to the debt;
- for a creditor or one party to substitute the other party, or both parties in relation to the debt;
- to the creditor of the parties that the parties be liable for a different proportion of the debt than before the order;
- to a company or company director to register a transfer of shares from one party to the other.
Part VIIIAA of the Act provides such power that any order made under this section overrides any Commonwealth, state or territory law, as well as any trust deed or written agreement. A third party, therefore, cannot breach any other laws by complying with an order made under this part.
Given the extremely wide power conferred by this part of the Act, the court aims to ensure the power is carefully controlled and confined to matters involving the division of property in a marriage or de facto relationship.
It is relatively simple to join a third party to proceedings. The third party is named as a respondent in an Initiating Application, or that application is amended to include the third party, or an application is made by the third party themselves.
However, a third party can oppose a joinder application if it believes the connection to the matter is tenuous, or if the application has been made for a nefarious purpose, such as “fishing” for information. A third party can seek an oppressive costs order against a party who joined it to the proceeding. The third party can also ask the court to exercise its discretion to not make an order that will affect it.
The timing of the joining of a third party is important. If a third party is joined too early, before all relevant material is presented, the joining may prove to be unnecessary and have costs implications. If a third party is joined too late, there may be a significant (and costly) delay.
For advice or representation in any legal matter, please contact Armstrong Legal.