Three's a crowd – when neutral, commercial third parties are pulled into family law cases

Lindsey Cregan, Dilip Ramaswamy
06 Sep 2023
Time to read: 4.5 minutes

Family Court litigation may soon become a due diligence focus area for unlisted corporate entities given the potential for such proceedings (for example, in which shareholders or senior executives are involved) to join outside third parties.

With rising property prices, complex business arrangements and asset pools, divorce rates and the introduction of the Major Complex Financial Proceedings List in 2021, it is perhaps not so surprising that the Federal Circuit and Family Court is increasingly dealing with complex property settlements. These have resulted in corporate or business-related third parties becoming increasingly involved in the resolution of these issues, and joined to property settlement proceedings. The potential cost, time and legal implications arising from joinder means that corporate entities may soon need to factor in the existence of, or potential for, Family Court proceedings when undertaking due diligence.

Drawing on our experience acting for third parties in Family Court proceedings, this article considers when these third parties can be brought into family law matters, their role, and gives some guidance to commercial parties on the receiving end of a joinder application.

Adding a third party to litigation: the rules of joinder

At general law, where a court is invited to make an order directly affecting the rights or liabilities of a non-party, it is necessary to join the non-party to the proceedings. However, the Family Law Act 1975 (Cth) and the Federal Circuit and Family Court of Australia (Family Law) Rules 2021 contemplate a different standard for joinder of third parties the subject of third-party property settlement orders.

The standard is that for a property settlement order to be made under section 79 of the Act against persons who are not party to the marriage, the following conditions must be met:

  1. the making of the order is reasonably necessary, or reasonably appropriated and adapted, to effect a division of property between the parties to the marriage;
  2. if the order concerns a debt, then it must not be foreseeable that the order being made would result in the debt not being paid in full;
  3. the third party must be accorded procedural fairness in relation to the making of the order;
  4. the court must be satisfied that, in all the circumstances, it is just and equitable to make the order; and
  5. the court must be satisfied that the order takes into account matters including any matters raised by a third party as a result of that party being afforded procedural fairness.

The concept of procedural fairness, while not defined in the Act, means giving a party a fair hearing in relation to a matter which may affect their rights or interests.

When will a court order joinder of a commercial third party?

In a Family Court proceeding, the Rules provide that a Court must join a third party if their rights are directly affected by an issue in a proceeding and their participation as a party is necessary for the Court to determine all issues in dispute in the proceeding. It is not sufficient that a third party satisfies one of the above conditions – both must be satisfied before the Court can order for the party to be joined. Examples of when a Court may require joinder of third parties to a property settlement proceeding include:

  • companies whose shares may represent the vast wealth of the property pool shared between the parties to the marriage;
  • a trustee in circumstances where a large portion of the asset pool is held within a trust; and
  • directors, trustees and/or executors of estates of a party's parent.

Despite appellate courts on several occasions rejecting the proposition that it is necessary for a third-party to be joined to proceedings in order to be subject to a section 79 order, there is competing case law as to whether joinder is the only logical way to afford procedural fairness to a third party, whose interests may be affected in the proceeding. These considerations are also likely to be determined by other factors including the nature of the orders sought against the third party (ie. whether they are machinery-type orders) and the level of involvement required from the third party – for example, whether the third party also hold documents and/or information which may be relevant to the proceeding may persuade a Court to join them to the proceeding.

A commercial third party's obligations

Case management issues will need to be addressed to ensure procedural fairness is accorded to third parties and for those newly joined parties to properly understand their obligations to the Court. These include, but are not limited to:

  • Service of documents – would the third party need to be served with all court materials and copied to all correspondence between the parties to the marriage even if they do not relate to the orders sought against the third party?
  • Disclosure – would the third party be subject to the typical disclosure obligations required from parties to a family court proceeding (i.e. a duty to disclose any document which is relevant to an issue in the proceeding)?
  • Court attendance – would the third party be required to attend all case management conferences, or the whole of the trial?

These issues (and others) should ideally be addressed before the Judge to ensure that a proper protocol is followed in the conduct of the proceeding.

Issues to consider when faced with a joinder application

The approach to the conduct of family law matters in the Federal Circuit and Family Law Court can be quite different to proceedings in the commercial courts.

Following our involvement in several complex joinder applications, some key considerations for parties which are the subject of joinder applications in the Federal Circuit and Family Court of Australia are:

Your role in the proceeding: If you are served with an application for joinder, you will also be served with the application which contains the substantive claim. You should carefully consider whether:

  • you agree with the orders that are sought against you, whether you would be able to comply with them, or whether those orders would directly impact your commercial interests or obligations;
  • you would propose any alternative orders; and
  • your participation is necessary to resolve an issue in the claim.

Confidentiality obligations: careful consideration should be given to any disclosures made as a result of being served with documents in a Family Court proceeding, and how to manage this while involved in that proceeding. This is because in proceedings governed by the Family Law Act 1975 (Cth), there are special confidentiality protections, including that only individuals with “a proper interest” in the proceeding are permitted to have access to the court record and it is an indictable offence, subject to certain exceptions, for a person to publish any information relating to a family law proceeding which could identify a party, or a person related to a party, or a witness to the proceeding.

Costs obligations: as a general rule, each party to family law proceedings shall bear the party's own costs (in our experience, this includes "neutral" third parties who have simply found themselves involved due to the nature of the relief sought by a party to the marriage). Parties will need to explain why an exemption to this general practice is justified in a given situation.

Disclosure obligations: The Family Court require parties to provide full and frank disclosure of any information in its possession or control which is relevant to a proceeding. This obligation extends to parties, other than the husband or wife, who have intervened as third parties in the proceeding. If a party fails to provide sufficient disclosure in a property proceeding, consequences such as contempt of court and costs orders against them may come into play.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.