Arnold & Arnold

Case [2021] FamCA 226

FAMILY COURT OF AUSTRALIA

Arnold & Arnold [2021] FamCA 226

File number(s): BRC 13282 of 2018
Judgment of: CAREW J
Date of judgment: 21 April 2021
Catchwords: FAMILY LAW – PROPERTY – PRACTICE AND PROCEDURE – Joinder – Where the wife joins the second and third respondent to property settlement proceedings through filing amended Initiating Application as named parties – Where the second and third respondents bring an application for disjoinder and dismissal of relief sought against them – Where it is argued that the test to be applied in the disjoinder application is analogous to summary dismissal – Where it is argued that the wife has no reasonable prospects of success against the second and third respondents are not necessary parties to proceedings – Where it is argued that wife has asserted no facts against the second and third respondents to justify joinder – Where it is argued that contractual rights of non-party shareholders may be adversely affected by joinder – Where it is found that the 2nd and 3rd respondents are not necessary and are to be removed from the substantive proceedings – Where parts of the wife’s application that are directed to the 2nd and 3rd respondents are dismissed.
Legislation:

Family Law Act 1975 (Cth)

Family Law Rules 2004 (Cth)

Cases cited:

A Bank v Coleiro (2011) 252 FLR 359

B Pty Ltd and Ors & K and Anor (2008) FLC 93-380

Friar & Friar [2011] FamCAFC 71

General Steel Industries Inc v Commissioner for Railways (N.S.W) (1964) 112 CLR 125

Hunt & Hunt (2006) 36 Fam LR 64

Kelly v Lomax and Anor (2013) 50 Fam LR 538

Lindon v The Commonwealth (No 2) (1996) 70 ALJR 541

Pelerman v Pelerman (2000) FLC 93-037

Wayne & Dillon (2008) 40 Fam LR 543

Number of paragraphs: 63
Date of hearing: 25 March 2021
Place: Brisbane
Counsel for the Applicant: Mr Looney QC
Solicitor for the Applicant: Page Provan Pty Ltd
Counsel for the First Respondent: Mr Kearney SC
Solicitor for the First Respondent: Phillips Family Law
Counsel for the Second and Third Respondent: Mr Drysdale
Solicitor for the Second and Third Respondent: HopgoodGanim Lawyers

ORDERS

BRC13282/2018
BETWEEN:

MS ARNOLD

Applicant
AND:

MR ARNOLD

First Respondent

B PTY LTD ACN …

Second Respondent

C PTY LTD ACN … AS TRUSTEE FOR THE C TRUST

Third Respondent

ORDER MADE BY:

CAREW J

DATE OF ORDER:

21 APRIL 2021

THE COURT ORDERS THAT:

1.The 2nd and 3rd respondents be removed as parties to the proceedings.

2.Paragraphs 13 to 16 of the amended Initiating Application filed on 25 September 2020 be dismissed.

3.All outstanding applications for interim relief be otherwise dismissed save as to costs.

4.In the event any party seeks costs and are unable to reach agreement in relation thereto, that party or those parties should file written submissions within 21 days of the date of this order and any written submissions in reply be filed within a further 14 days.

5.Any application for…

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Arnold & Arnold [2021] FamCA 226
Case
[2021] FamCA 226
Decision Date

CaseChat Overview and Summary

In *Arnold & Arnold*, the wife sought property settlement orders against the husband and joined two companies, B Pty Ltd (the second respondent) and E Pty Ltd (the third respondent), as parties to the proceedings. The second and third respondents applied for their disjoinder and dismissal from the substantive proceedings, arguing that the wife had no reasonable prospects of success against them and that they were not necessary parties. The wife opposed this application.

The central legal issue before the court was whether the second and third respondents should be removed as parties to the property settlement proceedings. This required the court to determine if the wife had asserted sufficient facts to justify their joinder and whether she had reasonable prospects of success against them, considering the potential impact on the contractual rights of non-party shareholders. The court approached this application by applying principles analogous to those governing summary dismissal.

Carew J reasoned that the wife's claim against the second and third respondents lacked reasonable prospects of success. The court found that there appeared to be a reasonable alternative to the orders sought against these companies, such as an order for the sale of the husband's shares in the event of default. Furthermore, the wife's interests could likely be protected by other means, and the costs associated with providing procedural fairness to the respondents and potentially other affected parties would be considerable. Consequently, the court concluded that the second and third respondents were not necessary parties to the proceedings.

The court ordered that the second and third respondents be removed as parties to the proceedings and dismissed paragraphs 13 to 16 of the wife's amended Initiating Application, which were directed at these respondents. All outstanding applications for interim relief were also dismissed, save for any applications relating to costs.

Orders

Orders of the court

THE COURT ORDERS THAT:

1. The 2nd and 3rd respondents be removed as parties to the proceedings.

2. Paragraphs 13 to 16 of the amended Initiating Application filed on 25 September 2020 be dismissed.

3. All outstanding applications for interim relief be otherwise dismissed save as to costs.

4. In the event any party seeks costs and are unable to reach agreement in relation thereto, that party or those parties should file written submissions within 21 days of the date of this order and any written submissions in reply be filed within a further 14 days.

5. Any application for costs be determined in chambers without the need for any appearance unless a party requests the listing of the matter for oral submissions within 7 days of the close of submissions.

NOTATION

6. With the deletion of paragraphs 13 to 16 of the amended Initiating Application the reference to “order 14” in paragraph 17 of the said Application should be struck out.

Note: The form of the order is subject to the entry in the Court’s records.

Note: This copy of the Court’s Reasons for judgment may be subject to review to remedy minor typographical or grammatical errors (r 17.02A(b) of the Family Law Rules 2004 (Cth)), or to record a variation to the order pursuant to 17.02 Family Law Rules 2004 (Cth).

IT IS NOTED that publication of this judgment by this Court under the pseudonym Arnold & Arnold has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).

Background

Background to the litigation

The application for disjoinder and dismissal is brought by the 2nd and 3rd respondents. The 1st respondent supports the application. The applicant in the substantive proceedings opposes the application. RELEVANT BACKGROUND The substantive proceedings were commenced by Ms Arnold (“the wife”) on 16 November 2018 and concern an application for a property settlement order against Mr Arnold (“the husband”) pursuant to s 79 of the Family Law Act 1975 (Cth) (“the Act”). The husband and wife married in 2003 and separated in 2017. The husband and wife divorced in 2019. They have two children, aged 15 and aged 14 respectively. The children live with their parents in an equal time arrangement. The wife is 54 years of age and employed as a health professional. The husband is 51 years of age and described in his financial statement as the managing director of D Pty Ltd. Both parties refer to the “Arnold Group” which comprises various entities and trusts. The most valuable assets relevant to the substantive property proceedings are held by the E Trust. While valuations are yet to be undertaken, the relevant property pool is estimated by the wife to be worth $13.2 million and by the husband to be worth $9.4 million. The wife’s estimate of the value of the E Trust includes the B Pty Ltd “Group” at $5,755,799 and the C Trust “Group” at $3,094,603. In her amended Initiating Application the wife seeks a distribution to herself of 60 percent of the property pool. The 2nd and 3rd respondents were joined to the proceedings on 25 September 2020 by the wife filing an amended Initiating Application pursuant to r 6.03(2) of the Rules and adding the 2nd and 3rd respondents as named parties. The amendment of the Initiating Application in this way was possible as the matter had not been allocated the first day before a Judge (see r 11.10 of the Rules). B Pty Ltd is the 2nd respondent and was established in or about 2002. The husband is one of three directors and the secretary of the 2nd respondent (the other directors being the husband’s sister and brother). E Pty Ltd as trustee for the E Trust holds 25.6 percent of the ordinary shares and one D class share in the 2nd respondent. There are four other shareholders. The husband is the sole director and secretary of E Pty Ltd and holds 91.07 percent of the shares while the wife holds the remaining 8.93 percent. E Pty Ltd was established in or about 2002. The E Trust is a discretionary trust of which the husband is the principal (holding power of appointment of the trustee) and primary beneficiary. The transfer of shares in B Pty Ltd is governed by its Constitution which relevantly provides:9.1 Transfer of shares by membersSubject to this Constitution any member may transfer all or any of his shares by instrument in writing in any usual or common form or in any other form which the directors may approve executed by both transferor and transferee, although the transferor shall remain the holder of the shares transferred until the transfer is approved by the directors.… 9.3 Restriction on transfer of sharesNo shares of the company may be transferred except in accordance with the succeeding sub-clauses of this clause 9. 9.4 Notice of intention to transferSubject to:9.4.1 any agreement obtained from all members of the company to dispense with this procedure; …a person desiring to transfer any shares, called "the transferor", shall give to the Board of Directors notice in writing of his intention to do so and he shall specify in that notice the number of shares which he intends to transfer and their price.9 .5 Notice from transferor authorises directorsThe receipt of the notice shall authorise the Board of Directors of the company as the transferor's agent to sell the shares as provided for in this Constitution and at a price not less than the price specified in the notice.9.6 Directors shall first offer shares to other membersIf the company has more than one shareholder, then on receipt of the notice, the directors shall offer the shares to the members other than the transferor at a price not less than the price specified in the notice and in proportion to the number of shares already held by those members and, if any of the members accept the offer of sale of the shares, then the transferor shall be bound on the tender of the payment of the price payable by the other member or members to transfer the shares to the member or members concerned.…9.10 Disposal of remaining sharesOnce the shares have been offered to all members in accordance with the above provisions and if there are any shares remaining the transferor may sell and transfer those shares to any person approved by the Board (which approval may not be unreasonably refused, but may be refused in the event of a sale or transfer for a price less than that contained in the notice).(emphasis added)

Evidence

Evidence Before The Court

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Decision

Reasons for decision

In this case, an order as sought by the wife may deprive third parties, namely shareholders and unit holders, of their contractual rights under the shareholders’ agreement. In this context, the wife was silent as to her intentions to be bound or otherwise by the shareholders’ agreement in the event shares were transferred to her. The rights affected would likely impact on the value of the shareholdings and would likely require valuation, as the acquisition of those rights cannot occur other than on just terms (s 90AK of the Act). The costs associated with providing procedural fairness to all third parties who may be affected by the order sought by the wife are likely to be considerable and add to the length of the trial. CONCLUSION In considering whether or not the 2nd and 3rd respondents should be removed as parties to the proceedings, I have adopted the principles analogous to a summary dismissal application. I conclude that on the evidence before the Court the wife’s claim against the 2nd and 3rd respondents has no reasonable prospects of success for the following reasons, in summary:(a)There appears to be a reasonable alternative to the order sought against the 2nd and 3rd respondents, namely an order for the sale of the husband’s shares in the event of default by him to pay a sum of money to the wife;(b)The wife’s interests in the meantime appear to be able to be appropriately protected by the restraints and security as proposed by her in her amended Initiating Application;(c)The costs associated with providing procedural fairness to the 2nd and 3rd respondents and possibly other parties affected by the order proposed by the wife are likely to be considerable and add to the length of the trial. Accordingly, I find that the 2nd and 3rd respondents are not necessary parties to the proceedings. It follows that those parts of the wife’s application directed to the 2nd and 3rd respondents should be dismissed.

Ratio Decidendi

Legal Principle Established

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