Arnold & Arnold
[2021] FamCA 226
•21 APRIL 2021
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 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).
REASONS FOR JUDGMENT
CAREW J
The questions for determination at this interim hearing are as follows:
(a)Are the 2nd and 3rd respondents ‘necessary’ parties to the proceedings, and if not, should they be removed as parties pursuant to r 6.04 of the Family Law Rules 2004 (“the Rules”)?
(b)Should paragraphs 13 to 17 (only in so far as paragraph 17 refers to ‘order 14’) of the amended Initiating Application filed on 25 September 2020 be dismissed?
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 members
Subject 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 shares
No 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 transfer
Subject 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 directors
The 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 members
If 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 shares
Once 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)
C Pty Ltd as trustee for the C Trust is the 3rd respondent. C Pty Ltd was established in or about 2006. The husband is one of four directors of C Pty Ltd (the other directors being his sister, brother and brother-in-law).
E Pty Ltd as trustee for the E Trust holds 32 percent of the ordinary shares in C Pty Ltd. There are three other shareholders.
The transfer of shares in C Pty Ltd is governed by its Constitution which relevantly provides:
11.1 Form of transfer
(a) A member may transfer all or any of the member’s shares only as provided in these Rules. Any transfer will be subject to this Constitution and the Law.
(b) A transfer of shares must be:
(i) in the form in Schedule 1 or in any other form that the directors approve:
(ii) signed by the transferor and the transferee; and
(iii) approved by the directors.
…
11.6 Directors may refuse to register transfer
The directors may refuse to register a transfer of shares without giving reasons unless the transfer is permitted under an agreement between all members of the Company.
…
15.1 Shares not to be sold
A member must not sell any interest in its shares to any person except under this Rule 15. …
…
15.3 Content and effect of Sale Notice
(a) A Sale Notice:
…
(iii) must contain detailed information on the proposed buyer to enable the Non-Selling Members to establish if the buyer is acceptable to them;
…
(vi) will be construed as an offer to transfer the Selling Member’s interest to any one or more of the Non-Selling Members in equal shares;
…
15.5 Transfer to third party
(a) If no member gives a notice under Rule 15.4 before the end of the Offer Period:
(i) the Selling Member may sell the shares to the buyer named in the Sale Notice;
…
…
15.8 If transferee unacceptable
If any Non-Selling Members give notice under Rule 15.4 that a proposed buyer is not acceptable, the Selling Member:
Must not sell the shares to the proposed buyer; and
The Selling Member may require the Non-Selling Members to purchase the shares on the terms in the Sale Notice.
This Rule 15.8 will not apply if any Non-Selling Member elects to buy the shares in the Sale Notice.
(emphasis added)
E Pty Ltd as trustee for the E Trust also holds 32 percent of the units in the C Trust.
The transfer of units in the C Trust is governed by the Trust Deed which relevantly provides:
8. Transfer of Units to unrelated parties
8.1 Except as provided in clause 6 and clause 7, no transfer of Units will be registered by the Trustee unless the procedure in this clause 8 is followed.
…
8.6 Offer to existing Unitholders
(a) Units specified in a Transfer Notice must first be offered by the Trustee to the remaining Unitholders …
8.7 Non-acceptance by Unitholders
(a) An offer to Unitholders … must state a period … within which a Unitholder must respond to the offer in writing. If a Unitholder fails to respond within the required time, then it shall be deemed to have been declined.
…
8.8 Surplus Units
Any units specified in a Transfer Notice which remain unsold … shall be offered by the Trustee to a person the trustee considers in its reasonable opinion is in the best interests of the trust and who is willing to acquire the Units at their fair value.
…
8.11 Sale of Units not allocated
(a) Subject to clause 8.11(b), if after 30 days from the date of the Transfer Notice the Trustee has not found a Unitholder or other person to acquire all or some of the Units pursuant to this clause 8, then the proposed transferor may, within a further 30 days, sell those Units to any person at a price no less than the fair value.
(b) The Trustee may refuse to register a transfer by the proposed purchaser made pursuant to this clause 8.11(a) if the Trustee suspects the purchaser has paid less than the fair value whether in cash or kind and whether directly or because of some form of rebate, discount or other reduction in the price.
(emphasis added)
Each of the husband, B Pty Ltd, C Pty Ltd, E Pty Ltd as trustee for the E Trust and other persons and entities, are parties to a Shareholders Agreement dated 20 December 2002 (“2002 Agreement”) (varied by Agreement dated 30 April 2003) which, among other things, makes provision for any dealings with respect to the shares in B Pty Ltd. Significantly, a person is not permitted to be registered as a shareholder unless that person has executed a Deed agreeing to be bound by the Shareholders Agreement (see clause 9.3 of the 2002 Agreement).
The order sought by the wife in the substantive proceedings against the 2nd and 3rd respondents is in the following terms:
13. In the event that the Husband does not comply with [paragraph] 8 of these orders then [paragraphs] 14 to 16 shall apply.
14. That the Husband as director of E Pty Ltd as trustee for the E Trust shall within seven days of the Payment Date do all things and sign all documents necessary to transfer to the Wife such percentage of the shares owned by the E Trust in B Pty Ltd and / or the units owned by the E Trust in C Trust (Unit Trust), at the election of the Wife, so that the Wife receives 60% of the net matrimonial pool determined at trial.
15. That the Husband, together with the Second Respondent shall do all things and sign all documents necessary to register the transfer of shares, transferred pursuant to [paragraph] 14.
16. That the Wife, Husband and Third Respondent do all things and sign all documents necessary to register the transfer of units, transferred pursuant to [paragraph] 14.
17. Pending satisfaction of [paragraph] 8 or [paragraph] 14 the Husband shall be restrained and an injunction issue restraining the Husband from selling, encumbering or disposing of the interest of the parties or either of them in the shares owned by the E Trust in B Pty. Ltd. and the units owned by the E Trust in C Trust (Unit Trust).
Paragraph 8 of the order sought against the husband (and referred to in the preceding paragraph) is in the following terms:
8. That the Husband shall do all things and sign all documents necessary to cause a fully franked distribution to be paid from the E Trust to the Wife so that the Wife receives 60% of the net matrimonial property to be determined at trial by way of payment of the entire sum by the payment date.
If the disjoinder application succeeds, it follows that the paragraphs in the wife’s amended Initiating Application that seek an order against the 2nd and 3rd respondents will be dismissed.
The 2nd and 3rd respondents take no issue with the orders sought by the wife against the husband that seek to protect her interests. The relevant parts of the order sought by the wife in her amended Initiating Application are in the following terms:
9. The Husband shall do all things and sign all documents necessary to enable the Wife to take a charge to secure the obligations of the Husband in Order 8 over the assets of the following companies:
(a) E Pty Ltd as trustee for the E Trust;
(b) F Pty Ltd as trustee for the F Trust.
10. Until the Husband makes the entire payment pursuant to Order 8 or Order 14 he shall be restrained from selling, encumbering or dealing with his shares in E Pty Ltd and he shall not resign as a director of the company except in accordance with these orders, and the Husband shall be restrained from causing the Trustee of the E Trust to make any distributions or to sell, encumber or deal with the assets of the trust except for the purposes of making payments to the Wife in compliance with these orders.
….
17. (as set out in paragraph [19] above)
DISJOINDER
Arguments for disjoinder
The 2nd and 3rd respondents submit that the test to be applied in the disjoinder application is analogous to summary dismissal.[1]
[1] Kelly v Lomax and Anor (2013) 50 Fam LR 538 at 547, [36] (“Kelly v Lomax”) noting the Full Court’s apparent approval of such an approach in B Pty Ltd and Ors & K and Anor (2008) FLC 93-380 at 82,802, [52].
The 2nd and 3rd respondents argue that on a plain reading of the order sought against them, the wife is seeking an enforcement or default order. It is argued that in those circumstances the 2nd and 3rd respondents cannot be considered ‘necessary parties’ as the term is intended in r 6.02 of the Rules.
Further, it is argued that there are no facts asserted against the 2nd and 3rd respondents to justify their joinder. Reliance is placed upon B Pty Ltd and Ors & K and Anor (“B & K”)[2] where the Full Court (Faulks DCJ, Coleman and Warnick JJ) in allowing an appeal by third parties concerning relief sought under Part VIIIAA of the Act and said at [52]:
52. We do not accept that it is proper to allow joinder of third parties merely upon the formulation of a paragraph in, or to be added to, an application, on the basis that at trial facts to support the application may be asserted and proved. Sufficient facts must be asserted to demonstrate that, if proved, the law arguably provides the relief sought.
[2] (2008) FLC 93-380 (“B & K”).
The 2nd and 3rd respondents submit that a Court would not make an order in the terms sought by the wife against them because the application has no reasonable prospects of success. It is argued that their involvement is particularly objectionable in circumstances where any order against the 2nd and 3rd respondents would only be enlivened if the husband fails to comply with an order made against him and in circumstances where there is no evidence of the husband “being recalcitrant, forecasting or intimating any intention to not comply with any order” that may be made against him in the s 79 property proceedings.
The 2nd and 3rd respondents argue that even if the husband did fail to comply with an order, the Court could order a sale of the husband’s shares and/or units which could be effected in accordance with the existing contractual rights of all interested parties including those who are not parties to the proceedings. In this context it is submitted by the 2nd and 3rd respondents that it is not just them who will be adversely ‘affected’ (see r 6.02 of the Rules) by the order sought by the wife but the shareholders and unit holders who are not parties to the proceedings. Such an order may have the effect of completely usurping the powers and contractual entitlements of the remaining shareholders/unit holders to exercise their pre-emptive rights and would “consign to them the wife as a shareholder of that entity in circumstances where she may wish to remain a shareholder indefinitely”. Further, such detriment is sought by the wife without “consideration”.
The 2nd and 3rd respondents note that no offer is made by the wife to cover their legal costs associated with their participation in the proceedings if, ultimately, their participation proves ‘unnecessary’ i.e. that the husband complies with obligations imposed upon him by court order.
The 2nd and 3rd respondents also observe that the companies, not the shareholders, have been joined as parties to the proceedings. The consequence for the shareholders and unit holders is that the assets of the companies and unit trust will be diminished by being engaged in this litigation.
At best, it is argued, the joinder of the 2nd and 3rd parties is premature.
As noted earlier, the husband supports the application made by the 2nd and 3rd respondents. The husband contends by his written submissions that the joinder of the 2nd and 3rd respondents will unnecessarily “elongate” the hearing of the proceedings and increase costs “without any justification for doing so”. The husband argues that the wife has failed to establish that the 2nd and 3rd respondents are ‘necessary parties’ within the meaning of r 6.02 of the Rules in circumstances where:
22.1 as framed, the relief directed to the other respondents only arises for consideration in the event of a relevant default by the husband from an uncertain condition precedent;
22.2 the condition precedent is one which the wife has not elected to define in a manner which permits any appreciation or consideration of the sufficiency (or otherwise) of the interests otherwise available to the husband and wife and which would permit any understanding of the necessity for the involvement of either of the other respondents; and,
22.3 the relief sought is, in truth, sought by way of enforcement of an uncertain order which has not as yet been entered by the Court and may never be.
Further, the husband argues that “the basis in fact and law for the relief sought by the wife is unclear at best”. Even if an order as sought by the wife against the 2nd and 3rd respondents were made, such an order “fail[s] to recognise the relevant provisions of … the … Shareholder Agreement, Deed and Constitutions”, and “fail[s] to address the rights and entitlements of each of the husband and other interested parties not sought to be joined to the proceedings” and has “no evident regard to the relevant provisions of Part VIIIAA of the Act, including section 90AE(3)” and “would, in the terms as sought, and could not be such as to effect a transfer of any of the relevant shares and/or units”.
It is submitted by the husband that relief under Part VIIIAA is not an independent source of power and is reliant upon s 79 for its efficacy. In the particular circumstances of this case, the husband submits that the provisions of Part VIIIAA are not available to the wife. Importantly, the wife does not state that she will sign a Deed agreeing to be bound by the Shareholders Agreement. In the absence of such evidence the Court would not or indeed could not, it is argued, make an order under Part VIIIAA.
With one exception, the husband submits, the order sought by the wife against the 2nd and 3rd respondents can properly be characterised as an enforcement provision. This is apparent by the wording in paragraph 13 of the proposed relief against the 2nd and 3rd respondents i.e. “[i]n the event the husband does not comply”, and in the wife’s written submissions where she acknowledges the purpose is to compel registration of shares and units “should such a need occur”, but only could occur in the event of default.
The husband argues that the wife’s written submissions do not engage with why the 2nd and 3rd respondents are necessary parties. “[T]hey’re clearly not unless something else occurs, and that’s on the wife’s own phraseology”. The word “necessary” must mean something more than “useful” or “expeditious”.[3] It is submitted by the husband that while it may be “useful” or “expeditious” in the event that something else occurs, these are not sufficient. There is also, it is argued, an alternative to joinder, which is in fact already included in the wife’s proposed orders at paragraph 17 of her amended Initiating Application (set out at [19] above) which seeks to restrain the husband from dealing with his shares or units pending compliance with the property order proposed by the wife.
[3] Wayne & Dillon (2008) 40 Fam LR 543 at 547, [18].
Further, the husband submits that nowhere in the wife’s written submissions or evidence does she articulate any legal or factual basis upon which could support the order against the 2nd and 3rd respondents e.g. the Court could not conclude that it would be just and equitable (see s 90AE(3)(d) of the Act) to make an order for the in specie transfer of shares or units to the detriment of third parties, some of whom are not parties to the proceedings, and in so doing, “override the terms of trust deeds and shareholders agreements”.
Finally, the husband submits that the order sought against the 2nd and 3rd respondents is not legally available because s 90AK of the Act prohibits the Court making an order in accordance with Part VIIIAA if the order would result in the acquisition of property from a person otherwise than on just terms and to do so would be invalid because of s 51(xxxi) of the Constitution. In this context, the husband argues that the costs of assessing the potential loss to the shareholders, if it be found that the 2nd and 3rd respondents are necessary parties, would be prohibitive (i.e. quantifying the just terms of the potential loss of value of the contractual rights that are sought to be affected), and unjustifiable in circumstances where the order sought against the 2nd and 3rd respondents may never come into operation.
Arguments against disjoinder
In circumstances where all parties agree that the appropriate approach in considering a disjoinder application is akin to a summary dismissal application, it is argued by the wife that her application is not “doomed to fail”.[4]
[4] Pelerman v Pelerman (2000) FLC 93-037 at 87,582, [46] (“Pelerman”).
The wife argues that the order sought against the 2nd and 3rd respondents is not akin to enforcement but rather it is a default order of a type commonly made by this Court e.g. for the sale of a property if payment is not made. The wife nevertheless concedes that default orders in property proceedings typically do not affect strangers to the marriage.
It is argued that the order sought as against the 2nd and 3rd respondents is “limited in scope and designed to compel the registration of the shares in B Pty Ltd and units in C Trust in the name of the wife should such a need occur”. Such a need would only occur if the husband was unable to meet his obligations under any s 79 order from his own resources including his ability to utilise his minority interests to raise finance.
The wife submits that the arguments of the husband and 2nd and 3rd respondents misconceive the concept of ‘necessary parties’. “Necessary here is … a necessary party to the orders that are being sought. … It’s not a question of whether the order per se is necessary or even if it’s the best order that might be made. It’s not about the question of whether the order itself is regarded as one that the court should or shouldn’t make, or … the court could or couldn’t make … It’s a question of whether or not we need to join those two third parties to effect the transfer of the shares … and units … and we say the … constitutions demonstrate that we have to join those parties because they otherwise wouldn’t be compelled to do the transfer that is being sought”. The concept of necessary should not be read down merely because the relief sought “might not be given effect to because it might be that the husband pays”. In short, the wife submits that there is “no warrant for reading ‘necessary’ to be necessary order … there’s no basis for asserting as part of the application that we have to meet a test to say that the order we seek is necessary”.
The wife concedes that there might be an alternative order that might be made i.e. the sale of the shares but contends that is “simply a hypothetical question” and “in the absence of either the husband raising money or, as has been suggested might be an alternative, the sale of this minority interest to some unknown third party, given all the restraints on sale, an alternative, and we say quite a reasonable alternative, is for the asset to be transferred – a portion of the asset to be transferred in specie”. The wife nevertheless concedes that the Court would “probably not” be able to be satisfied that it is just and equitable (see s 90AE(3)(d) of the Act) to make the order if there is a reasonable alternative. Despite this concession, the wife argues that what has to be found against her in the application to disjoin, is that “as things stand at the moment, is it the case that the prospects that we will satisfy [the Court] that it’s reasonable to transfer the assets in specie, being a minority interest, is not doomed to fail”.
The wife also submits that matters such as the 2nd and 3rd respondents’ costs in the proceedings are an irrelevant consideration to the disjoinder application.
DISCUSSION
I note that all parties agree that the principles applicable to a determination of a disjoinder application are analogous to those involving an application for summary dismissal. That seems to be a convenient approach in the circumstances of this case and one that has been adopted in other cases.[5]
[5] B & K (n 2) (at first instance and seemingly accepted by the Full Court); See also Kelly & Lomax (n 1).
However, in relation to the appropriate test to be applied in an application for summary dismissal, I note that since the Full Court decision in Pelerman[6] (as cited by the parties), the Rules have been amended by the inclusion of r 10.12 which provides a statutory test for summary dismissal. The rule provides as follows:
A party may apply for summary orders after a response has been filed in the party claims, in relation to the application or response, that:
(a)The court has no jurisdiction;
(b)The other party has no legal capacity to apply for the orders sought;
(c)It is frivolous, vexatious or an abuse of process; or
(d)There is no reasonable likelihood of success.
[6] (n 4).
While various terms have historically been used to identify the applicable test when determining an application for summary dismissal e.g. that the claim is “doomed to fail”[7], the statutory test is as set out above, and relevantly for present purposes: that there is no reasonable likelihood of success.[8]
[7] Lindon v The Commonwealth (No 2) (1996) 70 ALJR 541 at 545 (Kirby J) (“Lindon v The Commonwealth”).
[8] Friar & Friar [2011] FamCAFC 71 at [52].
The decision to summarily dismiss a claim should nevertheless be “sparingly employed”.[9] The overriding guiding principle remains “doing what is just”.[10]
[9] General Steel Industries Inc v Commissioner for Railways (N.S.W) (1964) 112 CLR 125 at 129 (Barwick CJ).
[10] Lindon v The Commonwealth (n 7).
Rule 6.02 of the Rules is introduced by the heading: “Necessary parties”. The rule itself provides as follows:
(1) 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 the case, must be included as a party to the case.
Example: If a party seeks an order of a kind mentioned in section 90AE or 90AF of the Act, a third party who will be bound by the order must be joined as a respondent to the case.
The wife relies upon s 90AE of the Act as providing the legal basis for the joinder of the third parties which relevantly empowers the Court to make an order directed to a company to register a transfer of shares from one party to the marriage to the other party. Section 90AE forms part of Part VIIIAA of the Act, the object of which is to “allow the court, in relation to the property of a party to a marriage, to … make an order under section 79 or 114 … that is directed to, or alters the rights, liabilities or property interests of a third party” (s 90AA).
In my view, and contrary to the submissions of the wife, when considering whether a party is “necessary”, it is relevant to consider whether or not the proposed order is “necessary”. To find otherwise, would suggest that as long as an order against a third party required something to be done, no matter how absurd, the party was “necessary”.
In B & K[11] a wife’s attempt to join third party respondents ultimately failed. That case involved property proceedings between a husband and wife. The wife sought orders against third parties (who were trustees of various discretionary trusts) purportedly pursuant to s 90AE(2) of the Act, requiring them to make a capital distribution in favour of the husband who was a discretionary beneficiary. Although the Full Court (Faulks DCJ, Coleman and Warnick JJ) found that the wife’s application against the third parties did not engage the powers conferred by s 90AE of the Act because she was seeking to increase the property of the parties to the marriage, rather than effect a division of existing property, the case nevertheless provides some guidance on what matters may be relevant when considering the joining or removal of third parties to proceedings. Although in a different context, the Full Court endorsed[12] remarks made by O’Ryan J in Hunt & Hunt[13] where his Honour said that Part VIIIAA was not intended to be some “arbitrary invasion of the rights of a third party but an alteration of those rights where they are sufficiently connected to the division of the property between the parties to a marriage”[14] and that “[t]he power and discretion of the Court is carefully controlled and confined”[15], such that the Court may only make an order where “the making of the order is reasonably necessary, or reasonably appropriate and adapted, to effect a division of property between the parties to the marriage”.[16] The Full Court also held that there needed to be a “factual sufficiency of the basis for the wife’s claim” [17] against the third parties at that stage of the proceedings i.e. when the wife sought to join them, and in so doing said from [51]:
51. Further in his final written submission to us, he said:
“20. The very provision s 90AE(3)(a) is one that can only be sensibly considered in light of all the facts presented after a trial. Unless your Honours can be satisfied by the Applicant on appeal that there are simply no factual circumstances conceivable under which it may be reasonably necessary or reasonably appropriate and adapted to make the Order sought in order to effect a division of property between the parties to the marriage then the application for leave in the appeal must fail. The application for leave comes after an interlocutory determination. No issues of fact have been determined.”
52. We do not accept that it is proper to allow joinder of third parties merely upon the formulation of a paragraph in, or to be added to, an application, on the basis that at trial facts to support the application may be asserted and proved. Sufficient facts must be asserted to demonstrate that, if proved, the law arguably provides the relief sought.
[11] (n 2).
[12] Ibid at 82,800, [40].
[13] (2006) 36 Fam LR 64 (“Hunt”).
[14] Ibid at 94, [113].
[15] Ibid at 95, [119].
[16] Ibid at 94, [114].
[17] B & K (n 2) at 82,802, [53].
In this context I note the submissions of the 2nd and 3rd respondents that there is no evidence, for instance, that the husband has been recalcitrant in any respect which might form the basis of some “forecasting or intimating any intention to not comply with any order”, which in turn might make the order sought by the wife necessary. The factual basis for the wife’s claim against the 2nd and 3rd respondents seems to rely entirely upon the act of registration of a transfer of shares being beyond the husband’s control.
In my view, it seems apparent from B & K, that the Full Court considered the s 90AE(3) matters (i.e. is the order “reasonably necessary, or reasonably appropriate and adapted” and “just and equitable”), to be relevant to the determination of whether or not the third parties were necessary parties.
Similarly, while the facts were very different, in A Bank v Coleiro,[18] (“Coleiro”) the Full Court (Finn, Strickland JJ with whom Bryant CJ agreed) appeared to endorse as relevant, whether the order against a third party was necessary. In that case a bank successfully appealed against an order joining it to the proceedings. It was held that the joinder was not necessary (at that time) as there were alternatives, other than joinder, available.
[18] (2011) 252 FLR 359 (“Coleiro”).
The approach by the Full Court in B & K and Coleiro appear to be an endorsement of the statement made by Warnick J in Wayne & Dillon[19] where his Honour said at [18]:
18. The word “necessary” … must mean something more than “useful” or “expeditious”. In my view, if there are available alternative means to joinder to the substantive proceedings, of obtaining from a third person or someone already a party what is needed to allow an applicant for joinder to establish an identified “case”, joinder is unlikely to be “necessary”.
[19] (n 3).
In the current case, the wife concedes that she cannot establish, at this time, that the order she seeks against the 2nd and 3rd respondents is reasonably necessary or reasonably appropriate to effect a division of the parties’ property. Indeed, the very order sought by the wife and her submissions resisting the disjoinder clearly contemplate that the order against the 2nd and 3rd respondents may not be necessary. The wife also concedes that the Court would “probably” not be able to be satisfied that it is just and equitable to make an order under s 90AE if there were a reasonable alternative, and it is accepted by her that there might be an alternative order i.e. for a sale of the shares.
In resisting the disjoinder, the wife does not engage with the existing mechanism in the relevant Constitutions and Trust Deed for the transfer of the shares and/or units which on their face are unlikely to see the interests controlled by the husband stranded, to the detriment of the wife. In this context I note that the Board of B Pty Ltd cannot unreasonably refuse a sale and transfer of shares in B Pty Ltd (see [12] above) and in relation to shares held in C Pty Ltd, a selling member may require the non-selling members to purchase shares on the terms in the sale notice (see [13] above). Finally, I note that the powers of the trustee of the C Trust to refuse a transfer of units to a proposed purchaser appears to be limited to circumstances where it is suspected the purchaser has paid less than the fair value (see [15] above).
In other words, the wife has failed to provide a “factual sufficiency of the basis for [her] claim”.[20]
[20] B & K (n 2) at 82,802, [53].
In addition to considering whether or not the order sought by the wife against the 2nd and 3rd respondents is “reasonably necessary, or reasonably appropriate and adapted”, it seems to me that it is also relevant to consider whether, “in all the circumstances, it is just and equitable to make the order” (s 90AE(3)(d)). In this context, the comments made by Warnick J in Wayne & Dillon[21] are instructive stating at [43]:
43. Of itself, the question of oppression and in particular exposure to the costs of litigation, even if recovery against the wife was unlikely, would not, in my view, likely lead to a finding of appealable error. However, the possible existence of such circumstances are part of the reason why something beyond nebulous claims is properly required before joinder is permitted. Those circumstances are also relevant to the question next considered, of whether leave to appeal should be granted, because the order for joinder may well work a substantial injustice.
[21] (n 3).
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.
I certify that the preceding sixty-three (63) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Carew. Associate:
Dated: 21 April 2021
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