Federal Circuit and Family Court of Australia
(DIVISION 1)
Jordan & Sutton (No 2) [2022] FedCFamC1F 850
File number(s): SYC 6819 of 2018 Judgment of: HARPER J Date of judgment: 4 November 2022 Catchwords: FAMILY LAW – PRACTICE AND PROCEDURE – Joinder – Statutory interpretation – Rule 3.01 of the Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth) – Part VIIIAA of the Family Law Act1975 (Cth) (“the Act”) – Where wife seeks to join numerous third parties to property adjustment proceedings between husband and wife pursuant to r 3.03(4) – Where third parties are shareholders and noteholders under financing agreements of a global group of companies in which the husband has a controlling stake – Where shareholders and noteholders are numerous, geographically disperse and range from corporate financiers to individuals – Parent company is the Fourth Respondent – Wife seeks property adjustment orders which will affect the rights of shareholders and noteholders under Part VIIIAA and s 90AE of the Act – Wife’s proposed property adjustment orders involve a significant transfer of shares in parent company – Where the transfer of shares could result in a change of control or trigger default under financing agreements – Where husband, shareholders and noteholders resist joinder – Where majority of shareholders have given consent for the Fourth Respondent to appear and make representations on their behalf – Whether it is “necessary” to join third parties as parties to the proceedings – Finding made that the Fourth Respondent and shareholders’ rights and interests are aligned – Where it is appropriate for Fourth Respondent to represent majority of shareholders – Where it is unnecessary to join shareholders as parties to the proceedings – Finding that there is no single entity capable of representing noteholders’ interests – Court will likely require complex financial evidence at final hearing, possibly from noteholders – Finding made that it is necessary to join noteholders as parties to the proceedings –Where it is open to noteholders to determine the extent to which they choose to participate in proceedings as parties. Legislation: Family Law Act1975 (Cth) Pt VIIIA, ss 79, 90AA, 90AB, 90AC, 90AD, 90AE, 90AF
Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth) Pts 3.1, 3.2, rr 3.01, 3.03, 3.04, 3.05, 3.07
Family Law Rules2004 (Cth) r 6.02(1)
Cases cited: AC & VC (2013) FLC 93-540; [2013] FamCAFC 60
Arida v Arida [2015] NSWCA 170
Bergman and Bergman (No. 6) [2008] FamCA 710
Dovgan & Dovgan [2021] FamCA 306
In the matter Glenvine Pty Limited [2020] NSWSC 866
In the matter of ZH International Pty Ltd (in liquidation) (2022) 160 ACSR 473; [2022] NSWSC 2
John Alexander’s Clubs Pty Ltd v White City Tennis Club Ltd (2010) 241 CLR 1; [2010] HCA 19
Jordan & Sutton [2022] FedCFamC1F 553
Khalif & Khalif (No 2) [2021] FedCFamC1F 308
Minister for Immigration and Multicultural and Indigenous Affairs; Ex parte Lam (2003) 214 CLR 1; [2003] HCA 6
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- AGLC
- Jordan & Sutton (No 2) [2022] FedCFamC1F 850
- Case
- [2022] FedCFamC1F 850
- Decision Date
CaseChat Overview and Summary
In the case of Jordan & Sutton (No 2), the wife sought to join additional parties to the proceedings, including shareholders of F Limited and other companies, as well as noteholders, to ensure that the orders of the court were enforceable against them. The court was required to determine whether it was necessary to join these third parties to the proceedings to determine all issues in dispute or to avoid practical injustice. The wife argued that the risk of insolvency of the third parties, even if remote, warranted their joinder to ensure the enforceability of the court's orders. The court considered the arguments of both parties and examined the relevant legal principles.
The court found that the wife had not demonstrated a sufficient risk of prejudice or practical injustice to warrant the joinder of the shareholders of F Limited and the other companies. The court noted that F Limited had agreed to represent the interests of its shareholders, and that joining the shareholders would create case management problems due to the large number of parties in the proceedings. The court concluded that the shareholders' interests were aligned with those of F Limited, and that their joinder was not necessary to determine all issues in dispute. The court also found that the joinder of the shareholders would be unnecessarily onerous and would not prevent practical injustice.
The court found that the position of the noteholders was different, as they were financiers to F Limited and their interests were not necessarily aligned with those of F Limited. The court noted that it was foreseeable that the husband, F Limited, and the noteholders may be in opposing interests if the court was persuaded to consider orders that would interfere with the terms of the Shareholders' Agreement and the Note Subscription Agreement. The court concluded that the joinder of the noteholders was necessary to determine all issues in dispute and to avoid practical injustice.
The court declined to join the shareholders of F Limited and the other companies, but did order the joinder of the noteholders. The court considered the interests of all parties and the practicalities of the case in reaching its decision. The court's decision ensures that the orders of the court are enforceable against all relevant parties and avoids practical injustice where possible.
The court found that the wife had not demonstrated a sufficient risk of prejudice or practical injustice to warrant the joinder of the shareholders of F Limited and the other companies. The court noted that F Limited had agreed to represent the interests of its shareholders, and that joining the shareholders would create case management problems due to the large number of parties in the proceedings. The court concluded that the shareholders' interests were aligned with those of F Limited, and that their joinder was not necessary to determine all issues in dispute. The court also found that the joinder of the shareholders would be unnecessarily onerous and would not prevent practical injustice.
The court found that the position of the noteholders was different, as they were financiers to F Limited and their interests were not necessarily aligned with those of F Limited. The court noted that it was foreseeable that the husband, F Limited, and the noteholders may be in opposing interests if the court was persuaded to consider orders that would interfere with the terms of the Shareholders' Agreement and the Note Subscription Agreement. The court concluded that the joinder of the noteholders was necessary to determine all issues in dispute and to avoid practical injustice.
The court declined to join the shareholders of F Limited and the other companies, but did order the joinder of the noteholders. The court considered the interests of all parties and the practicalities of the case in reaching its decision. The court's decision ensures that the orders of the court are enforceable against all relevant parties and avoids practical injustice where possible.
Orders
Orders of the court
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Background
Background to the litigation
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Evidence
Evidence Before The Court
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Decision
Reasons for decision
The wife pointed to a number of possible sources of prejudice to her if the third parties are not joined. It exposes the wife to the risk that the orders of this Court, which are intended to be binding on the third parties, may not be enforceable in the event of insolvency as it leaves open the argument that the third parties were not afforded procedural fairness as they were not joined as parties, irrespective of their level of participation in the proceedings or their desire, or in this case, lack of desire, to be joined. Senior counsel for the wife took me to In the matter Glenvine Pty Limited (2020) 160 ACSR 473 and In the matter of ZH International Pty Ltd (in liquidation) [2022] NSWSC 2 in which such an argument was successfully advanced. Senior counsel for the wife argued that while at present there is no argument of imminent liquidation, there is a risk of there so being if the third parties are not joined, and as small as that risk is, that risk is sufficient to sway the Court towards joinder if all else is neutral. While this may be true, as a form of prejudice I find it to be remote and not persuasive on the question of joinder.Conclusion In relation to the Shareholders, it is difficult to see how their interests are not clearly aligned with those of F Limited. They do not wish to be joined, and while this does not prevent their joinder, it is a factor which I take into account. F Limited has agreed to represent those Shareholders in the proceedings. Practical injustice will be avoided by F Limited advocating for its own interests and those of its shareholders, who will thereby be afforded procedural fairness. If the shareholders are all joined, this will create case management problems because of the unwieldy number of parties in the proceedings and the necessity for all procedural orders to accommodate this reality. It is unnecessary for each shareholder to be provided with copies of all the material served on and between parties to the proceedings. I accept joinder would be unnecessarily onerous for the individual shareholders. For this reason I am unable to conclude their participation as parties “is necessary to determine all issues in dispute in the proceedings”. I decline to join those Shareholders. The same conclusion applies to F1 Pty Ltd and F2 Pty Ltd for the same reasons. However, to avoid doubt, I do not include the shareholders who are in the Noteholders group in this conclusion. In relation to the Noteholders, the position is different. There is no single entity who can represent their interests. Since they are Noteholders, and financiers to F Limited, or shareholders who wish to appear for themselves, it is not possible to conclude that their interests and those of F Limited are aligned. The fact that the shareholders in this group have sought to align themselves, at least to resist joinder, with noteholders permits the inference that they see their interests as distinct from the other shareholders. Indeed, if the Court is persuaded to consider orders, pursuant to s 90AE, for significant interference with the terms of the Shareholders’ Agreement and the Note Subscription Agreement, it is at least foreseeable that the husband, F Limited, and the Noteholders may be in opposing interests. This is primarily because the proposed orders of the wife in alternatives “A” and “B” would potentially trigger default by F Limited and change of control as between the husband and F Limited.
Ratio Decidendi
Legal Principle Established
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