As a result of the amendments to Part VIIIAA of the Family Law Act 1975, the Family Court can now make orders and injunctions effecting third party interests in circumstances it once could not.
Significantly, any law of the Commonwealth, State, Territory, trust deed or instrument (where made after the amendments) can be overridden by the new provisions in the event of an inconsistency.
The full ramifications of the amendments introduced on 17th December 2004 are becoming more and more apparent although yet to be thoroughly tested.
What does it mean?
Prior to the amendments the position of third party interests in family law property matters was clear. That is, the Family Court would not generally intervene in the rights of a third party (unless the arrangement was a sham or the third party was the puppet of one of the parties).
The objects of new Part specifically give the Family court the power to make orders/ injunctions to alter the rights, liabilities and interests of a third party in relation to property of a marriage. In a variety of circumstances and providing certain conditions are met orders can now be made against third parties. This marks a significant shift away from the protection previously afforded third parties under the law.
Organisations such as the Australian Bankers Association and the Investment and Financial Services Association Ltd have been particularly concerned by the amendments which have the potential to significantly erode the banks substantive right of property in a debt.
It is anticipated a revision of strategies prior to lending will become increasingly apparent. Loan contracts will become more stringent for married couples and most likely contain a variety of notice provisions in the event of separation.
Who might be affected?
Organisations and persons which might be caught by the new provisions include; secured creditors such as financial institutions, creditor companies, shareholders, unsecured creditors, business associates family members…
Examples of how the provisions might apply
- Section 90AE(1) enables the court to require a third party creditor to have one party to a marriage substituted either wholly or partly to a debt owing by the other party.
- The court can require a company to register a transfer of shares owned by one party to a marriage to the other.
- the court can set aside a clause in a shareholder agreement entered into by one party of the marriage and a company (Bain Pacific Associations and Ors and Kelly and Ors (2006))
- An order can be made restraining a person from repossessing property of a party to a marriage
- An order can be made restraining a person commencing proceedings against a party to a marriage
What are the limits to the powers of the court.( S 90AE(3))
The three limits to the substantive power of the court can be summarised as;
- The order must be “reasonably necessary” to effect the appropriate division of property between the parties to a marriage.
- any alteration of the rights, liabilities or property interests of a third party must be ”in relation to the marriage”
- The third party must be afforded procedural fairness.
There are other pre conditions which must be met however the general limits are those set out as above.
Conclusion
The new amendments give the Family court the power and flexibility to interfere in any pre existing arrangement/contract providing certain preconditions are met. To date the Family court has exercised the new powers rarely and conservatively.
With interest the profession are eagerly awaiting a decision from the Full Court of the Family Court relating to a case heard in late 2006. In that case, a wife in Family Court proceedings sought leave to join as parties to the proceedings the controllers of several discretionary trusts in which her husband was a beneficiary. She also sought orders compelling the trustees to make capital contributions from the funds of the trust to the husband. The wife’s application was apposed. The trial judge allowed the wife’s Application. That decision is now subject of Appeal.
The decision once delivered will if nothing else demonstrate the preparedness of the Court to intervene in and possibly alter third party interests. It will also highlight the significant powers the amendments have bestowed on the Family Court.
