Family Court case: reining in Part VIIIAA

In the recent Full Court of the Family Court case of B Pty Ltd and Others v. K and Another, the court had to consider an application under Part VIIAA of the Family Law Act.

This is the part that enables the court to override any other law, deed etc to ensure that justice is done between the parties on a property settlement. It allows the court to alter the rights of third parties. Understandably, banks and others lending monies have been concerned about the potential effects of this part of the Family Law Act.

Key Findings

The court held:

When s 90AE(2) is read in conjunction with s 90AE(3), s 79, and Part VIIIAA generally, it is clear that what is contemplated is not 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 parties to a marriage.
Any doubt about the sufficiency of the connection between s 90AE(2) and the marriage or divorce and matrimonial cause power is removed by the presence of s 90AE(3) which relevantly provides that the Court may only make an order under s 90A(2) if 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.
…

Submissions were made on behalf of the Respondents in relation to the construction of s 90AE(2) and s 90AF(2) and also s 90AE(3) and s 90AF(3). The submissions focussed on s 90AE(2) and s 90AE(3). It was submitted that as a matter of construction the Court’s powers under these sections are “unlimited” as to parties, “unrestricted” as to the nature of alterations, and that there is no necessity for there to be any connection between the rights, liabilities or property interests of the third party on the one hand with the marriage or the parties to the marriage on the other. It was submitted that notwithstanding the terms of s 90AE(3) and (and 90AF(3)), the order may bring about a result which only has some indirect relation to the division of property “and there is no limit on the degree of indirectness”.
The power and discretion of the Court is carefully controlled and confined. The requirement in s 90A(3)(a) (and see the identical requirement in s 90AF(3)(a)) that the making of the order be “reasonably necessary, or reasonably appropriate and adapted, to effect a division of property between the parties to the marriage” in and of itself ensures that far from the discretion being “unlimited” or “unrestricted”, it is carefully linked, and certainly sufficiently connected, to the subject matter of marriage and matrimonial causes. In particular, it is bound up in, or at least sufficiently connected to, the central area of the marriage power, namely, the effecting of a division of property between the parties to the marriage.

Any order made pursuant to s 90AE(2)(b) must be for the purpose of effecting a division of property between the parties. The order that the wife proposed was for the purpose of increasing the property of the parties, by an unknown amount and on unknown principles.

The Facts

The wife succeeded before the trial judge in joining a string of companies and entities to the litigation, in relying on Part VIIAA. Not surprisingly, they weren’t happy, appealed, were successful on appeal and obtained an order for costs.

The wife stated:

The personal financial circumstances of the husband and I are relatively modest. …
…

That otherwise, the husband and I, throughout our marriage, always considered his hard work and dedication as a pivotal member of the [K] Group would pay off and, provide us with a stake in the Group that would, in effect, represent our superannuation. In fact, on different occasions during the course of our marriage, the husband advised me that he would be retiring at age 45 with “a nest egg” which grew during the marriage from $1M to $2M. The husband left me in no doubt that he and I would share in the financial rewards of the [K] Group which became extremely successful in the latter part of the 1990’s.
The [K] Group is a global organisation involved in the [mining industry], supplying highly technical equipment and plant as well as construction of the various processing plants. …
Type of lifestyle

As a family we enjoyed a high standard of living which, from time to time, was subsidised by lump sums of money which I believed to have been sourced from overseas and from companies within the Group.

Scope of power under s.90AE

The Full Court held:

We accept the submission on behalf of the third parties that:
…that the meaning of sections 90AE and 90AF is to be determined within the context of the entirety of Part VIIIAA is supported by the “modern approach to statutory interpretation” outlined by Brennan CJ, Dawson, Toohey and Gummow JJ in CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 141 ALR 618 at 634:

“Moreover, the modern approach to statutory interpretation (a) insists that the context be considered in the first instance, not merely at some later stage when ambiguity might be thought to arise, and (b) uses “context” in its widest sense to include such things as the existing state of the law and the mischief which, by legitimate means such as those just mentioned, one may discern the statute was intended to remedy. Instances of general words in a statute being so constrained by their context are numerous. In particular, as McHugh JA pointed out in Isherwood v Butler Pollnow Pty Ltd, if the apparently plain words of a provision are read in the light of the mischief which the statute was designed to overcome and of the objects of the legislation, they may wear a very different appearance. Further, inconvenience or improbability of result may assist the court in preferring to the literal meaning an alternative construction which, by the steps identified above, is reasonably open and more closely conforms to the legislative intent.”

The wife’s counsel, Mr North had an ingenious argument. It was as follows:

In ultimately approaching s 90AE, Mr North firstly points to the object of Part VIIIAA of the Act, as expressed in s 90AA, namely:
The object of this Part is to allow the court, in relation to the property of a party to a marriage, to:

(a) make an order under section 79 or 114; or

(b) grant an injunction under section 114;

that is directed to, or alters the rights, liabilities or property interests of a third party.

Next, Mr North points to the terms of s 90AC headed “This Part overrides other laws, trust deeds etc”, the terms of that section being:
(1) This Part has effect despite anything to the contrary in any of the following (whether made before or after the commencement of this Part):

(a) any other law (whether written or unwritten) of the Commonwealth, a State or Territory;

(b) anything in a trust deed or other instrument.

(2) Without limiting subsection (1), nothing done in compliance with this Part by a third party in relation to a marriage is to be treated as resulting in a contravention of a law or instrument referred to in subsection (1).

Then Mr North comes to s 90AE(2), which provides:
(2) In proceedings under section 79, the court may make any other order that:

(a) directs a third party to do a thing in relation to the property of a party to the marriage; or

(b) alters the rights, liabilities or property interests of a third party in relation to the marriage.

In particular, Mr North relies upon the words empowering the court to make an order that alters the property interests of a third party in relation to the marriage. To show a connection between the marriage and (in broad terms) the property interests of the third parties, Mr North points to two circumstances:
that in respect of at least many of the trusts the wife was a beneficiary, either specified or by reason of marriage to the husband, and that the children of the marriage were in many cases also specified beneficiaries; and
that the husband’s rights as a beneficiary of the trusts constituted a chose-in-action and were thus property.
In relation to the second circumstance, there is no nexus between the husband’s chose-in-action and the trust assets which gives the husband any proprietorial interest in those assets. An order in respect of those assets would not seem to be “in relation to the property of a party to a marriage” (s 90AA).

The court held:

As to the first circumstance:
(that in respect of at least many of the trusts the wife was a beneficiary, either specified or by reason of marriage to the husband, and that the children of the marriage were in many cases also specified beneficiaries),
taken in isolation, the term in s 90AE(2)(b), in relation to the marriage, is puzzling. Even so, we are inclined to think that they are words of limitation rather than expansion.

In any event, we do not think much, if anything, turns on those words in the instant case. There are other terms that, in our view, are clear in their effect.

The court went on to say:

Section 90AE(3)(a) provides:
(3) The court may only make an order under subsection (1) or (2) if:

(a) 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; and

While acknowledging the terms of subsection 3(a), Mr North does not concede that they impede the claim that the wife seeks to make.
In our view, the terms clearly circumscribe the use of the power.
Moreover, insofar as the words in s 90AE(2)(b) “property interests of a third party in relation to the marriage” may be unclear, we note again the object of the Part in s 90AA, namely to allow the court to make orders under s 79 that is directed to the property interests of a third party in relation to the property of a party to a marriage.
The “connections” to which Mr North points do not go to engage either the phrase in the object of the Part, or that emphasised in the above quote of s 90AE(3)(a) “to effect a division of property between the parties to the marriage”.
The orders sought by the wife against the trustees seek, not to divide, but to increase the present property of the parties. If Mr North is correct, Part VIIIAA has introduced a new cause of action to the law; but, what be the elements of this cause of action is largely unknown.
True it is that the power bestowed by s 90AE(2) is circumscribed by matters set out in s 90AE(3) which include, other than those already discussed, paragraphs (c), (d) and (e) (paragraph (3)(b)) is not relevant for present purposes). Relevant paragraphs are as follows:
The Court may only make an order under subsection (1) or (2) if:
…

(c) the third party has been accorded procedural fairness in relation to the making of the order; and

(d) the court is satisfied that, in all the circumstances, it is just and equitable to make the order; and

(e) the court is satisfied that the order takes into account the matters mentioned in subsection (4).

Matters set out in subsection (4) are as follows:
(a) the taxation effect (if any) of the order on the parties to the marriage;

(b) the taxation effect (if any) of the order on the third party;

(c) the social security effect (if any) of the order on the parties to the marriage;

(d) the third party’s administrative costs in relation to the order;

(e) [not relevant for present purposes]

(f) the economic legal or other capacity of the third party to comply with the order;

(g) if, as a result of the third party being accorded procedural fairness in relation to the making of the order, the third party raises any other matters–those matters;

(h) any other matter that the court considers relevant.

The power of the court is further limited by the terms of s 90AK, preventing orders that would result in the acquisition of property otherwise than on just terms, or that would be invalid because of paragraph 51(xxxi) of The Constitution.
But these circumscriptions upon the exercise of power do not help to identify all the requisite elements of any new cause of action. For example, in the instant case, is the size of the trust estate relevant to the quantum or value of property that a court might order a trustee to convey to the party to the marriage? Does the court have regard to the history of acquisition of trust assets? Is it necessary for the claiming party to show that he or she has contributed to the accumulation of trust assets? Is it necessary that the court make findings of the comparative contributions to trust assets of all potential beneficiaries?
That the elements of the “action” which the wife seeks to initiate cannot be identified is a powerful argument against the position for which Mr North contends. In our view, all that s 90AE(2)(b) does, of relevance to the wife’s claim here, is to enable the court to adjust the property interests of a third party for the purpose of effecting a division of the present property of the parties to the marriage, between those parties. Only in the sense that altering interests may leave a bundle of rights or interests that are consequent upon the alteration, may the exercise of power create interests, but these “new” interests will be the residue of what already existed at law. Except in this sense, the subsection does not create a new cause of action derived from rights not previously known to the law. In this sense, the subsection resembles a machinery provision, though in our opinion it is more than that.
An argument emphasised for the third parties is that the proposed claim by the wife did not fit within paragraph (ca)(i) of the definition of “matrimonial cause” in s 4 of the Act. That paragraph is:
(ca) proceedings between the parties to a marriage with respect to the property of the parties to the marriage or either of them, being proceedings:

(i) arising out of the marital relationship;

The argument proceeds that, in contrast with the provisions of Part VIIIAA (s 90AE(1)) that relate to a court’s power with regard to a debt owed by one or both parties to the marriage, to a third party creditor, no provision has been made by the legislation to ensure that a claim based on the power expressed in s 90AE(2) constitutes a matrimonial cause.
By s 90AE(1), in proceedings under s 79, the court may make:
(a) an order directed to a creditor of the parties to the marriage to substitute one party for both parties in relation to debt owed to the creditor;

(b) an order directed to a creditor of one party to a marriage to substitute the other party, or both parties, to the marriage for that party in relation to the debt owed to the creditor;

(c) an order directed to a creditor of the parties to the marriage that the parties be liable for a different proportion of the debt owed to the creditor than the proportion the parties are liable to before the order is made.

In respect of these novel powers, Parliament enacted s 90AD:
Extended meaning of matrimonial cause and property

(1) For the purposes of this Part, a debt owed by a party to a marriage is to be treated as property for the purposes of paragraph (ca) of the definition of matrimonial cause in section 4.

(2) For the purposes of paragraph 114(1)(e), property includes a debt owed by a party to a marriage.

In contrast, the power in s 90AE(2)(b) to alter the property interests of third parties in relation to a marriage, is not underpinned by any extension of the definition of property for the purposes of paragraph (ca) of the definition of matrimonial cause, or by any requirement that the “claim” reliant upon the exercise of power in s 90AE(2)(b) be treated as property for the purposes of the paragraph. However, we are not convinced that the comparison of the provisions granting a power relating to a party’s indebtedness to a third party creditor to the provisions granting a power relating to an alteration of property interests is valid for the purposes of the argument of the third parties.
In any event, we agree with Mr North that, for the Family Court to entertain the wife’s claim in issue, that claim does not have to fit within paragraph (ca) of the definition of matrimonial cause. But the claim must either be a matrimonial cause, one within the associated or accrued jurisdiction of the Court, or one which, in a matrimonial cause or other claim being heard together with such a cause, invokes a power conferred upon the court.
We think Mr North likely to be correct when he submits that a claim under s 90AE fits within paragraph (f) of the definition of “matrimonial cause”. Paragraph (f) is:
(f) any other proceedings (including proceedings with respect to the enforcement of a decree or the service of process) in relation to concurrent, pending or completed proceedings of a kind referred to in any of paragraphs (a) to (eb), including proceedings of such a kind pending at, or completed before, the commencement of this Act.

As to the wife’s claim, relying on her lifestyle

The court held:

In our opinion, that evidence was insufficient to found the proposed claim under s 90AE against the third parties….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.