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3rd party interventions

Feature Articles

Cite as: (2004) 78(1-2) LIJ, p. 50

The Family Court has jurisdiction to grant a Mareva injunction against both parties to a marriage in favour of the Deputy Commissioner of Taxation as an intervener in property settlement proceedings.

By Evan Evagorou

The matter of Deputy Commissioner of Taxation v Kliman,[1] concerned the Deputy Commissioner of Taxation’s (DCT) intervention in proceedings commenced by the husband against the wife who filed an application for property settlement on 10 November 1998 under s79 of the Family Law Act 1975 (the Act).

On 28 July 1999, on application by the DCT, the Family Court made orders granting the DCT leave to intervene in the proceeding under s92(3) of the Act and made interlocutory restraining orders against both the husband and the wife in the nature of Mareva injunctions. In support of his application, the DCT provided evidence by affidavit of the husband’s tax debt in the sum of about $1,000,000.[2]

On 30 March 2001, the husband filed an application claiming that the Family Court did not have jurisdiction to grant a Mareva injunction in favour of the DCT because there was no “matrimonial cause” as provided for under s4(1) of the Act. On 12 June 2001, a judgment was entered in favour of the DCT, unopposed, against the husband in the Supreme Court of Victoria for $1,324,250.86.

On 29 June 2001, Wilczek J determined that the Family Court did not have jurisdiction to grant a Mareva injunction in favour of the DCT.

The DCT appealed to the Full Court of the Family Court, which delivered its judgment on 7 August 2002, holding that the DCT had a right to obtain interlocutory injunctions in the form of Mareva injunctions against both the husband and the wife.[3]

The Full Court considered ss92 and 114 of the Act.

Section 92(3) provides:

“Where a person intervenes in any proceedings by leave of the court the person shall, unless the court otherwise orders, be deemed to be a party to the proceedings with all the rights, duties and liabilities of a party”.

There was no dispute between the parties that the DCT could intervene in the proceedings between the husband and the wife. The issue was the extent of the relief the DCT could seek as a matter of substantive law. The husband argued that the DCT’s intervention was limited to participating in the proceedings procedurally, with the right to be heard and to have the debt owed to him taken into account in any final property orders.

The Court adopted the interpretation of s92(3) as outlined by Gibbs J in Ascot Investments Pty Ltd v Harper[4] that s92(3) does not operate of itself to confer jurisdiction or confer on the intervener the right to seek any substantive relief which is not otherwise available to the intervener under some other provision of the Act. The sub-section does not mean an intervener has all the rights and liabilities of a party to a marriage. It enables the Court to make an order in favour or against an intervener if such order is one that can properly be made as a matter of substantive law.[5]

The position of a third party creditor as a real and substantive stakeholder in such proceedings and his or her right to intervene has previously been recognised by the Court and in the Act. This supports the proposition that the DCT has the right to seek an injunctive order to preserve and protect his position.

In Biltoft and Biltoft,[6] the Full Court of the Family Court held that the rights of an unsecured creditor or a claim by a third party cannot be ignored in proceedings under s79 of the Act. They must be recognised and taken into account and balanced against the rights of a spouse. Further, there is an obligation on both parties to disclose any significant creditors or any significant claim against either of them by a third party. If, as a result of the order of the Court in the property proceedings, the ability of the creditor to recover his or her debt or claim is likely to be affected, notice of the proceedings must be given to the creditor. The creditor may then intervene in the proceedings and either seek a stay of those proceedings or some other appropriate order which recognises his or her rights.

In Zdravkovic and Zdravkovic,[7] the Full Court of the Family Court held that in an appropriate case the Court may in proceedings under s79 order the discharge of a debt to a third person in the appropriate proportions as a condition of or as terms of an alteration of the parties’ interests in their property. An example cited by the Court where such orders have been appropriate is “the payment of existing liabilities of one or more of the parties ... for ... income tax liabilities”.[8]

Sections 79 and 87(8) of the Act allow the Court to vary or set aside an order or agreement already made under ss79 or 87 respectively if, loosely speaking, it has been obtained by fraud, suppression of evidence, or the giving of false evidence.

In the context of s79A, the Full Court of the Family Court in Deputy Commissioner of Taxation and Spanjich[9] held that if the order of the Court has the effect of reducing the property of the husband taxpayer so that the DCT is thereby unable to recover tax owing, then the DCT is a person affected by that order. McCall J, in the Full Court of the Family Court in Deputy Commissioner of Taxation and Rowell[1]0 noted that “Family law does not operate in a vacuum. By that I mean the legitimate rights of third parties are not ignored when determining the rights to property between the husband and the wife inter se”.[1]1

Section 80(1)(f) allows the Court, in exercise of its powers under Part VIII, in which s79 resides, to make an order for the payment of a debt by one of the parties to a marriage to a “public authority”. The DCT would be a public authority.

Section 114 of the Act confers power on the Court to grant injunctions only in relation to proceedings within the definition of “matrimonial cause”.

Section 114(1), so far as is relevant, provides:

“In proceedings of the kind referred to in para (e) of the definition of “matrimonial cause” in sub-s4(1), the court may make such order or grant such injunction it considers proper with respect to the matter to which the proceedings relate ... ”.

Paragraph (e) of the definition of “matrimonial cause” in s4(1) of the Act provides:

“(e) proceedings between the parties to a marriage for an order or injunction in circumstances arising out of the marital relationship (other than proceedings under a law of a state or territory prescribed for the purposes of s111AB)”.

The Court held that the proceedings in which the DCT had intervened, and the only proceedings on foot, were those pending between the husband and the wife under s79 of the Act. These fell within para (ca) of the definition of “matrimonial cause” in s4(1) of the Act.

As such, the Court held that s114(1) did not provide the jurisdictional basis for the relief sought by the DCT.

Section 114(3), so far as is relevant, provides:

“A court exercising jurisdiction under this Act in proceedings other than proceedings to which sub-s(1) applies may grant an injunction by interlocutory order or otherwise (including an injunction in aid of the enforcement of a decree) in any case in which it appears to the court to be just or convenient to do so and either unconditionally or on such terms and conditions as the court considers appropriate”.

The Court held that there was jurisdiction to make the Mareva injunctions under s114(3) of the Act. The pending s79 proceedings in which the DCT had intervened came within the definition of “matrimonial cause” in para 4(1)(ca) of the Act,[1]2 which, so far is relevant, provides:

“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 marriage relationship”.

In such para (ca) proceedings an interlocutory injunction can be made under s114(3) at the discretion of the Court and there is no limitation as to which party is entitled to seek injunctive relief. There were no separate or new proceedings instituted by the intervention of the DCT. There was a valid matrimonial cause already before it. It did not change or lose its character because of the intervention of a third party.[1]3 As the intervener, the DCT did not himself have to have a “matrimonial cause” and, accordingly, his application did not, of itself, have to come with the definition of “matrimonial cause”.

With respect, this seems in line with the reasoning in Bailey v Bailey[1]4 where the Full Court of the Family Court accepted that an intervener could obtain a stay of application for a property settlement in the Family Court, pending determination of a common law claim by the intervener against the estate of the husband in a state Supreme Court. At p77,775, the Full Court indicated, without deciding the matter, that there was much to be said for an argument that the stay order was in the nature of an interim injunction.

The Court considered that a further source of power to make the injunctions may be s34(1)[1]5 of the Act, which says:

“The Court has power, in relation to matters in which it has jurisdiction, to make orders of such kinds, and to issue, or direct the issue of, writs of such kinds, as the Court considers appropriate”.

The issues raised in Kliman concern the rights of interveners in the Family Court generally. The decision of Wilczek J, if allowed to stand, would have severely restricted the rights of interveners in proceedings in the Family Court. It would have effectively rendered any intervention useless in circumstances where a party to a marriage is seeking to defeat a judgment or avoid a liability and frustrate the court process by dealing with assets prior to the hearing of the proceedings.[1]6

Orders and injunctions binding third parties

The Family Law Amendment Bill 2003 was introduced into the House of Representatives on 12 February 2003 and passed by the House on 13 August 2003, after been referred by the House to the Senate Legal and Constitutional Legislative Committee. The Bill was introduced into the Senate on 20 August 2003. Schedule 6 of the Bill proposes to insert a new Part VIIIA in the Act which will enable the Court to make orders and injunctions that are binding on third parties. Proposed s90AD extends the definition of “property” to include debts. Also, a debt owed by a party to a marriage is to be treated as property for the purposes of para (ca) of the definition of matrimonial cause in s4 of the Act.

Proposed s90AE of the Bill will enable the Court to make the following:

  • an order directing a creditor of the parties to the marriage to substitute one party for both parties in relation to the debt owed to the creditor;
  • an order directing a creditor of one party to the marriage to substitute the other party, or both parties, to the marriage for that party in relation to the debt owed to the creditor;
  • an order directing a creditor of the parties to the marriage that the parties be liable for a different proportion of the debt than the proportion the parties are liable to before the order is made.

Proposed s90AC ensures that proposed Part VIIAA overrides any other law, any trust deed or any other instrument. Proposed s90AD provides that a court may grant injunctions binding a third party, including restraining a person from commencing legal proceedings.

Should the Bill become law, a third party will not only have the ability to seek an injunction preserving the assets of the parties to a marriage, but he or she may well find themselves the subject of a direction by the Court that alters that third party’s rights.

EVAN EVAGOROU is a senior executive lawyer with the Australian Government Solicitor and practises in commercial litigation. The Australian Government Solicitor acted for the Deputy Commissioner of Taxation in Kliman v Kliman.

[1] (2002) 29 Fam LR 301; (2002) 51 ATR 58; (2002) FLC 93-113; [2002] FamCA 629.

[2] Under the conclusive evidence provisions in s177 of the Income Tax Assessment Act 1936.

[3] See FLC, note 1 above.

[4] (1981) 148 CLR 337. With whom Stephen, Aicken and Wilson JJ agreed.

[5] Note 4 above, at 357.

[6] (1995) FLC 92-614.

[7] (1982) FLC 91-220.

[8] Note 7 above, at 77,206.

[9] (1988) 12 Fam LR 541.

[10] (1989) 96 FLR 449.

[11] Note 10 above, at 453. See also Chemaisse and Deputy Commissioner of Taxation (1990) 97 FLR 176 in the context of s87(8).

[12] The Court was of the view that para (f) of s4(1) would also attract jurisdiction.

[13] Dougherty v Dougherty (1987) FLC 91-823.

[14] (1990) FLC 92-117.

[15] Waugh and Waugh (2000) FLC 93-052 and Cardile v LED Pty Ltd (1999) 198 CLR 380. The Court did not express a view on the operation of associated jurisdiction conferred by s33 of the Act.

[16] It is important to note that the Court was not considering the merits of the DCT’s application for a Mareva injunction.


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