By Jacob Carswell-Doherty – Sydney
Introduction
It is not uncommon for a spouse party to attempt to disperse assets in order to avoid them falling into the hands of an estranged spouse. For this reason, Courts exercising family law jurisdiction often make orders on an interim basis that have the effect of freezing an asset.
Usually, the power being exercised in this case is found in section 114 of the Family Law Act 1975 (Cth).
An injunction is an order that preserves the status quo and prevents steps from being taken with respect to various asset types until the Court can finally determine issues in dispute. In normal circumstances, the Court requires an undertaking as to damages when ordering an injunction. An undertaking as to damages is a promise by the party seeking the injunction that they will compensate the other party for any damages caused by the injunction if it is later found the injunction should not have been ordered.
Practical Application in Family Law Proceedings
Examples where a party is injuncted from dealing with property of a relationship include:
- Restriction on dealing with shares or real property; and/or
- Payment of proceeds into a trust account pending final hearing.
An example of something an injunction seeks to protect would be the sale and dispersal of proceeds of a property where an unregistered (equitable) interest seeks to prove a claim in proceedings.
In the context of a family law matter involving only the spouse parties, one could be forgiven for not considering the legal basis for these orders being made, since they are fairly routine. An undertaking as to damages being a condition to freezing orders being made, in a typical family law matter, is virtually unheard of. The thinking behind this is that the Court has the power to make adjustments to reflect what is just and equitable at the final hearing.
However, in proceedings involving third parties who is not a spouse, the situation is different. For instance, if a spouse is a minority shareholder in a company that finds itself involved in family law proceedings.
Martin & Martin and Ors – A Judicial Review on Undertaking as to Damage in Family Law Proceedings
In the case of Martin & Martin and Ors [2013] FamCA 222, the Court considered the interests of third parties in circumstances where an injunction was proposed. The Court noted:
[20] Unlike other jurisdictions, it would be unusual for an undertaking as to damages to be sought inter partes (at least as between parties to the marriage or de facto relationship) unless there was a strong indication that there would not be sufficient equity in property other than in the assets to be secured, to make an adjustment between the parties to achieve a just and equitable outcome.
Courts exercising family law jurisdiction are not exempted from applying principles of equity derived from civil litigation:
[25] All of those [civil litigation] principles apply in a family law case… [26] The starting position should therefore be to assume that the undertaking will be required to secure the injunction as in other civil proceedings.The Court ultimately determined that a family law matter involving arm’s length third parties should apply the civil litigation principles:
“[27] I cannot think of any reason why these particular family law proceedings should be treated as any different from a commercial dispute.”
If the spouse seeking the injunction argues that the undertaking should not be given, the Court considered that:
[26] …it falls to the party seeking the injunctive order to show that an undertaking as to damages is not appropriate. It is a high threshold.Ultimately, if the party seeking the injunction does provide the undertaking, the Court would decline to grant the injunction. If, previously, an injunction has been ordered without an undertaking, the Court can discharge the injunction (see Martin & Martin and Ors [2013] FamCA 222 at [31]).
Conclusion
What these principles highlight is a need for practitioners and parties to be alert to the changing circumstances of a case, particularly when third parties become involved in a family law matter. In this event, the typical approach taken concerning freezing orders or restraints in family law matters may require some adjustment, to reflect the application of commercial civil litigation principles.
This article is not meant to act as legal advice and serve the purpose of providing academically generalised information regarding the general principles of the doctrine of limitation period. If you require qualified legal advice on anything mentioned in this article, our experienced Sydney based team of solicitors at Foulsham & Geddes are here to help. Please get in touch with us on 02 9232 8033 today to make an enquiry.