Joinder of individuals as third parties in financial proceedings

Financial remedy proceedings can sometimes impact third parties, such as trustees, beneficiaries, family members or commercial partners. There is therefore provision within the FPR for third parties to be joined to proceedings if it will assist the court in resolving the dispute. A financial remedy order will only bind the parties to the proceedings. It can therefore be necessary to join a third party to the proceedings to ensure any order will also bind them.

Of the three broad categories of third parties it might be necessary to join to proceedings – individuals, trustees and companies – this article will deal with the joinder of individuals.

Joining individuals to the proceedings

Situations where the issue of the joinder of an individual will arise are:

• Where a party to a marriage asserts that the other party is beneficially entitled to a property held in the name of a third party. The court will need to determine this issue as part of the financial remedy application, but if the third party is not joined, then they will not be bound by the court’s findings. Orders impacting the property, such as an order for sale, could not be enforced against the third party without separate civil proceedings.
  
  
• Where the third party asserts that they have a beneficial interest in a property held in the names of one (or both) of the parties. If the court were to make an order in relation to the property, again that order could not be enforced without further litigation.

The test

The test that the court must apply when considering whether to join a third party is set out in r 9.26B(1): a person or body may be added as a party to proceedings for a financial remedy if:

(a) it is desirable to add the new party so that the court can resolve all the matters in dispute in the proceedings; or

(b) there is an issue involving the new party and an existing party which is connected to the matters in dispute in the proceedings, and it is desirable to add the new party so that the court can resolve that issue.

The key question is therefore whether the proposed joinder is ‘desirable’ in order for the court to resolve the issue in dispute. This test is not onerous and is likely to be met where the ownership of an asset is in dispute, and the resolution of that dispute is necessary to determine the financial remedy claim.

However, it is also important to consider whether joinder of the third party is proportionate, given the inevitable increased court time and legal costs which will be involved. Where the order sought by the applicant does not require the sale or transfer of the asset in which the third party interest is asserted, it may not be necessary to join that third party. This was addressed by the Court of Appeal in Behbehani v Behbehani and others [2019] EWCA Civ 2301. The judge identified that where a spouse is seeking the transfer of a particular asset from the other spouse and it is asserted that the asset is the property of a third party, then it would usually be appropriate to join the third party for that issue to be determined. The judge then went on to consider the approach that should be taken where the applicant was seeking another form of financial relief, such as a lump sum, but on the basis of an assertion of the value of the respondent’s overall wealth which is disputed on the basis of an assertion that an asset is in fact owned by a third party

"... it frequently happens, particularly in so-called big-money cases, that the court is faced with a number of issues as to the ownership of assets with a variety of third parties identified as the beneficial owners. It would be wholly disproportionate to insist that, even where the wife is not seeking the transfer of the assets, all such persons should be joined to the proceedings and the issue of ownership determined before any financial remedies order can be made. There may be cases where joinder is appropriate in those circumstances, but it should certainly not be the rule."

Procedure

The application for joinder is made under Part 18 using Form D11. The application will need to be supported by evidence of the proposed party’s connection with the proceedings.

It is important that the application is made at an early stage. In financial remedy proceedings the order joining the third party should ideally occur at the First Appointment, but this may not always be possible. If information as to the existence of a relevant third party only comes to light after the First Appointment, for example, in replies to questionnaire, then the application should be made as soon as possible thereafter.

Once the third party has been joined, the dispute with the third party must be approached on the same basis as if it were being determined by the Chancery Division. The court will give directions for the issue to be fully pleaded by points of claim and points of defence. Witness statements will also be directed.

In TL v ML (ancillary relief: claim against assets of extended family) [2005] EWHC 2860 (Fam), [2006] 1 FLR 1263, Nicholas Mostyn QC (as he then was) stated that the ownership dispute should be heard as a preliminary issue before the FDR. This helps to ensure that a meaningful FDR can take place. However, inevitably this will lead to delay, and will not always be appropriate. In Shield v Shield [2014] EWHC 23, [2014] 2 FLR 1422, Nicholas Francis QC (as he then was) suggested that in some cases it may be more cost effective to deal with the issue only if the matter does not settle at the FDR.

In Fisher Meredith v JH and PH (Financial Remedy: Appeal: Wasted Costs) [2012] EWHC 408, [2012] 2 FLR 536, Mostyn J identified a distinction between cases where the applicant asserts that a property held in the name of a third party is the property of the respondent, and cases where the respondent argues that a property to which he or she has legal title is beneficially owned by a third party. In the former, the full TL v ML procedure should be followed, as only by resolving the issue prior to the FDR can the computation of the assets be carried out and an effective FDR take place. In the latter, at the FDR the court can express a preliminary view on the ownership of the asset in question on the basis of the evidence thus far, and an effective FDR can take place.

The costs consequences

The no order for costs principle in FPR, r 28.3 does not apply as between the spouse seeking the joinder of the third party and third party who has been joined. Under FPR, r 28.2(1), the general rule under CPR, r 44.2(2) (that costs follow the event) is also not applied in family proceedings. The court therefore begins with a ‘clean sheet’, and the court can make such order as to costs as it thinks just (FPR, r 28.1).

However, as Wilson LJ observed in Baker v Rowe [2009] EWCA Civ 1162, [2010] 1 FLR 761:

"[25] . . . Even where the judge starts with a clean sheet, the fact that one party has been unsuccessful, and must therefore usually be regarded as responsible for the generation of the successful party’s costs, will often properly count as the decisive factor in the exercise of the judge’s discretion."

The party who sought the joinder of the third party must therefore bear in mind, that if the third party succeeds in proving his or her case, they may well be successful in claiming costs from the party who caused them to be joined. Calderbank offers can also be made, and will impact on the costs awards made.

To join or not?

Joining a third party will inevitably lead to an increase in costs and can also cause delay in the resolution of the proceedings. The approach that will be taken will depend on the facts, and whether the orders sought from the court are likely to need to be enforced against a third party. It is clear that whichever path is taken, the issue must be considered carefully at an early stage.

If you require further information about anything covered in this briefing, please contact Caroline Holley, or your usual contact at the firm on +44 (0)20 3375 7000.

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Farrer & Co LLP, December 2020

Please note this content was originally published in the Family Law Journal. November 2020 edition, best practice section.