Overturning A Binding Financial Agreement

Binding Financial Agreement

The Court imposes strict requirements for financial agreements to be binding as a binding agreement will oust the jurisdiction of the Court to make orders under the Act (subject to the power of the Court to set the agreement aside). The first of the technical requirements is that the agreement must specify the relevant section of the Act under which the agreement is made. In the absence of an express provision in the document the agreement is not a financial agreement.

The provisions of sections 90G and 90UJ are relevant to a financial agreement being binding which provide:

• A financial agreement is a written agreement signed by the parties; and
• Before signing the agreement independent legal advice must be provided by a legal practitioner; and
• The advice must be about the effect of the agreement on the rights of the party and the advantages and disadvantages of making the agreement at the time the advice was provided; and
• Either before or after signing the agreement a signed statement, evidencing the advice has been given, is to be provided by the legal practitioner to the client (it need not be annexed to the agreement but must be given to the other spouse or his/her legal representative).

Even if an agreement complies with the technical requirements, there may be grounds upon which it can be set aside. Section 90K of the Act sets out the circumstances in which a Court may set aside a financial agreement: 90K(1).  A Court may make an order setting aside a financial agreement or a termination agreement if, and only if, the Court is satisfied that:

(a) the agreement was obtained by fraud (including non-disclosure of a material matter); or

(aa) a party to the agreement entered into the agreement:

• For the purpose, or for purposes that included the purpose, of defrauding or defeating a creditor or creditors of the party; or
• With reckless disregard of the interests of a creditor or creditors of the party; or

(ab) a party (the agreement party) to the agreement entered into the agreement:

• Or the purpose, or for purposes that included the purpose, of defrauding another person who is a party to a de facto relationship with a spouse party; or
• For the purpose, or for purposes that included the purpose, of defeating the interests of that other person in relation to any possible pending application for an order under section 90SM, or a declaration under section 90SL, in relation to the de facto relationship; or
• With reckless disregard of those interests of that other person; or

(b) agreement is void, voidable or unenforceable; or

(c) in the circumstances that have arisen since the agreement was made it is impracticable for the agreement or a part of the agreement to be carried out; or

(d) since the making of the agreement, a material change in circumstances has occurred (being circumstances relating to the care, welfare and development of a child of the marriage) and, as a result of the change, the child or, if the applicant has caring responsibility for the child (as defined in subsection (2)), a party to the agreement will suffer hardship if the Court does not set the
agreement aside;

(e) that in respect of the making of a financial agreement — a party to the agreement engaged in conduct that was, in all the circumstances, unconscionable; or

(f) a payment flag is operating under Part VIIIB on a superannuation interest covered by the agreement and there is no reasonable likelihood that the operation of the flag will be terminated by a flag lifting agreement under that Part; or

(g) the agreement covers at least one superannuation interest that is an unsplittable interest for the purposes of Part VIIIB.

Summary

Financial agreements are subject to the law of contract. The relevant legal principles for contracts include misrepresentation, mistake, duress, undue influence, and unconscionable conduct.

Does a financial agreement have to be fair

Section 90K is to be read in conjunction with section 90G(1A)(c).  Section 90G(1A)(c) states that a financial agreement is binding on the parties to the agreementif a Court is satisfied that it would be unjust and inequitable if the agreement were not bindingon the parties to the agreement (disregarding any changes in circumstances from the time theagreement was made).

The legislation allows the parties to decide the terms of their agreement and provided the agreement complies with section 90G(1), they are bound by what they have agreed.

There is no requirement that parties to financial agreements meet any of the considerations contained in section 79 of the Act which deals with property issues. Previously, they could literally make the worst bargain possible but still be bound by it.

However, in the case of Thorne v Kennedy, the High Court determined that the fairness or unfairness of a financial agreementis a relevant consideration as to whether a financial agreement will be binding. This issue is likely to arise where the terms are grossly unfavourable to one of the parties.

Because of this decision care must be taken to avoid grossly unreasonable agreements whichmay indicate undue influence. In such circumstances, It may be wise to make some financial provision made for a party in a Financial Agreement.

Recent Decisions A Binding Financial Agreement

A useful decision is Adame [2014] FCCA 42 – where Jarrett J said the following as to financial agreements and the duty of disclosure [at 134]: It may not be necessary for that disclosure to occur on the face of the financial agreement. There may be other dealings between the parties, including negotiations leading up to a settled form of financial agreement, which makes it clear that there has been proper disclosure of all material matters between the parties. Where, however, the terms of the financial agreement provide, either expressly or by implication, that the parties assets and financial resources are recorded within the terms of the agreement itself, the failure to include particular assets or particular financial resources may well amount to non-disclosure of a material matter for the purposes of s.90K(1)(a) of the Act.

[135] I do not, however, think that it is generally necessary that such disclosure extends to the provision of values for those assets and financial resources in the financial agreement, or otherwise. Each case needs to be determined according to its own facts, but parties are generally entitled and able to satisfy themselves about the values of the assets and financial resources disclosed for the purposes of the financial agreement. That the parties or a party might choose not to do so is, in my view, a choice that is open to be made by that party. It is the identity and existence of the relevant assets and financial resources which is material to the financial agreement.

As to duress and undue influence, a most helpful passage as to these concepts is in Thorne v Kennedy [2017] HCA 49 where the decision reads:

The question whether a person’s act is “free” requires consideration of the extent to which the person was constrained in assessing alternatives and deciding between them. Pressure can deprive a person of free choice in this sense where it causes the person substantially to subordinate his or her will to that of the other party. It is not necessary for a conclusion that a person’s free will has been substantially subordinated to find that the party seeking relief was reduced entirely to an automaton or that the person became a “mere channel through which the will of the defendant operated”. Questions of degree are involved. But, at the very least, the judgmental capacity of the party seeking relief must be “markedly sub-standard” as a result of the effect upon the person’s mind of the will of another.

In the particular context of pre-nuptial and post-nuptial agreements, some of the factors which may have prominence include the following:

(i) whether the agreement was offered on a basis that it was not subject to negotiation;

(ii) the emotional circumstances in which the agreement was entered including any explicit or implicit threat to end a marriage or to end an engagement[97];

(iii) whether there was any time for careful reflection;

(iv) the nature of the parties’ relationship;

(v) the relative financial positions of the parties; and

(vi) the independent advice that was received and whether there was time to reflect on that advice.

Also Pompidou & Pompidou [2007] FamCA 879 as to the discussion of economic duress there – in particular the passage there that says “the rationale of duress is that the law will not give effect to an apparent consent which was induced by pressure exercised upon one party by another party when the law regards that pressure as illegitimate”. Also, a party alleging economic duress must establish they “have been subjected to an improper motive for action and to the need to show that some illegitimate means of persuasion had been used”.

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