Proctor : July 2018
18 PROCTOR | July 2018 The Full Court considered both financial agreements to be “fair and reasonable” because:7 • the husband had told the wife at the outset of their relationship, and she had accepted, that his wealth was intended for his children, and • the wife’s interest, which was provided for in the agreements, concerned only the provision that would be made for her in the event the husband predeceased her. The Full Court was not satisfied that the financial agreements were negated by either undue influence or unconscionable conduct and overturned the primary judge’s decision. The High Court decision The wife appealed the Full Court’s decision and was granted special leave to appeal to the High Court of Australia in March 2017, with the appeal heard in August 2017 and judgment delivered on 8 November 2017. The High Court upheld the primary judge’s decision to set aside the agreements and found that the financial agreements had been entered into by undue influence and unconscionable conduct. Undue influence With respect to undue influence, the High Court considered several factors:8 • whether the agreement was offered on a basis that it was not subject to negotiation • the emotional circumstances in which the agreement was entered, including any explicit or implicit threat to end a marriage or to end an engagement • whether there was any time for careful reflection • the nature of the parties’ relationship • the relative financial positions of the parties • the independent legal advice that was received and whether there was time to reflect on that legal advice. Unconscionable conduct With respect to unconscionable conduct, the High Court further held that the wife was at a “special disadvantage”9 when entering both financial agreements, particularly due to the urgency surrounding the signing of both agreements just four days before the wedding and 30 days after the wedding, which the husband was aware of and took advantage of. The High Court made the following orders:10 • appeal allowed • set aside the orders of the Full Court made on 26 September 2016 and, in their place, order that the appeal to the Full Court be dismissed with costs • the husband pay the wife’s costs of the appeal to the High Court. The case has now returned to the Federal Circuit Court awaiting judicial determination regarding the wife’s application for property settlement and spousal maintenance. So is a financial agreement still a good idea? Contrary to some inaccurate and sensationalist media reports about this decision, yes it is, provided the financial agreement is: • fair and reasonable • takes into account various potential scenarios that arise during a relationship and post-separation • there are adequate provisions for the financially-disadvantaged party, and • both parties each receive independent legal advice, from a suitably-experienced and qualified Australian legal practitioner, as to the effect of the financial agreement and the associated advantages and disadvantages of entering the financial agreement at the time, having regard to that party’s individual circumstances (both current and future). Some practical considerations While there is no requirement under the Act for the client to receive independent legal advice “in writing,” it is generally considered good practice for you, as the legal practitioner, to prudently undertake the following steps: 1. At all client meetings, take detailed file notes and record the client’s instructions as clearly and accurately as possible. Such instructions should be unequivocal with respect to what the client wants to achieve with respect to property settlement and/or spousal maintenance matters to be covered in the financial agreement. 2. Draft the financial agreement as precisely as possible to accurately reflect the mutual agreement and intention of the parties. 3. Regularly ‘reality-test’ the client’s instructions and seek written confirmation from the client to confirm the accuracy of your understanding of your client’s instructions. 4. Confirm your advice in writing, and preferably in plain English, so that the client understands the legal advice given ‘on paper’. Simply attaching a copy of various sections under the Act to a letter of advice to the client is insufficient and not considered good practice. The advice should at the very least, and in compliance with Part VIIIA or Part VIIIAB of the Act (whichever is applicable), cover the effect of the financial agreement on the client’s rights and the associated advantages and disadvantages to that client of entering into it (in accordance with the statement of independent legal advice which a solicitor must sign). 5. In addition to the above, your advice should be clear and detailed with respect to any limitations of the financial agreement and whether it covers any material change of circumstances (for example, birth of a child or children, care arrangements for a child/ children, party’s income-earning capacity, etc.). This is particularly so if you are acting for the ‘financially-disadvantaged’ party and if your advice to the client in such circumstances is ‘don’t sign the agreement’ (or words to that effect); you should give clear and detailed reasons, preferably in plain English, justifying that advice so that the client can ultimately make an informed and voluntary decision to enter into the financial agreement or not. 6. If your client still wishes to proceed with the draft financial agreement, it is considered good practice for the client to sign: a. an irrevocable acknowledgment confirming that your client has received, perused and considered your written advice and that they have been afforded sufficient time to do so, and/or b. a deed of indemnity (if you are acting for the ‘financially-disadvantaged’ party and you have advised your client in those circumstances not to sign the financial agreement but they still want to) before you sign the requisite statement of independent legal advice. 7. You should only sign the statement of independent legal advice after all amendments have been made to the financial agreement and after your client has received your written advice, including any proposed amendments.