Mcphee Lawyers

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28 May 2018

The Perils of Binding Financial Agreements – Why is Independent Legal Advice important?

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Binding Financial Agreements are a useful tool in family law as it enables parties to forego the need to apply to the Family Law Courts for Orders regarding their property and spouse maintenance matters in the event of a relationship or marriage breakdown.  As set out in our blog, section 90G of the Family Law Act 1975 (“the Act”) provides that in order to be binding, the Agreement must:-

  1. Be in writing
  2. Be signed by all parties
  3. Before signing the agreement, each of the parties must be provided with independent legal advice about (and a copy of that statement given to the other party):-
    1. The effect of the Agreement on the rights of that party
    2. Advantages and disadvantages, at the time the advice is provided of making the Agreement
  4. Not be terminated or set aside by the Court.

Even if, however, one or more of the above requirements are not met, the Court may still find the Agreement to be binding if it is satisfied that it would be unjust and inequitable to set the Agreement aside.

The recent case of Purdey & Millington [2018] FCC 213 (7 February 2018) highlights the importance of obtaining comprehensive legal advice, independent from the other party to the agreement.  As is evident in that case, a one-off brief meeting with a solicitor may not be sufficient to satisfy the requirements of the Act.

The facts in Purdey & Millington were straight-forward:-

  1. The Husband and Wife were both born overseas.
  2. The Husband became an Australian citizen in 2002.
  3. The parties married overseas in 2003 and the Wife immigrated to Australia in 2005.  She subsequently became an Australian citizen.
  4. On 16 September 2014, the parties signed a Binding Financial Agreement pursuant to section 90C of the Act.  As part of the Agreement, the solicitors for the Wife and the Husband signed Certificates confirming that they had provided their respective client’s with independent legal advice.
  5. The parties separated on 26 September 2014.

In her response to the Husband’s application for parenting orders filed in September 2016, the Wife sought a declaration that the Agreement executed on 16 September 2014 by the parties was void and voidable and it should be set aside.  The Wife also sought an alteration of the parties’ interest in property.  The Husband sought an Order dismissing the Wife’s application regarding property matters.

The issue in this case was that, on the face of it, the Agreement had met the requirements of the Act and was therefore binding.  The problem was the Wife argued that she had not been provided independent legal advice before she signed the Binding Financial Agreement.

The evidence before the Court was that:-

  1. The Wife thought the parties had agreed to see solicitors to sign a Separation Agreement, which she thought that in Australia parties had to sign papers in front of lawyers in order to separate.
  2. The Wife’s English reading and speaking abilities were limited in September 2014, when the Agreement was signed.  She did not have the assistance of an interpreter during her meeting with the solicitor and did not understand the contents of the Agreement.
  3. Both parties went to the appointment with the Wife’s solicitor, however the Husband said this was because the Wife did not know how to get there and he ‘may’ have been present at the beginning and the end of the meeting.  The Wife said the Husband was present during the duration of the meeting with the Wife’s solicitor (which was accepted by the Court).
  4. The meeting with the Wife’s solicitor was for between 10 and 20 minutes duration.
  5. The Husband paid for the meeting between the Wife and her solicitor.

The Wife’s solicitor’s evidence was that:-

  1. She went through the relevant provisions of the Act in relation to the effect of the deed and went through each page of the deed so that the Wife would understand what was “going on”.
  2. She spoke slowly to the Wife in English.  She did not ask the Wife is she needed an interpreter.
  3. She couldn’t recall whether the Husband was present (although in her later Affidavit evidence denied that the Husband was present).
  4. She advised the Wife not to sign the Agreement but the Wife refused to accept any changes as suggested, stating instead that she was happy with the contents.
  5. She had file notes of the meeting (which she did not produce despite an Order from the Court to do so), which she estimated was around 30 to 40 minutes.
  6. She received the Agreement from the Husband’s solicitor, who referred the Wife to her “two or three days” before the meeting with the Wife (which contradicted the evidence of the Husband and the Wife, who said they received it on the morning of the Wife’s meeting with the Husband).
  7. She provided a handwritten receipt for payment of her fee of $250 (which she did not produce to the Court).

The Court found that the Wife’s solicitor (who is no longer practicing as a solicitor) was not a witness of truth and rejected her evidence.

The Court instead found there to be sufficient evidence to throw into doubt the inference which can be drawn from the Certificate attached to the Agreement that she had provided independent legal advice to the Wife because:-

  1. The arrangements for legal advice was made by the Husband.
  2. Notably, the firm for whom the Wife’s solicitor worked had no record of anyone opening a file in the Wife’s name.  This called into question the capacity of the Wife’s solicitor.
  3. The Husband was responsible for and paid the fee for the meeting between the Wife and her solicitor.
  4. The Husband was present for the duration of the meeting between the Wife and her solicitor.
  5. The absence of any file notes of the meeting support an inference that there was a lack of proper engagement by the Wife’s solicitor with the Wife, a lack of competent legal service and a lack of the provision of any legal advice at all.
  6. The meeting took no longer than 20 minutes, which his Honour found at para 84

this was insufficient time for [the Wife’s solicitor] to have explained to the Wife, who had limited English speaking skills, the Wife’s rights under the relevant statute, the effects of the Financial Agreement on her rights and the advantages and disadvantages of the Financial Agreement… in my opinion, it would not have been possible for [the Wife’s solicitor] to have complied with these obligations in a time period of ten to 20 minutes

Ultimately, the Court determined that it would be unjust and inequitable if the Agreement were binding on the parties and his Honour declared that the Agreement is not a Binding Financial Agreement within the meaning of section 90G of the Act.  The matter was therefore submitted to the Court for determination in accordance with the usual litigation process regarding property matters.

Lessons to be learned

First, the requirement for obtaining independent legal advice is more than cursory, even if you and your spouse/partner agree about how your property and maintenance matters will be determined after separation.  At McPhee Lawyers, it is our practice to provide you with comprehensive, written legal advice as to the advantages and disadvantages of entering into the Financial Agreement and the effect of same.  We will not sign a Certificate for a Binding Financial Agreement after a 20 minute meeting (as in the case of Purdey & Millington) or at a first appointment.  Cases like Purdey & Millington highlight how important it is to ensure that both parties do all things necessary to ensure that the Agreement will be upheld if it is called into question by the Court.

Secondly, sometimes doing something ‘on the cheap’ can cost you dearly in the long run.  In Purdey & Millington, the Husband paid for his solicitor’s costs to prepare the Agreement, as well as the Wife’s solicitor’s $250 fee to provide the Wife with independent legal advice.  This was an endeavor by the Husband to protect ‘his’ assets from any claim by the Wife.  Given that the Court has determined that the Agreement is not binding, the parties’ property matters are to be determined in the usual manner pursuant to the Act.  As a result, the Husband has paid significant monies to prepare an Agreement that has little to no value.  It probably would have been cheaper to do it right the first time!

Please contact our office if we can be of assistance with your family law matter.

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