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21 June 2019

Rectifying Defective Binding Financal Agreements – Graham & Squibb

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In the recent case of Graham & Squibb [2019] FamCAFC 33 (2019) FLC 93-892, the Full Court of the Family Court of Australia considered an appeal on the question of whether a Binding Financial Agreement was effective to protect he pre-marital assets of the parties from claim.

The Husband and Wife married in July 2008.  Shortly before the marriage, the Wife instructed her solicitors to prepare a pre-nuptial agreement to protect her pre-marital property.  The parties each obtained independent legal advice and proceeded to sign the day before the wedding.

The Agreement appeared on the face of it to be a Binding Financial Agreement, however there were two significant mistakes :-

  1. The Agreement did not reference section 90B of the Family Law Act 1975 (Cth) (the section of the Act which deals with Binding Financial Agreements before marriage) or any other section under Part VIIIA.
  1. The Agreement included a clause which purported to have the local state laws and state Courts in Victoria exclusive jurisdiction to adjudicate any disputes arising under the Agreement.

If the Agreement was not a binding financial agreement pursuant to section 90B because of the above mistakes, then the arrangements made by the parties before they married about how he would deal with their pre- marital property if they separated, would be void. Neither party would be prevented from applying to the Court for a different arrangement from the one agreed to before marriage.

The Husband and Wife separated in November 2015 and the mistakes made in the drafting the Agreement came to light, so the Husband commenced proceedings in the Federal Circuit Court for division of property owned by the parties, including the pre-marital property. The Wife applied to the Court for a declaration that despite the defects the Agreement was binding on the parties.

The trial Judge noted that “The document bears all the hallmarks of having been the subject of an internet search and then being downloaded and completed under the misapprehension that it complied with all the legal requirements to give effect to its terms”.

Despite this the trial Judge found that on the evidence presented to the court, the Agreement reflected the parties intention to enter into a Binding Financial Agreement and declared it to be a valid Agreement The Husband appealed the decision arguing the evidence did not support a finding that there was a mutual intention, however this was rejected by the Full Court. The Husband then argued that even if the Agreement was a Binding Financial Agreement, it should be set aside on the basis that it was not “just and equitable”. This was also rejected by the Full Court, which held that, “there is no legal requirement for a financial agreement struck between independently advised parties to be just, equitable or fair”. The appeal was therefore dismissed with costs.

While the Agreement was ultimately upheld it was at considerable emotional and financial expense to go through the litigation and appeal to uphold it because the mistake cast doubt on the validity.

If you are considering entering into a Binding Financial Agreement, you should bear in mind the following:-

When signing a Binding Financial Agreement, it is of paramount importance that the Agreement meets the requirements of section 90G of the Act.  That is, for the Agreement to be binding, it must be:-

  • Signed by all parties;
  • Before signing the Agreement, each party was provided with independent legal advice from a legal practitioner about the effect of the Agreement on the rights of that party and about the advantages and disadvantages, at the time the advice was provided, to the party making the Agreement;
  • Each party was provided with a signed statement by the legal practitioner confirming that the advice was provide to that party;
  • A copy of the statement is given to the other spouse party;
  • The Agreement has not been terminated and has not been set aside by a Court.

If however one or more of the paragraphs in section 90G(1) are not satisfied, the Court may still declare that the Agreement is binding if it considers it would be unjust and inequitable if the Agreement was not binding.  Section 90KA grants the Court power to rectify a defective Agreement by resort to principles of law and equity to determine the validity and enforceability of financial agreements.

The Court will not intervene on the terms of an Agreement made under Part VIIIA simply because it is not reflective of a just and equitable distribution of property under Part VIII of the Act.  Section 71A specifically provides that Part VIII does not apply to Binding Financial Agreements.  This means that the terms of Agreement may be valid even if a party does not consider it is “just and equitable” The only grounds to set aside a Part VIIIA Binding Financial Agreement are set out in section 90K, which can be summarised as follows:-

  • The agreement was obtained by fraud;
  • A party to the agreement failed to disclosed “a material matter”;
  • A party to the agreement entered into the Agreement for the purpose of defrauding or defeating a creditor of that party or other person or with reckless disregard to the interestes of a creditor of the party or other person.
  • The Agreement is void, voidable or unenforceable (for example, mistake, misrepresentation, public policy, uncertainty, duress, undue influence, unconscionability, breach, waiver, and estoppel);
  • Impracticability because of later circumstances;
  • Change in circumstances in relation to a child of the marriage causing hardship;
  • Parties desire to revoke or set aside the Agreement.

Please contact our office if we can assist you in relation to your family law matter.

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