Jacky Campbell, August 2016

Hall, the High Court and spousal maintenance

The High Court considered spousal maintenance and the term “financial resources” in Hall v Hall (2016) FLC 93-709. An earlier article discussing the decisions of the trial judge and the Full Court in detail and can be read here.

Overview

The High Court, in Hall, considered:

• The meaning of “financial resources” in s 75(2)(b) Family Law Act 1975 (“FLA”);
• Whether it was open on the evidence before the Full Court for it to find that the wife was able to support herself adequately; and
• Whether “financial resources” was confined to present legal entitlements.

The majority judges were French CJ, Gageler, Keene and Nettle JJ, but there was a strong dissent by Justice Gordon.

The wife’s appeal to the High Court was from an order of the Full Court of the Family Court which discharged an interim maintenance order in her favour. Although the order was described by the trial Judge as having been made on an urgent basis under s 77, in subsequent proceedings the parties treated it as an interim order under s 74(1).

The High Court majority was critical of the delays in the proceedings, noting that an objective of s 97(3) FLA is that the proceedings are “not protracted” and an objective under r 1.04 of the Family Law Rules 2004 is that “each case is resolved in a just and timely manner”.

Prerequisites for a maintenance order

The High Court majority outlined the legislative prerequisites for making a spousal maintenance order under Pt VIII of the FLA.

Section 72(1) is the “gateway” to the operation of spousal maintenance. It provides that:

“[a] party to a marriage is liable to maintain the other party, to the extent that the first-mentioned party is reasonably able to do so, if, and only if, that other party is unable to support herself or himself adequately… having regard to any relevant matter referred to in [s] 75(2).”

The liability of a party to a marriage to maintain the other party is imposed by s 72(1), and is crystallised by the making of an order under s 74(1). Section 74(1) provides that:

“[i]n proceedings with respect to the maintenance of a party to a marriage, the court may make such order as it considers proper for the provision of maintenance in accordance with this Part.”

A court exercising the power conferred by s 74(1) is obliged by s 75(1) to take into account the matters referred to in s 75(2). This “comprehensive checklist” includes, relevantly for this case:

s 75(2)(b) – “the income, property and financial resources of each of the parties and the physical and mental capacity of each of them for appropriate gainful employment”
s 75(2)(o) – “any fact or circumstances which, in the opinion of the court, the justice of the case requires to be taken into account.”

The High Court distinguished between permanent orders, interim orders and urgent orders.

Prerequisites for discharging an order

There is also the power under s 83(1)(c) to discharge the order “if there is any just cause for so doing”. This imports a need for the court to be satisfied of circumstances which justify the court considering the threshold requirement again (Astbury & Astbury (1978) FLC 90-494). The court must find “just cause” on the basis of the wording of the Act (although these cases were not referred to by the High Court, see Wreford & Caley [2010] FamCAFC 21 at para 56 and Lutzke & Lutzke (1979) FLC 90-714). For the purpose of considering whether to discharge an order, the court is specifically required to have regard to ss 72 and 75 and the applicant for discharge of the order can re-open examination of the threshold requirement of s 72(1).

Circumstances of the parties

The parties were married for 12 years and had two children. The husband was a property developer and the wife was a medical practitioner. Their respective incomes were not discussed by the High Court, but it was accepted in the lower courts that the wife could not support herself adequately from her own earnings. At trial she was earning $300 per week.

The wife disclosed in her sworn documents in November 2013 that she was the owner of two luxury motor vehicles which had been purchased for her by her brothers. She also disclosed that she had an “interest” in the estate of her late father, the value of which was not known to her. Her father had died four years previously, having started the family business in which she had never had an active role. The business was run through a corporate structure controlled by her brothers. She did not have a copy of her father’s will and did not know the particulars of her father’s estate.

The husband deposed to his net worth as being $21 million and his taxable income as $80,340, with unspecified drawings “from various entities as and when needed”.

The trial judge ordered that the husband pay to the wife the sum of $10,833 per month by way of spousal maintenance pending the final determination of the proceeding.

The trial judge said that the absence of information about the nature and extent of any interest of the wife in the estate of her late father meant that no such interest could be take into account as a financial resource of the wife in determining the wife’s application for maintenance. The trial judge found that she was satisfied on the evidence as to the wife’s need for maintenance and the husband’s ability to pay.

The terms of the wife’s father’s will

After the delivery of the judgment, the husband attempted to subpoena the Will of the wife’s late father. These proceedings were reported as Hall & Hall [2016] FamCA 143. The husband was unsuccessful, but an affidavit was sworn by a solicitor acting for one of the brothers and filed in support of the brother’s opposition to disclosure of the Will. The solicitor said there were concerns for the personal safety of the family and for that reason an application for probate had not been made and the production of the Will was opposed.

The property dealt with in the Will included shares in companies within the V Group. The V Group was one of the largest business enterprises in South Australia. Under the Will, all of the father’s shares were given to the wife’s brothers and none were given to the wife apart from some which she had received prior to her father’s death.

One clause of the Will related to the wife. The wife’s father expressed the ”wish” that the wife should receive from the V Group a lump sum payment of $16,500,000 on the first to occur of a number of specified events. One of the specified events was that the wife and the husband divorced. The father also expressed a “wish” that the wife should receive from the V Group an annual payment of $150,000 until the date (if any) that the lump sum payment of $16,500,000 was made.

Application to discharge the maintenance order

Based on the disclosure by the wife’s brother’s solicitor as to the terms of the Will insofar as they related to the wife, the husband filed an application to discharge the interim maintenance order. He relied on the “benefit” of the annual payment which her deceased father had conferred on the wife.

In response, the wife filed an affidavit setting out that she had recently spoken to one of her brothers who had explained the contents of the Will to her. She stated that she had “not received any income or capital payment from my late father’s estate” but did not say whether or not she had requested payment from the V Group in accordance with the wishes expressed by her father in the Will.

The trial judge delivered judgment 3 months later, dismissing the husband’s application. This was reported as Hall & Hall (No.3) [2014] FamCA 406. The reasons made no reference to the evidence or the issue about whether or not the wife might be able to obtain the annual payment of $150,000 from the V Group.

Delays in appeal to the Full Court

The husband’s application for leave to appeal to the Full Court was lodged in July 2014. The application was heard in November 2014 and judgment in relation to both the application for leave and the appeal itself, was delivered in August 2015. The High Court majority said the delay was unexplained and on any view, the delay was unacceptable. Section 97(3) FLA states:

“In proceedings under this Act, the court shall proceed without undue formality and shall endeavour to ensure that the proceedings are not protracted.”

This was described by the High Court as an “objective” and was linked to r 1.04 Family Law Rules 2004, which states:

“The main purpose of these Rules is to ensure that each case is resolved in a just and timely manner at a cost to the parties that is reasonable in the circumstances of the case.”

Decision of the Full Court of the Family Court

At the hearing before the Full Court the wife adduced further evidence, being a letter from one of her brothers explaining that neither the $150,000 nor the payment of $16,500,000 were to be paid to the wife and that as executor the brother had no obligation to the wife in respect of these amounts. The letter re-emphasised the voluntary nature of the payments stated as wishes of the wife’s father.

The Full Court found that the trial Judge erred in failing “to consider, and indeed make any finding as to whether there was sufficient new evidence before her to discharge the interim spousal maintenance order” (at para 131 of the Full Court and para 29 of the High Court).

The Full Court found there was evidence that demonstrated that the wife was able to support herself adequately as she would have received the payment of $150,000 per annum from her brothers if she requested it. There was nothing in the evidence to suggest that any such request, if made, would have been denied. The Full Court considered that the fact that her brothers had provided her with luxury motor vehicles indicated that she had a good relationship with them.

The Full Court granted the husband leave to appeal, allowed the appeal and discharged the interim maintenance order retrospectively from the date the maintenance order was made – over one and a half years previously.

Appeal to the High Court

The wife appealed to the High Court on the following grounds:

1. A failure of process – the wife’s ability to request the V Group to make a voluntary annual payment to her was not raised by the husband on appeal at first instance. She said that she had met the argument that she had a legal entitlement to the payment. If it had been apparent that the husband was alleging that she was able to request that the Group make a voluntary annual payment, she would have placed further evidence before the court on that issue.
2. Substantive reasoning:

(a) It was not open on the evidence to infer that the voluntary annual payment would have been made to her if she requested it.

(b) Even if it was established that the voluntary annual payment would have been made to her if she requested it, that did not constitute a proper basis for concluding that she was able to support herself adequately within the meaning of s 72(1). Her ability to obtain a voluntary payment by asking for it was not a “financial resource” within the meaning of s 75(2)(b) and the Full Court did not and could not form an opinion that it was a fact or circumstance which the justice of the case required to be taken into account so as to bring it within s 75(2)(o).

The husband contended that the annual payment of $150,000 was not voluntary but was an equitable obligation. The High Court found that it was unnecessary for it to address that argument.

The High Court majority rejected the failure of process argument. There was no ambiguity in the husband’s argument before the Full Court that the inference should be drawn that the annual payment of $150,000 would be given to the wife if she chose to ask her brothers for it. The inference was more readily drawn given the wife’s failure to adduce evidence about it. The wife was fully aware of the risks of running her case on the basis she did. The majority said (at para 44):

“Throughout the proceedings, at first instance and on appeal, the wife was on notice of the risk of a finding being made that she would have received the annual payment of $150,000 if she had asked her brothers for it. The fair inference is that she chose to run that risk, hoping that it would not eventuate and conscious that such evidence relevant to that finding as she might adduce would not assist her case.”

The finding was open

The Full Court majority found that it was open on the evidence before the Family Court for the court to find that the wife would have received the $150,000 annual payment if she asked for it. Although she had not received it since her father’s death, the reasons for this failure were wholly unexplored. That evidentiary gap was within the power of the wife to fill and her failure to lead evidence allowed the inference to be drawn that such explanation as she was able to provide would not have assisted her case.

The High Court majority described (at para 47) the affidavit of the brother’s solicitor and the letter from the brother as being “cleverly worded”. The documents were “most informative in what they do not say: that the Group … was inclined not to pay”.

As the brothers had received the benefit of their father’s testamentary largesse, the High Court majority said (at para 46) that:

“… the brothers were at least under a moral obligation to honour their father’s wish that the wife receive the payments from the Group”, to which he had referred in the Will. The Group undoubtedly had the wherewithal to make the payments, and there was no evidence to suggest amorality or personal animus on the part of any of the three brothers which might in turn suggest that they might not fulfil that moral obligation.”

The finding that the wife would have received the payment if she asked for it was relevant under both s 75(2)(b) and s 75(2)(o).

Moral Obligation
The emphasis by the High Court on the “moral obligation” of the wife’s brothers was curious, given the criticism expressed by the High Court majority in Stanford v Stanford (2012) FLC 93-518 about the Full Court of the Family Court’s finding that (at para 12 of the High Court):

“… the many years of marriage [of the parties] and the wife’s contributions demand that those moral obligations be discharged by an order for property settlement.”

The High Court majority said in Stanford (at para 52):

“Whether it was just and equitable to make a property settlement order in this case was not answered by pointing to moral obligations. Reference to “moral” claims or obligations is at the very least apt to mislead. First, such references appear to invite circular reasoning. On its face, the invocation of moral claims or obligations assumes rather than demonstrates the existence of a legal right to a property settlement order and further assumes that the extent of that claim or obligation can and should be measured by reference to the several matters identified in s 79(4) … Moreover, if the word “moral” was being used in this context with some wider meaning or application, it is important to recognise that it is used in a way that finds no legal foundation in the Act or elsewhere. It is, therefore, a term that may, and in this case did, mislead. The rights of the parties were to be determined according to law, not by reference to other, non-legal considerations.”

It is difficult to reconcile the attitude of the High Court to moral claims in Hall with those expressed in Stanford. Although the High Court was dealing with a property claim under s 79 in Stanford, and in Hall it was dealing with whether a maintenance order ought to have been discharged, the wording of the relevant legislative provisions in both cases made reference to it being “just” and there was a pathway for the court to follow in each case which did not include “moral” obligations of the parties or third parties.

What is a financial resource?

The term ”financial resources” was defined by the High Court, so as to extend to potential sources of financial support if the factual inquiry supported that the source could reasonably be expected to be forthcoming were the party to call on it. The High Court majority said (at paras 54-56):

“The reference to “financial resources” in the context of s 75(2)(b) has long been correctly interpreted by the Family Court to refer to “a source of financial support which a party can reasonably expect will be available to him or her to supply a financial need or deficiency” (Kelly & Kelly (No.2) (1981) FLC 91-108). The requirement that the financial resource be that “of” a party no doubt implies that the source of financial support be one on which the party is capable of drawing. It must involve something more than an expectation of benevolence on the part of another. But it goes too far to suggest that the party must control the source of financial support. Thus, it has long correctly been recognised that a nominated beneficiary of a discretionary trust, who has no control over the trustee but who has a reasonable expectation that the trustee’s discretion will be exercised in his or her favour, has a financial resource to the extent of that expectation (Kelly & Kelly (No.2) (1981) FLC 91-108).
Whether a potential source of financial support amounts to a financial resource of a party turns in most cases on a factual inquiry as to whether or not support from that source could reasonably be expected to be forthcoming were the party to call on it.
Here, on the Full Court’s finding of fact, the annual payment from the Group was a financial resource of the wife so as to be a matter within s 75(2)(b). The payment was available to her if she asked for it. The availability of the payment was the subject of specific provision in the father’s will. The making of the payment was at least a moral obligation of the wife’s brothers, who were in any case well-disposed towards her.”

The High Court majority found that the annual payment was also relevant under s 75(2)(o), saying (at para 58):

“Because it bore centrally on the ability of the wife to support herself adequately, the availability to the wife of the annual payment from the Group was also a fact or circumstance in respect of which it was open to the Family Court to form the opinion that the justice of the case required that it be taken into account.”

Dissenting judgment
Gordon J gave a strong dissenting judgment. He summarised the facts and matters on which the inference was drawn (at para 7):

“1. The wife had a “good relationship” with her brothers;
2. The father’s Will expressed a “wish” in relation to an annual payment;
3. The brothers had provided the wife with late-model luxury motor vehicles;
4. The wife had not requested that a payment be made in accordance with the “wish” in the father’s Will, and
5. The brothers had not rejected such a request and there was no suggestion that the brother who was the executor would object to such a voluntary payment.”

Matters which Gordon J said (at paras 72–78) counted against the drawing of the inference were:

• The wife was not provided with a copy of the Will when her father died;
• The wife was not provided with a copy of the Will when she asked for one after separation;
• The wife had not received any income or capital from her father’s estate;
• The brothers’ conduct suggested an unwillingness to disclose the contents of the Will to the wife and to comply with their father’s stated wish in relation to their sister;
• There is a difference between having a good relationship with someone and being willing to give them large sums of money on a regular basis;
• At best, if the wife had made a request for payment, that was only an “intermediate step” to the payment being made;
• There was a distinction between the capacity of the Group to pay and the willingness of the brothers to cause it to pay; and
• A finding that two luxury vehicles had been purchased by the brothers personally for the wife was different to the Group making a voluntary annual indexed payment of $150,000 net of tax.

He said (at para 76) that the brothers’ conduct did not support a finding that they would have caused the V Group to make a payment to the wife if requested.

“On the contrary, their conduct suggested an unwillingness to disclose the contents of the Will to the wife and an unwillingness to comply with their father’s stated wish in relation to the wife, their sister. In this respect, the wife’s position stands in stark contrast to the position of a beneficiary of a discretionary trust who has no control over the trustee but has a reasonable expectation, by reference to past distributions, that the trustee’s discretion will be exercised in their favour.”

Gordon J used the same definition of “financial resources” as the majority. He agreed that it was not confined to the present legal entitlements of the parties and extended to include “a source of financial support which a party can reasonably expect will be available to him or her to supply a financial need or deficiency”. (Kelly & Kelly (No.2) (1981) FLC 91-108; see also Kennon v Spry (2008) FLC 93-388). He disagreed with the High Court majority in the application of that proposition to the present circumstances, saying (at para 91):

“However, it cannot be said that the father’s wish (for an annual payment to the wife, which had not been effected by the brothers or the V Group in the more than four years since the father’s death) was a source of financial support which, if the wife requested, the wife could reasonably expect would be available to her to supply a financial need.”

He concluded that as the wife had no right to a payment, the wife asking for a payment was not more pressing and persuasive than her father’s formally recorded wish. The brothers had been unwilling even to provide the Will to the wife, so there was no basis to infer that the wife’s request would tip the balance in favour of the brothers making the payment.

Conclusion
The High Court majority in Hall possibly broadened the interpretation of a “financial resource” by finding that a “wish” expressed in a Will of a third party could amount to a financial resource and used to establish that a party to a marriage has the ability to support themselves and therefore is not entitled to maintenance from their spouse. The High Court majority was satisfied that the finding was open to the Full Court of the Family Court that the wife would have received the voluntary annual payment from her brothers if she asked for it. The moral obligation of the brothers was given weight.

The High Court majority drew an analogy between the rights of a discretionary beneficiary of a trust and the right of the wife to ask for a payment to be made to her pursuant to a wish expressed in Will that she receive annual payments.

By contrast, in a strong dissenting judgment, Gordon J rejected the broader interpretation of “financial resources” relied upon by the majority and the notion that the finding that the voluntary payment would have been made to the wife if she had asked for it. He distinguished her position from that of the beneficiary of a trust.

The application of Hall to future cases is difficult to discern. On the one hand, the majority said it was applying existing law as to the definition of a “financial resource”. On the other hand, the majority, if not broadening the definition of “financial resources”, applied it in somewhat surprising circumstances where there was little, if any, evidence that the wife had a reasonable expectation that the payment would be made if she asked for it.

The clearest message from the decision is that there are risks involved in running a case and not adducing evidence which might prove a point one way or another. In this case, the wife did not ask her brothers to make the voluntary payment and therefore could not and did not give evidence as to the response she received from her brothers to her request. Both the Full Court of the Family Court and a majority of the High Court were able to draw conclusions which were unfavourable to the wife because of the gap in the evidence.

Jacky Campbell, June 2019

Superannuation Splitting Agreements and Orders

Introduction

The Family Law Legislation Amendment (Superannuation) Act 2001 (“the FL Superannuation Act”) and associated regulations started on 28 December 2002. This paper looks at the practicalities of drafting orders and superannuation agreements, not valuation of superannuation interests and what percentage split should be made to the non-member.

Part VIIIB Family Law Act 1975 (Cth) (FLA) applies both to property settlements under Pt VIII between married couples and to Pt VIIIAB between de facto couples, except in Western Australia (although there are proposals for this to change).  From 23 November 2018 Pt VIIIB was renumbered.  This paper uses the new numbers for the sections except where the numbers appear in a quote, in which case the new number is inserted in square brackets.

Valuing

This paper does not deal with the complexities of valuing superannuation, but refers to it briefly as it is the first step in the process of dealing with a superannuation interest by way of a court order or a financial agreement.

In most cases, parties only need to obtain a recent member’s statement to value their superannuation (reg 31(2) Family Law (Superannuation) Regulations 2001) (FLS Regulations). This is fairly accurate for most interests in accumulation funds.

Further steps are only required if:

• orders are sought (by consent or otherwise) which deal with a superannuation interest;
• a court order is made requiring further steps;
• the interest is not in an accumulation fund e.g. it is in a defined benefit fund or self-managed superannuation fund;
• depending on income, the member’s statement is more than say, 6 months old.

There are various methods of valuing an interest. These are:

• for an accumulation interest in the growth phase – a member’s statement is sufficient (reg 31(2);
• for a defined benefit interest in the growth phase, a valuation by an expert is usually required after completion of the Superannuation Information Form (“SIF”). Some funds which have approved scheme specific factors do the calculations and include the valuation in the SIF. For funds without approved factors, the valuation is under reg 29;
• an interest in a SMSF is valued by such method as the Court considers appropriate (s 90XT(2)(b)). For example, an industrial property is valued by a real estate valuer, noting that the fund’s accounts may include values of assets at their purchase price (rather than market value) or as at 30 June in the previous year;
• if superannuation is not being split, the court need not accept the valuation under the Regulations (s 90XT(2)(b)). It can value the superannuation in other ways such as using a variation of the formula.

Nature, form and characteristics of superannuation

Generally, where the superannuation interests of both parties to family law proceedings are accumulation interests, few difficulties are encountered by the Family Law Courts in dealing with them. However, an accumulation interest in the growth or payment phase and a defined benefit interest in the growth or payment phase differ in several important respects. As a result, examining the nature, form and characteristics of a superannuation interest is particularly important when a defined benefit interest is involved.

Those differences include the method by which the ultimate benefit is calculated; the risk to the member inherent in each and, very importantly, the effect of a s 90XT(1)(a) FLA order (an order which allocates a base amount to the non-member spouse). As the Full Court said in Bulow & Bulow (2019) FLC 93-885 (at [18]):

“Each and all of those differences can, and very often do, have a dramatic impact upon the justice and equity of a proposed splitting order and, in turn, its place within just and equitable orders for settlement of property.”

The FLA provides for splitting orders to be made which take effect when splittable payments become payable — that is, when the member spouse satisfies a condition of release. The FLA does not provide for the underlying superannuation interests themselves to be split. That work is usually done by Pt 7A of the Superannuation Industry (Supervision) Regulations 1994 (SIS Regulations). The SIS Regulations allow the creation of a new superannuation interest in the name of the non-member spouse such that their interest is separated from the interest of the member spouse within the fund.

The Full Court pointed this out in Bulow (at [20]):

“Crucially, however, defined benefit funds are not regulated by Part 7A of the SIS Regulations. It is therefore fundamental to a consideration of any proposed splitting order that the Court consider the governing rules of such funds contained within their specific trust deeds. It is those rules which will determine the effect of any splitting order on the underlying interest within that particular fund. As an example, within a defined benefit fund the fund’s rules can dictate that a splitting order has significant effects on the formula by which a member’s ultimate entitlement is calculated.”

The Full Court discussed the distinction between defined benefit interests and accumulation interests (at [22]-[23], [25]):

“By reason of the matters just discussed, it is an error both to fail to consider the specific requirements and ramifications of the PSS Deed’s provisions and to assume that the effect of a s 90XT(1)(a) order upon the husband’s defined benefit interest is the same as it would be if the husband held an accumulation interest. It is also an error to assume that the effect of a splitting order for the non-member spouse is the same as it would be in respect of an accumulation interest.

The terms of the scheme-specific PSS Deed will dictate the variables by which the husband’s present and future benefit will be calculated subsequent to any mooted splitting order. So, too, the PSS Deed will dictate the nature, form and characteristics of the interest which the wife will acquire subsequent to any such order. The justice and equity of any proposed splitting order cannot be considered without reference to both. Axiomatically, those matters are crucially relevant considerations in the exercise of a trial judge’s discretion in the making of a splitting order …

The nature, form and characteristics of the interests held by each of the parties consequent upon the proposed splitting order; the future benefits for each party upon vesting; when the respective interests might vest and the form in which any benefits might (or must) be taken at that time, are all likely to be relevant in assessing the s 75(2) factors. As an example, in this case the husband asserts before this Court that the splitting order made by his Honour restricts the amount he can contribute from salary and, thereafter, his ultimate potential benefit.”

The husband had unsuccessfully sought to obtain expert evidence on the effect of a splitting order on his defined benefit interest. Although the parties each had expert evidence as to the value of the husband’s interest, the Full Court said (at [28]):

“Neither expert provided an opinion on the nature, form and characteristics of the husband’s superannuation interest nor how any splitting order sought by the wife (or any other splitting order) might impact upon that interest.”

The Full Court concluded that the court needed to have evidence directly relevant to a determination of one of the central issues.

In summary, the differences in the nature, form and characteristics of an accumulation interest in the growth phase or payment phase and a defined benefit interest in the growth or payment phase include:

• an accumulation interest is like a bank account – its value is transparent. By contrast, the value of a defined benefit interest is calculated by reference to a formula;
• the risk to the member of, and the effect of, an order which allocates a base amount to the non-member spouse varies;
• the governing rules of the funds determine the effect of any splitting order on the underlying interest within that particular fund. A defined benefit fund’s rules can dictate that a splitting order has significant effects on the formula by which a member’s ultimate entitlement is calculated.

The justice and equity of any proposed splitting order can’t be considered without reference to the nature, form and characteristics of the interest.

Relevant date

When valuing a superannuation interest, the relevant date is the date at which the value of the interest is determined under the FLS Regulations. It is usually either the date the request for a valuation (the SIF) is signed by the eligible person or it is the date it is received by the fund. In some cases, another date is nominated such as the date of cohabitation or the date of separation. More than one date can be nominated.

What is a split?

A split under the Family Law Act is a split of a payment. A splitting order does not affect the member’s interest in the fund, the split only occurs when the payment is made to the member. The FLA only operates in relation to ”payments”.

Splitting the superannuation interest itself cannot be ordered under the FLA. Splitting the interest itself occurs under the superannuation legislation and regulations, and under the Deed if the Deed permits it.

If a new interest is created for a non-member spouse, this occurs under Div 2.2 SIS Regulations. The trustee of a superannuation fund can ”split” an interest to create a new interest for the non-member or transfer assets to allow the non-member spouse to have an interest in another fund.

For an interest to be split, it must be both:

• in a regulated superannuation fund; and
• an accumulation interest in the growth phase or an allocated pension.

If splitting the interest is possible, the trustee must issue a payment split notice. The notice gives three options to the non-member:

1. 1. A new interest can be created in the member’s superannuation fund
2. The interest can be rolled over to a fund nominated by the non-member
3. A lump sum can be paid if the non-member spouse satisfies a condition of release, such as retirement or permanent incapacity.

The trustee can create a separate interest for the non-member as at the operative time while waiting for the return of the payment split notice (reg 7A.03B(1)) SIS Regulations.

The trustee must be served with:

• the splitting order
• a notice under reg 72 giving details about the non-member.

Types of splitting orders

There are 4 types of splitting orders but the most common are called type (a) and type (b) orders. In type (a) orders a lump sum is set aside within the member’s fund for the non-member. The lump sum is calculated on the basis of a dollar figure known as the “base amount”. The base amount is adjusted over time and the non-member’s interest grows independently of the member’s interest. The member can make contributions without affecting the base amount.

In type (b) orders the non-member is paid a certain percentage of each splittable payment. They are appropriate when superannuation is in the payment phase. The “payment phase” means that the member is receiving a superannuation pension or has met the conditions of release and is entitled to receive a pension or lump sum.

Procedural fairness

Before a splitting or flagging order is made there must have been procedural fairness to the trustee (s 90XZD). This means that the trustee had prior notice of the specific order sought and had the opportunity to be heard about the order before it was made. Notice of an intended order usually occurs by serving a copy of the proposed order on the trustee. If the terms of the proposed order change, further notice to the trustee is usually required. Procedural fairness must also be given in relation to superannuation provisions in financial agreements.

The FLA does not define “procedural fairness”. It appears that a trustee is required to be given reasonable notice of any intended orders relating to the superannuation fund and be given an opportunity to be heard in respect of them. If procedural fairness is not accorded there is an error of law justifying an appeal.

Generally, the phrase “procedural fairness” has a similar meaning to “natural justice” and “due process”. In a case dealing with administrative law not family law, the High Court held that there is a common law duty to act fairly in making decisions which affect rights, interests and legitimate expectations (Kioa v West (1985) 125 CLR 550, 584 per Mason J).

Orders made without notice to the trustee are voidable, so they are valid until they are set aside (Fatt & Fatt [2004] FMCA fam 254).

Although it was not an issue raised by the parties, the Full Court of the Family Court in Pandelis & Pandelis (2019) FLC 93-885 raised the problem that the trustee had not been given procedural fairness and required that the parties rectify this before fresh orders were made.

Court requirements

Rule 10.16 Family Law Rules 2004 provides:

“Notice to superannuation trustee

(1)     This rule applies in a property case if a party intends to apply for a consent order which is expressed to bind the trustee of an eligible superannuation plan.

(2)     The party must, not less than 28 days before lodging the draft consent order or filing the Application for Consent Orders, notify the trustee of the eligible superannuation plan in writing of the following:

(a)     the terms of the order that will be sought to bind the trustee;

(b)     the next court event (if any);

(c)     that the parties intend to apply for the order sought if no objection to the order is received from the trustee within the time mentioned in subrule (3);

(d)     that if the trustee objects to the order sought, the trustee must give the parties written notice of the objection within the time mentioned in subrule (3).

(3)     If the trustee does not object to the order sought within 28 days after receiving notice under subrule (2), the party may file the application or lodge the draft consent order.

(4)     Despite subrule (3), if, after service of notice under subrule (2) on the trustee, the trustee consents, in writing, to the order being made, the parties may file the Application for Consent Orders or lodge the draft consent order.

Note:   Eligible superannuation plan is defined in section 90MD [now s 90XD] of the Act.”

Rule 14.06 Family Law Rules provides:

Notice to superannuation trustee

(1)    This rule applies in a property case if:

(a)  a party seeks an order to bind the trustee of an eligible superannuation plan; and

(b)  the case has been listed for the first day before the Judge.

(2)     The party must, not less than 28 days before the first day before the Judge, notify the trustee of the eligible superannuation plan in writing of the terms of the order that will be sought at the trial to bind the trustee, and the date of the trial.

(3)     If the court makes an order binding the trustee of an eligible superannuation plan, the party that sought the order must serve a copy of the order on the trustee of the eligible superannuation plan in which the interest is held.

Note 1:       Subrule 7.13(2) sets out how to prove service of a copy of an order.

Note 2:       Eligible superannuation plan is defined in section 90XD of the Act.

Rule 24.07 Federal Circuit Court Rules 2001 provides:

“Service of application or order for superannuation interest

(1)     This rule applies if, in an application, response or reply, a person:

(a)     seeks a flagging order or splitting order in relation to a superannuation interest under Part VIIIB of the Family Law Act; or

(b)     applies under section 79A or 90SN of that Act for an order to set aside an earlier order made in relation to a superannuation interest.

(2)     The person must, immediately after filing the application, response or reply, serve a sealed copy of that document on the trustee of the eligible superannuation plan in which the interest is held.

(3)     If the court makes a flagging order or splitting order or any other order in relation to the superannuation interest, the applicant must serve a copy of it on the trustee of the eligible superannuation plan in which the interest is held.

Completing the financial statement

Operative time or date

The operative time or date determines when a trustee must start to recognise the interest of the non-member. The operative time is different from the relevant date. The operative time has a different meaning in different circumstances. It is defined in s 90XD FLA as:

(a)    in relation to a payment split under a superannuation agreement or flag lifting agreement – the beginning of the fourth business day after the day on which a copy of the agreement is served on the trustee, accompanied by the other documents required under s 90XI.

(b)    in relation to a payment flag under a superannuation agreement – usually either:

(i)        the service time, if the eligible superannuation plan is a self-managed superannuation fund; or

(ii)      otherwise, the beginning of the fourth business day after the day on which the service time occurs (both (i) & (ii) are under s 90XK(1)); or

(iii)     if s 90XLA applies, the time that the payment to the trustee of the new ESP is made (s 90XLA(2)(c)).

(c)     in relation to a payment split under a court order, the time specified in the order.

In relation to a superannuation agreement, the operative time is the beginning of the fourth day after the service of the agreement and any other relevant documents on the trustee (s 90XDA(a)).

The Full Court in Wilkinson & Wilkinson (2005) FLC 93-222 said that a splitting order should have an operative time. The parties agreed that this should be the date of the order. The court considered that it should generally be the date of valuation of the interest. This was because the member’s interest may continue to grow from the date of valuation to the date the orders are made. The majority’s approach is very inconvenient and perhaps less practical for the trustee, but fairer between the parties.  In practice, the trustee will object if the operative time is before the date on which the order is served.

Base amount

This term is not defined in the FLA but is used when splitting most interests. A set dollar figure is allocated to the non-member. This represents the non-member’s interest in the total value of the superannuation. Adjustments may be made to the base amount before the splittable payment occurs. A payment can also be split by allocating a percentage of the splittable payment to the non-member.  The base amount should not be higher than the family law value.

Is the payment or interest splittable, unsplittable or not splittable?

The completed SIF will specify whether a payment is splittable. Section 90XE(1) defines a ”splittable payment” as any of:

(a)     a payment to the spouse;

(b)     a payment to another person for the benefit of the spouse. This covers the situation where the member ”rolls over” the superannuation interest into a new eligible superannuation plan;

(c)     a payment to the legal personal representative of the spouse, after the death of the spouse;

(d)     a payment to a reversionary beneficiary, after the death of the spouse;

(e)     a payment to the legal personal representative of a reversionary beneficiary covered in (d), after the death of the reversionary beneficiary.

A ”splittable payment” no longer exists once the split has occurred (reg 14).

The terms ”unflaggable interest”, ”unsplittable interest” and certain payments which are ”not splittable payments” are defined in the FLS Regulations (s 90XE(2)).

An ”unflaggable interest” is a superannuation interest in the ”payment phase” (reg 10A). In practice, this will almost always be a pension.

An ”unsplittable interest” is a superannuation interest with a withdrawal benefit of less than $5,000 (reg 11).

Certain payments to the member are ”not splittable payments” (reg 12 to 14Q FLS Regulations). They are usually payments made to the member on the ”compassionate grounds” under reg 6.19A(1) SIS Regulations which include:

• if the member is in severe financial hardship as defined by reg 6.01(5) SIS Regulations;
• the ill health of a member or dependant;
• the special needs of a member or a dependant arising from a severe disability.

The SIS Regulations were changed to counter the problem of orders being over-ridden by binding death benefit nominations. Injunctions can still be useful, though.

Growth phase

A superannuation interest is in the growth phase if:

• a condition of release has not been satisfied; or
• a condition of release has been met but no benefit paid; or
• only part of the benefit has been paid, provided that benefit is not a pension.

Superannuation not in the growth phase is described as being in the payment phase.

How a split works

According to Energy Super (www.energysuper.com.au) a split occurs as follows:

“Where a defined benefit has a family law split, the amount payable to the receiving partner is withdrawn from the member’s accumulation account first. Any remaining split is offset against the member’s defined benefit and accumulates with interest at the three year average crediting rate as a family law offset. On rare occasions where market returns are negative, the offset amount may decrease.

The balance of this offset is then deducted from the member’s benefit at the time the benefit is paid. However, if the defined benefit member has funds in an accumulation account, makes additional contributions, or rolls in other super benefits, they can request in writing to have some or all of the offset cleared at any time. With agreement from your employer, you can close your defined benefit account and transfer the remaining amount to an accumulation account. This effectively removes the exposure to the three year average crediting rate. However, you need to think about things like your age, salary, personal circumstances, insurance differences and the expected growth rate of your accumulation account. You will also need to consider the appropriate investment strategy for your accumulation account. You will not be able to transfer back to a defined benefit account at any time in the future, and your entire benefit will be subject to the net earning rates of the investment option your accumulation account is invested in.

Unrestricted non-preserved, restricted non-preserved and preserved benefits are shared between the parties in the same proportion to their share of the overall benefits.

The tax-free and taxable components of the superannuation benefit are calculated immediately before the family law split, and divided between the member and the receiving partner in the same proportion.

No tax is payable when a superannuation benefit is split, unless the receiving partner satisfies a condition of release and elects to receive the entitlement in cash.”

Creation of new interest

When the payment split is made, an interest will be created for the non-member spouse in a regulated superannuation fund or an Approved Deposit Fund (“ADF”). It can be done either at the non-member spouse’s request or at the trustee’s initiative. Part 7A of the SIS Regulations gives three options:

1. the creation of a new interest;
2. the transfer or roll over of the interest;
3. the payment of a lump sum where the non-member spouse has satisfied a condition of release (e.g. reaching retirement age).

Part 7A of the SIS Act contains additional operating standards for regulated superannuation funds and ADFs (SISR reg 7A.02). Failure to observe these standards constitutes an offence (SIS Act s 34) and puts the complying status of the fund at risk.

The amount payable to the non-member spouse is calculated in accordance with reg 45A, 45B, and 45D(3) and (4) of the FLS Regulations. The FLS Regulations require that at the time of payment, the amount to be paid to the spouse is the base amount stipulated in the court order or superannuation agreement adjusted with interest from the operative time up to the payment date. The interest rate applied to the base amount is determined by the Australian Government Actuary and is published in the Commonwealth Gazette. The rate is 2.5% above the percentage change in the original estimate of full-time adult ordinary time earnings for all persons in Australia, as published by the Australian Bureau of Statistics during the year ending with the November quarter immediately before the beginning of the adjustment period.

The rates for the current and the previous two financial years are:

• 2018/19 – 4.9%
• 2017/18 – 4.7%
• 2016/17 – 4.1%

The actual scheme earning rate has no relevance in determining the interest rate to be applied. It is irrelevant if the scheme has negative earnings between the operative date and the payment date; interest is still paid on the base amount at the rate set by the Australian Government Actuary.

What is a flag?

A flag is a type of injunction on the trustee of a superannuation fund. The trustee cannot make any payments or transfers in relation to that interest if a flag is in place. A flag only applies if the interest is in the growth, not the payment phase. A flag can be imposed by agreement (s 90XL) or by order (s 90XU).

If a payment flag is in place, the trustee must notify the non-member and the member within 14 days of a splittable payment becoming payable (i.e. on satisfaction of a condition of release). The trustee cannot make a splittable payment unless the flag is lifted either by a court order or a “flag lifting agreement”. Splittable payments include most payments to a member. Payments for temporary incapacity or hardship and payments to children are not splittable payments.

A flag does not prevent the member making decisions about investment options and life insurance. The interest can, therefore, still be eroded by high insurance premiums or risky investment decisions.

A payment flag survives the death of either spouse.

When to flag

A payment flag is mainly used when a condition of release is imminent and the value of the superannuation will not be clear until the superannuation is paid out. It is usually imposed on a defined benefit scheme, but can also be used with a partially vested accumulation interest (e.g. a scheme which provides incentives such as bonuses for employees). It can also be imposed on an interest in an accumulation fund if the member has or will soon meet a condition of release, to prevent either dissipation of the fund or the member electing to receive a pension rather than a lump sum.

The effects of a flagging order are set out in s 90XU(1) FLA. A flagging order:

• directs the trustee not to make any splittable payment without the leave of the court
• requires the trustee to notify the court, within a period specified in the order, of the next occasion when a splittable payment becomes payable in respect of the interest.

The court may take into account, in deciding whether to make a flagging order:

• such matters as it considers relevant
• in particular, the likelihood that a splittable payment will soon become payable in respect of the superannuation interest (s 90XU(2)).

A flag may be appropriate if:

(a)     the member is close to or over a condition of release

(b)     there is a chance that the non-member will not achieve a just and equitable settlement, e.g. the member elects to receive a pension rather than a lump sum

(c)     the member may terminate employment and put the superannuation into a less accessible form e.g. deferred annuity.

Matters relevant to whether a flagging order should be made include:

1. The length of time before a splittable payment will be made. The closer this event is, the more likely a flag order might be made. The longer the period of time, the less likely a flag order would be made. The longer a flag is in place, the greater the likelihood of the parties losing contact with each other and the court. Section 90XU(2) refers to whether a splittable payment will be made “soon”.
2. The circumstances of the parties. Section 81 FLA requires the court to make an order which achieves finality but only if it is “practicable”. Section 81 must be balanced against s 90XU.
3. The type of interest. A flag order is more suited to defined benefit interests or partially vested accumulation interests than fully vested accumulation interests. A fully vested accumulation interest has a readily ascertainable value. There is little to be achieved by a flagging order unless the member is about to meet a condition of release.
4. The circumstances of the member. If payments are made in certain circumstances, they may not be protected by a flag order. The non-member may, however, be prepared to take a chance that they may receive more rather than accept a certain but lesser sum under a splitting order. An imminent event which may impact on the value of the superannuation will increase the likelihood of a flag order. The most common situations are:

• Proposed resignation;
• Possible redundancy;
• Possible invalidity; or
• Terminal illness.

But beware of not splittable payments and unsplittable payments, which are defined in regs 12 to 14Q and reg 11 respectively of the FLS Regulations.

O’Shea & O’Shea (1988) FLC 91-964

This case pre-dated the 2002 amendments, so a flagging order was not possible. Instead, the proceedings were adjourned under s 79(5) for 20 years. The wife had the 6 youngest of 7 children living with her. There was only $12,000 of non-superannuation. The husband was 39 years old and had superannuation entitlements of $90,000 after estimated tax. At age 53 he was entitled to $227,000 and considerably more at age 60.

BAR & JMR (2005) FLC 93-231

A flag was imposed pending a pension becoming payable at which time the pension payments would be split between the parties. The flag was expected to operate for 7 years but it may operate longer. Justice Young did not look at the effect of s 90MU(2) (now s 90XU(2)).

Zoller & Zoller [2012] FamCA 47

The wife lived in Australia. The husband lived in Germany, but was in the Caribbean at the time of the hearing. A substantial proportion of the parties’ property was in Australia, but the court was satisfied that there existed the possibility for a substantial part of the parties’ property to be withdrawn from Australia unilaterally by the husband. The husband was aware in general terms that the wife was bringing an application for property settlement proceedings. He was due to arrive in Australia in about two weeks. The trustee of the fund had received procedural fairness and did not seek to be heard. It agreed to abide by any court order.

The court was satisfied that there was no undue prejudice to the husband within r 5.12 Family Law Rules (which sets out the requirements of an application without notice), but relisted the matter to give the husband the opportunity to be heard. In the meantime a flagging order was made on an ex parte basis.

Silver & Woden [2016] FamCA 120

The husband was able to retire approximately one month after the hearing of the wife’s application for a flagging order. There had not yet been a valuation of a real property owned by the husband or of the husband’s interest in a company, but the wife argued that it was possible that the husband’s superannuation interest of $122,400 might be the only property available to meet her claim for a property settlement.

As the husband did not consent to any flagging or restraining order and would not give an undertaking not to dispose of his superannuation, the court found it appropriate to make a flagging order to preserve the property until the proceedings were finally determined.

Self managed superannuation funds (SMSFs)

Members of self managed superannuation funds (SMSFs) must also be trustees of the fund or directors of the trustee company of the fund. If both parties to the marriage are members of an SMSF, an added layer of complexity arises as both parties must continue to be involved in the trusteeship of that fund until the parties are no longer members of the same fund. This may affect decision making during the period between separation and settlement.

The underlying assets may be illiquid or “lumpy”, and a strategy may be required to ensure that the interest of one party is able to be transferred to another fund. Assets of the fund may need to be sold if cash for one member’s interest to be rolled over into an accumulation fund is required as that member doesn’t want to be in another SMSF.

If the SMSF’s financial statements show current values of the assets in the fund, these can be used to value the fund. However, the valuations in the financial statements are usually not current; publicly-listed shares may be at their purchase price or as at the previous 30 June, and real estate is usually at its purchase price. In addition, sales and purchases may have taken place, interest or dividends may have been earned and taxation or other expenses incurred since the financial statements were prepared. Valuations may be more costly with SMSFs as accountants and real estate valuers are often required. Expert actuarial advice may be required to consider issues associated with reserves, forgone benefits or unallocated contributions. Legal and accounting advice may be required to assist with the interpretation or construction of the trust deed, and to finalise the relevant resolutions of the trustee.

Care must be taken when dealing with SMSFs as some are non-compliant. If the SMSF is compliant, it is important to ensure that the fund maintains its complying status at all times. If the fund is non-compliant, independent advice may be desirable as to the work and costs required to make the fund compliant. One member may, in practice, have less knowledge of the SMSF and may not have practical control to ensure the SMSF is compliant.

Nevertheless, that member is jointly and severally liable for any tax and other penalties which may be imposed. If that member is leaving the fund, they will probably want an indemnity from the ongoing member. But an indemnity will not be enough if the ATO can’t recover from the ongoing member. The outgoing member will still be jointly and severally liable to the ATO for any tax and penalties which relate to the period when they were a trustee.

Professional advice should be sought as to how to deal with any potential tax penalties. See, for example, Linder & Linder [2013] FamCA 988, Gabbard & Gabbard [2010] FMCAfam 486 and Thurston & Loomis [2016] FamCA 318.

CGT concessions may apply to the transfer of assets in specie between superannuation funds. These are useful if a member rolling out their interest into another SMSF. The conditions which must be satisfied to attract CGT roll-over relief because of marriage or relationship breakdown between funds in circumstances where each party is keeping their own entitlement are as follows:

1. The parties are members of an SMSF.
2. An interest in the SMSF is subject to a payment split under the FLA.
3. The trustee of the SMSF transfers a CGT asset to the trustee of another complying fund for the benefit of the leaving party.
4. The transfer is in accordance with an award, order or agreement under s 26-140(2B) of the Income Tax Assessment Act 1997 (ITAA97) or under s 90XZA FLA.
5. The transfer is in accordance with the terms of a superannuation agreement or order and the transfer is because of marriage or relationship breakdown.
6. As a result of the transfer, the leaving party will have no entitlement in the SMSF.
7. It may be necessary to have cross-splits to ensure that the party who remains a member of the SMSF does not incur a CGT liability as a result of the restructure.

CGT roll-over relief may also be available to payment splits where the parties are not retaining their own interests if the requirements of the FLA, especially s 90XZA, or the SIS Regulations, are met.

Gabbard & Gabbard [2010] FMCAfam 1486

The husband dissipated nearly all of the assets of the SMSF without the wife’s knowledge or consent. In August 2007, there was $164,936.45 in the SMSF. By 12 January 2009, the balance was only $1,767.23. Federal Magistrate Henderson found that it was a priority that the fund be repaid the sum necessary to make it compliant. There had been two adjournments to enable the husband to do certain things including to reimburse the SMSF, but he did not do so.

The wife relied on the report of an expert setting out the actions required to make the SMSF compliant. These actions were:

• the moneys must be fully refunded
• tax returns had to be prepared for the six non-complying years
• the ATO had to be advised of the husband’s conduct and actions, and
• the parties would then await the ATO’s decision.

Federal Magistrate Henderson referred to the SMSF’s trust deed and found that the wife could be appointed as the delegate of the trustee of the SMSF to do all acts necessary to make the fund compliant. She also appointed the wife as trustee to sell the real estate so that the wife could pay the amount necessary to the fund to make it compliant.

Callis & Callis [2014] FamCA135

The parties finalised property matters in December 2002. These orders were set aside in February 2013 under FLA s 79A(1)(b) and (c). The transitional provisions when the superannuation splitting legislation commenced, prohibited the parties from re-opening previous settlements by consent on the grounds of the introduction of the superannuation splitting regime. These parties were able to rely on other grounds to set them aside and a consent order for a superannuation split.

The base amount was determined by the parties to be the amount equal to the value of a real property in Suburb D, Queensland. That sum was to be met by a transfer of the Suburb D property to the wife’s superannuation fund.

All costs associated with the transfer were to be paid by the wife. Justice Cronin was surprised at this as the order left only one trustee liable for the costs, being the wife, rather than both trustees.

Thurston & Loomis [2016] FamCA 318

Justice Forrest was dealing with an SMSF with which there were substantial issues of non-compliance with legislative and regulatory requirements by the parties who were directors of the corporate trustee of the SMSF.

The parties had withdrawn most of the funds from the SMSF to pay for the development of real property registered in the name of one party and the rest to pay for personal purposes not related to the proper conduct of the fund. A jointly instructed independent accountant gave evidence which was summarised by Forrest J (at [4]) recommending that:

“… the withdrawals should be treated as loans to members of the fund as a prelude to taking remedial steps so as to reduce the impact of the regulatory consequences of the non-compliance, as far as is possible. Whilst … treating the withdrawals as loans to members does not in itself remedy the non-compliance because they are related party loans and breach the ‘in house asset’ rules of the Superannuation Industry (Supervision) Act 1993 (Cth) and the Superannuation Industry (Supervision) Regulations 1994 (Cth) … if the loans are repaid with interest calculated at the appropriate rate, having regard to guidance set by the Australian Tax Office (‘the ATO’), that the issues of non-compliance may be dealt with in a less punitive fashion by the ATO than they might if the non-compliance is otherwise not addressed.”

Justice Forrest ordered that funds held in two bank accounts which derived from the sales of real property acquired by the parties during the relationship should be used to repay the SMSF. He also ordered that the independent accountant report the matters to the ATO. He adjourned the delivery of his judgment until after the interim matters were dealt with and the parties and the judge had been advised of the remaining funds in the two accounts.

Tippett & Tippett [2017] FamCA 198

This is a useful case to refer to when preparing orders to effect a 50%/50% split of a self-managed superannuation fund.

The intention and effect of the orders was explained at paragraph 11 of the Orders:

“11.   That in order to give effect to the superannuation splitting orders contained in  Orders 8-10, the intent of which is agreed and acknowledged to divide all assets of the D Super Fund as to 50 per cent to the husband and 50 per cent to the wife in specie, to distribute any tax free components as to 50 per cent to the husband and 50 per cent to the wife and to achieve the appropriate percentage division of assets by reference to their cost base for capital gains tax purposes, upon the Trustee Company giving effect to the splitting order, the husband and wife in their capacities as Directors of the Trustee Company shall forthwith divide within the D Super Fund the assets of the D Super Fund and do all acts and things to attend to the following:

11.1. Transfer 50 per cent of all cash held by the fund to an account nominated by the wife; and

11.2. Transfer 50 per cent of each individual parcel of shares or equities as historically acquired by the D Super Fund (and presently held) to be transferred to a share trading account nominated by the wife, and the balance to the husband, and for avoidance of doubt such division and transfer to be carried out conformably with the following example:

Example: Assume that the D Super Fund holds 600 shares in X Limited; 200 purchased for $1.00 per share in 2000 (“the 2000 shares”); 200 purchased for $5.00 per share in 2002 (“the 2002 shares”) and 200 purchased for $10.00 per share in 2005 (“the 2005 shares”). The obligation imposed on the trustee shall not simply be to transfer 50 per cent of the shares in X Limited to the wife’s nominated fund, but to transfer 50 per cent of the shares comprising the 2000 shares, the 2002 shares and the 2005 shares.”

Defined benefit funds

Most superannuation interests are accumulation funds. There are rarely valuation difficulties with accumulation funds. Defined benefit funds are decreasing in number. The value of interests in defined benefit funds does not bear a direct relationship to the contributions made by the employer, employee or both, and to any earnings on investments.

The whole or part of the interest in a defined benefit fund is defined by reference to one or more of:

• the member’s salary at the date of termination of the member’s employment, the date of the member’s retirement or another date
• the member spouse’s salary averaged over a period
• the amount of salary, or allowance in the nature of salary payable to another person (e.g. a judicial officer)
• a specified amount
• specified conversion factors (reg 5(1) and (1A) FLS Regulations).

An interest in a defined benefit fund cannot always be split. The member’s spouse may have to meet a condition of release and seek access to the superannuation before the non-member’s interest can be released to the member. The non-member’s interest can only be withdrawn at that stage if the non-member meets a condition of release at the time the member accesses the superannuation. A member may be able to delay accessing their superannuation until age 75 or even later. This will delay the non-member receiving their share.

Many defined benefit funds have either amended their deeds or governing legislation to enable an immediate split or are looking at doing so. This reduces the cost and complexity for the fund of having the member and non-member each having separate “interests” in the one interest. It also removes the risk for the fund of allowing the member to deal with the interest in contravention of the splitting order, or of miscalculating the non-member’s interest many years later when the member meets a condition of release.

Overseas funds

Overseas superannuation funds are not covered by the FLA superannuation splitting scheme. This is very clear from s 90XD FLA as they are not within the definition of “eligible superannuation plan”. This has not, however, stopped parties from trying to value overseas funds using the methods allowed by Australian law.

An example of an overseas fund arose in Forster & Forster [2015] FamCA 57. The husband was retired and received a pension of US$3,733 per month from a United States government agency. The wife’s adversarial expert valued the pension by giving it a capital value using the valuation factors approved under the Family Law (Superannuation) (Methods and Factors for Valuing Particular Superannuation interests) Amendment Approval 2003.

Justice Benjamin rejected the valuation by the expert as he was not an expert in the law of the relevant United States government agency pension. Justice Benjamin treated the pension income as a valuable financial resource of the husband accumulated over about 28 years. The husband was married to the wife for about 10 years, being about 36% of the period of his employment.

The husband gave evidence that the wife had rights under United States law to seek a portion of the pension income. The wife’s evidence was that she did not intend to claim any part of any entitlement that may exist. Justice Benjamin accepted the evidence and said that if the wife acted contrary to that evidence, she was likely to impeach the orders he made.

Justice Benjamin divided the property (which did not include the United States pension) equally, which meant each party received about $260,000.

Another example of overseas superannuation funds arose in Preiss & Preiss [2017] FamCA 12. Neither party sought an alteration of the Australian or Israeli superannuation interests. The parties agreed that their contributions to the superannuation funds were equal. The trial judge said that there were grounds for an adjustment under s 75(2) FLA, but taking into account that the parties were a long way from retirement and the absence of evidence about the substance and form of the various superannuation interests, the judge was satisfied that no adjustment of superannuation interests should be made.

In relation to United States funds, the non-member spouse may be able to apply for the equivalent of a split of the member’s interest independently of any Australian orders and without the necessity of obtaining an order in the United States. It is an administrative process.

Separation declarations

There are two types of separation declaration under the FLA:

1. Separation declarations are required to enable certain provisions of a financial agreement to be effective. A financial agreement dealing with property or financial resources will be of no force or effect unless and until a separation declaration is made under s 90DA or 90UF.
2. Separation declarations are also required specifically to enable a superannuation split in a financial agreement to be effective. They are required to help ensure that financial agreements (which are essentially private arrangements) are not used to enable parties in intact marriages to take advantage of the superannuation-splitting provisions which are only for separated couples.

There are two sub-types of separation declarations that apply to superannuation splits in financial agreements, depending on the value of the superannuation interest:

2.1. Section 90XP – Where the member has superannuation interests with a withdrawal value that is less than the low rate cap amount ($205,000 for 2018/2019 and $210,000 in 2019/2020), the separation declaration needs to state that the spouses were married or in a de facto relationship but are separated at the declaration time. If either or both of the spouses have died, the declaration must state that the spouses were married or in a de facto relationship, but separated, at the most recent time when the spouses were alive. In this latter case, the declaration may be signed by the spouse’s legal personal representative. The withdrawal value of the member’s interests is determined by adding together the withdrawal benefits for each superannuation interest the member has in any eligible superannuation plan (reg 20 FLS Regulations).

2.2. Section 90XQ – Where the member has superannuation interests with a withdrawal value that is more than the low rate cap amount, a more formal declaration is required. This is because of the considerable tax advantages that are on offer. In such a case, the declaration must state that:

• • the spouses were married or lived in a de facto relationship
  • the spouses have separated and thereafter lived separately and apart (even if under the one roof) for a continuous period of at least 12 months immediately before the declaration time
  • in the opinion of the spouse signing the declaration (or both if both are signing), there is no reasonable likelihood of cohabitation being resumed.=

Where either or both of the spouses have died, the declaration may be signed by the spouse’s legal personal representative and must state that at the most recent time when both spouses were alive:

• • the spouses were married or in a de facto relationship, but
  • the spouses were separated and had lived separately and apart for a continuous period of at least 12 months immediately before that time.

A person who makes a separation declaration under s 90XP or 90XQ knowing that it is false or misleading in a material respect may be guilty of an offence if the declaration is served on the trustee of a fund for the purposes of splitting a superannuation interest. The penalty is imprisonment for a period of up to 12 months (s 90XZG). However, a person is not guilty of the offence if a spouse to which the declaration relates died before the declaration was made.

When to use a superannuation agreement?

Reasons for using a superannuation agreement include:

1. 1. The parties want to settle their affairs with a financial agreement. Under s 90XH(1), a superannuation agreement can be part of a financial agreement which also deals with non-superannuation property. Parties may prefer to have all their financial issues covered by one document in circumstances where they have already agreed to formalise the division of non-superannuation property in a financial agreement.
2. There does not need to be a formal valuation of the superannuation. This may suit parties faced with difficult valuation issues regarding a defined benefit fund, self managed superannuation fund or a pension in the payment phase. There may be a significant difference in the value of the fund using scheme specific factors rather than the member’s statement and the parties agree to rely on the members statement. Another example is when parties agree to assume a retirement age of, say 55, rather than another age imposed by the Regulations or scheme specific factors. Valuation evidence of some sort is still required to reduce the risk of later negligence claims against the lawyers.
3. The parties may have agreed to take the superannuation into account in a manner which may not seem, on its face, to be proper, appropriate, and just and equitable as required by s 79. Using a superannuation agreement avoids the risk of a Registrar knocking back the consent orders in Chambers and referring the matter to a Judge in open Court. Of course, the benefits of this must be weighed up against the risks of a later application by one of the parties to set the agreement aside.
4. The parties can specify a method in the agreement for splitting the superannuation interest. This can be different to the options available in court orders. If the parties use their own method they must give an example to the trustee to show how the base amount is to be achieved (s 90XI(b)). This does not need to be in the agreement itself but can be in a separate document.
5. The complexity of superannuation generally and of the proposed orders in a particular case may encourage lawyers to split superannuation by a superannuation agreement even if non-superannuation is dealt with in consent orders. A superannuation agreement can be particularly useful with the complex issues which may arise with self-managed funds.

Requirements for an agreement

Besides meeting the requirements for a financial agreement in Pt VIIIA or Pt VIIIAB FLA, a superannuation agreement must meet three other conditions which do not apply to court orders dealing with superannuation. These are:

1. A trustee cannot act on a superannuation agreement unless it is satisfied that the parties are either separated or divorced. The operative time for a payment split is determined by the date of service of the agreement and certain other documents as set out in s 90XI. One or both parties can sign a declaration stating that they are married (or were in a de facto relationship) but are separated at the time of the declaration (s 90XI(a)(ii) and s 90XP). If the parties are divorced the decree absolute must be served (s 90XI(a)(i)). For a financial agreement made before divorce, a s 90DA separation declaration may also be required.
2. If the member’s interest exceeds the eligible termination payment tax-free threshold ($200,000 in 2017/2018 and $205,000 in 2018/2019), a separation declaration under s 90XP is required. This is to reduce the potential for tax avoidance (s 90XQ). The declaration must state that:

• • the parties are married or were in a de facto relationship;
  • the parties separated and lived separately and apart for a continuous period of at least 12 months immediately before the time the declaration was made;
  • in the opinion of the party or parties making the declaration, there is no reasonable likelihood of cohabitation being resumed.

3. An agreement which splits an interest does not bind the trustee until four working days after the date on which a copy of the agreement is served on the trustee (s 90XI).

Can superannuation be dealt with in a pre-nuptial agreement?

Despite s 90XH(1) providing that superannuation can be dealt with in a financial agreement, it may not be practical to deal with it in a s 90B, 90UB (pre-separation), 90C or 90UC agreement.

Section 90XH(1) says a superannuation interest does not have to exist when the agreement is made but s 90XJ(1)(a) requires the interest to be identified in the agreement. How can an unknown future interest be identified?

Section 90XI(1)(b) allows a superannuation split to occur if the agreement specifies a method for calculating the base amount. A formula can possibly be inserted in the agreement even if the future interests of the parties are unknown.

What about procedural fairness to the trustee? The Family Law Rules require this for orders but the Act is silent in relation to financial agreements. Trustees still require it though, so the proposed agreement should ideally be sent to the trustee before the agreement is executed. Although an unsplittable payment is a ground for agreements to be set aside under s 90K(1)(g), trustee refusal to implement is not within the definition of an unsplittable interest in Reg 11 FLS Regulations. As a superannuation split cannot be as clearly set out in a pre-nuptial or pre-cohabitation agreement or an agreement during cohabitation or marriage as in a post-separation agreement or court order, a trustee may be quite justified in refusing to implement it or the trustee may be unreasonable. This may be grounds for impracticability within s 90K(1)(c) but do lawyers need to advise clients of this risk?

It is probably theoretically possible to navigate these sections, but luck rather than legal skill may be required.

Is it possible to make a super-splitting order (to implement the provisions of a financial agreement) by way of enforcement under s 90G(2)? Probably not, as the order is being created rather than enforced. Is a superannuation split in a financial agreement within s 90KA? It is far easier to envisage the court making orders to transfer, say, shares of entities which were not in existence at separation (under a general provision requiring that a party transfer shares in all entities to the other) than creating a super-splitting order from scratch.

The implementation of superannuation split provisions in agreements entered into before separation has not been examined by the courts.

Common problems with superannuation splitting orders

1. The trustee is not correctly named.
2. The name of the fund is not correct – see www.superfundlookup.gov.au.
3. Any court order or superannuation agreement which specifies an operative date before the commencement of the relevant provisions of the order is likely to be objected to by the trustee.
4. The court order or superannuation agreement seeks to split an unsplittable superannuation interest.
5. An appropriate identifier for the member spouse (such as the member spouse’s membership number or date of birth) isn’t included in the court order or agreement.
6. The court order or agreement specifies a base amount which is greater than the value of the member spouse’s superannuation interest in the fund.
7. The separation declaration is incomplete.
8. The court order or superannuation agreement does not comply with the requirements in the FLA regarding superannuation splitting. For example, it won’t comply with the FLA if it:

• • specifies the payment of a lump sum payment to the non-member spouse when the superannuation interest is preserved; or
  • doesn’t specify a percentage split to which the non-member spouse is entitled; or
  • specifies that the base amount will be paid to the non-member spouse rather than specifying that the non-member spouse will be entitled to be paid an amount calculated under Part 6 of the FLS Regulations using the base amount.

9. Confusing splitting with rollovers.
10. Splitting orders are inconsistent with the assets owned by an SMSF.
11. Inconsistency with trust deed/rules.
12. No procedural fairness given to the trustees under s 90XZD

Common problems with superannuation splitting agreements  [1]

1. The operative time, if included, is incorrect. The operative time is specified in s 90XI FLA. A payment split can only commence on the fourth business day after the day on which a copy of the agreement is served on the trustee, along with other necessary documents;
2. A Separation Declaration or divorce certificate is not provided;
3. The Separation Declaration is incomplete. The specific requirements of a Separation Declaration vary, depending on the value of the superannuation entitlement, pursuant to s 90XP and s 90XQ FLA;
4. No Statement of Independent Legal Advice;
5. The Agreement is not signed by the parties;
6. The Agreement fails to specify the method of superannuation splitting by:

• • base amount pursuant to FLA s 90XJ(1)(c)(i); or
  • percentage pursuant to FLA s 90XJ(1)(c)(iii); or
  • method pursuant to FLA s 90XJ(1)(c)(ii).

7. Not submitting the agreement to the fund before it is executed. There is no legal requirement that this be done, but if the fund says it is unable to implement the agreement, it will need to be terminated by consent or one party will need to apply for it to be set aside and they may not be successful.
8. The payment of death benefits is complex. The fund can only pay out a death benefit in accordance with the governing rules of the fund. Points to note are:

• • The eligible beneficiaries for death benefits are prescribed in the relevant legislation and cannot be varied – death benefit nominations by the member will only have effect in some funds and in limited circumstances;
  • Pension payments are contingent upon the life of the beneficiary and therefore will cease on the death of the beneficiary (reversionary pensions may be payable in some circumstances to eligible beneficiaries);
  • The value of a benefit paid on death may differ from the value calculated for family law purposes, this is because these calculations take into account particular assumptions, for example, that the member will work until retirement age.

Sample wording

ESS Super Agreements

Sample 1: where a base amount is to be specified

“That pursuant to section 90XJ(1)(c)(i) of the Family Law Act 1975, whenever a splittable payment becomes payable in respect of the superannuation interest of [name of member] in the Emergency Services Superannuation Scheme – [name of scheme]:

(a)   [name of non-member spouse] shall be entitled to be paid an amount calculated in accordance with Part 6 of the Family Law ((Superannuation) Regulations 2001 using the base amount of $XXX*;

(b)   there be a corresponding reduction in the superannuation interest of [name of member] to whom the splittable payment would have been made but for this Agreement.”

* base amount may not exceed the value of the member’s interest.

Sample 2: where a percentage split is to be specified

“That pursuant to section 90XJ(1)(c)(iii) of the Family Law Act 1975, whenever a splittable payment becomes payable in respect of the superannuation interest of [name of member] in the Emergency Services Superannuation Scheme – [name of scheme], the trustee shall pay to [name of non-member spouse] [insert percentage required]% of each splittable payment and there be a corresponding reduction in the entitlement [name of member] would have had but for this Agreement.”

Sample 3: operative time to be specified

“That the operative time for this Agreement is four business days after service of the Agreement on ESSSuper, accompanied by a [decree absolute/separation declaration].”

Sample 4: inclusion of clause for member to provide forms if a splittable payment becomes payable

“If as a result of termination of his/her employment [name of member] becomes entitled to a benefit prior to ESSSuper making a payment under section [insert clean break section of relevant Act], s/he shall provide to ESSSuper all such forms as shall be necessary to enable the trustee to determine the nature and quantum of the superannuation entitlement and any other related information it may reasonably require, within 7 days of that entitlement arising.”

Unisuper Orders

Sample 1: where a base amount is to be specified

“That pursuant to section 90XT(1)(a) of the Family Law Act 1975 (Cth), whenever a splittable payment becomes payable in respect of the superannuation interest of [name of member] in UniSuper:

(a)   [non-member spouse] shall be entitled to be paid an amount calculated in accordance with Part 6 of the Family Law (Superannuation) Regulations 2001 (Cth) using the base amount of $…… (provided that such base amount shall not exceed the value of the interest determined under section 90XT(2)); and

(b)   there be a corresponding reduction in the superannuation interest of [member] to whom the splittable payment would have been made but for the Order.”

Sample 2: where a percentage split is to be specified

“That pursuant to section 90XT(1)(b) of the Family Law Act 1975, whenever a splittable payment becomes payable from the superannuation interest held by [member] in UniSuper, the trustee shall pay to [non-member spouse] [insert percentage required]% of each splittable payment and there be a corresponding reduction in the entitlement [member] would have had but for the Order.”

Sample 3: inclusion of liberty to apply

“That each party and the trustee has liberty to apply on not less than three (3) business days’ notice.”

UniSuper Agreements

Sample 1: where a base amount is to be specified

“That pursuant to section 90XJ(1)(c)(i) of the Family Law Act 1975 (Cth), whenever a splittable payment becomes payable in respect of the superannuation interest of [member] in UniSuper:

(a)   [non-member spouse] shall be entitled to be paid an amount calculated in accordance with Part 6 of the Family Law (Superannuation) Regulations 2001 (Cth) using the base amount of $…… (provided that such base amount shall not exceed the value of the member’s interest); and

(b)   there be a corresponding reduction in the entitlement of [member] to whom the splittable payment would have been made but for this Agreement.”

Sample 2: where a percentage split is to be specified

“That pursuant to section 90XJ(1)(c)(iii) of the Family Law Act 1975 (Cth), whenever a splittable payment becomes payable in respect of the superannuation interest of [member] in UniSuper, the trustee shall pay to [non-member spouse] [insert percentage required]% of each splittable payment and there be a corresponding reduction in the entitlement [member] would have had but for this Agreement.”

Sample 3: operative time

“That the operative time for this Agreement is four business days after service of the Agreement on UniSuper, accompanied by a [certificate of divorce/separation declaration].”

Sample 4: statement regarding independent legal advice

“The parties acknowledge that before signing the Agreement, they have each had individual and independent legal advice from separate legal practitioners in relation to:

• the effect of the agreement on the rights of that party; and
• about the advantages and disadvantages, at the time that the advice was provided, to that party of making the agreement.

In the knowledge of that advice, the parties freely and willingly enter into this Agreement, and acknowledge that they have each received a copy of this statement.”

Conclusion

This overview of the making of superannuation splitting and flagging orders, and drafting superannuation provisions in financial agreements sets out some of the problems and issues which need to be considered when drafting these provisions.   When dealing with funds which are not self-managed superannuation funds, the first step should always be to look at the website of the relevant fund and follow as closely as possible any preferred wording of the fund.

© Copyright – Jacqueline Campbell of Forte Family Lawyers and Wolters Kluwer/CCH. This paper uses some material written for publication in Wolters Kluwer/CCH Australian Family Law and Practice. The material is used with the kind permission of Wolters Kluwer/CCH.

Jacky Campbell, June 2019

Will de-federation of the Family Court fix fragmentation of family law? An analysis of the ALRC’s final report on family law

Family law never stagnates.  Legislative reforms since the introduction of the Family Law Act 1975 (Cth) have often either followed societal developments or, more frequently, led or accompanied them.  However, the next 12 months has the potential for even greater change for family lawyers, the family law courts and parties than has ever occurred in a 12 month period since 1975.

The Attorney-General, Christian Porter, says he is committed to the structural reforms of the Family Court and the Federal Circuit Court (the family law courts) he proposed prior to the 18 May 2019 federal election. In a media release on 29 May 2019 he said:

“The highest priority will be the structural reform of the family law courts to ensure families requiring the assistance of the courts to finalise their relationship are able to have their matters dealt with as quickly, efficiently and cheaply as possible.”

Regarding the recommendations of the Australian Law Reform Commission (ALRC) in its Final Report on the Review of the Family Law System released on 10 April 2019 (Final Report) which can be accessed at www.alrc.gov.au/inquiries/family-law-system, Mr Porter said:

“If re-elected, the Government will … be fully committed to considering and developing individual responses to the complex issues raised in each of the 60 recommendations made in the final ALRC report.

I have asked my department to commence its consideration of the ALRC’s report and to develop comprehensive advice about each of the reforms suggested by the ALRC to ensure that the family law system supports modern Australian families to resolve their disputes safely and as efficiently and cheaply as possible.”

There are many aspects of family law which demand review, but regrettably the ALRC’s Final Report was not the comprehensive review that was promised.  Some of the areas it covered are:

1. The Family Law Act 1975 (Cth) (FLA) and its associated rules and regulations are complex, unwieldy and inaccessible to the many litigants in person. This is exacerbated by the different rules, procedures and forms used in the two family law courts;
2. The shared parenting provisions are complicated, unworkable, build unrealistic expectations and arguably put the interests of parents above those of the children;
3. The current property settlement provisions do not provide a clear path and the FLA should set one out;
4. An increasing number of cases in the family law courts deal with family violence and child abuse, and the law and processes need to change to better deal with these cases including, in particular, the interaction of family violence orders obtained in state and territory courts with parenting orders obtained under the FLA.

The federal government seems determined to institute major reform to the structure of the family law courts and to family law generally.  There are three major questions:

• Which reforms will the federal government focus on?
• Are they the best reforms?
• Will the government be successful in having the changes passed through the Senate where it will need to rely on the support of the cross-benchers if the reforms are not supported by the Labor Party or the Greens?

This article looks at the Terms of Reference of the ALRC’s Review of the Family Law System, deficiencies with the Terms of Reference, problems with the Final Report, lists all the Recommendations indicating those which are likely to have significant support, and gives commentary on some of the Recommendations.

Note:  The views and opinions expressed in this article are those of the author.

1. Terms of Reference of the ALRC’s Review of the Family Law System

On 27 September 2017, the then Attorney-General George Brandis announced a review of the FLA and stated that it was “the first comprehensive review of the FLA since its commencement in 1976”. He announced 15 Terms of Reference, including:

• The appropriate, early and cost effective resolution of all family law disputes;
• The protection of the best interests of children and their safety;
• Mechanisms for reviewing and appealing decisions;
• The underlying substantive rules and general principles in relation to parenting and property.

Other Terms of Reference covered such matters as family violence (mentioned three times); the adversarial court system; the integration of the family law system with other Commonwealth, state and territory systems; rules of procedure; and improving the clarity and accessibility of the law.  There was a catch all Term of Reference of “any other matters related to these Terms of Reference”.

2. Deficiencies with the Terms of Reference

Whilst the ALRC was undertaking the Inquiry, there was a debate between the federal government, the ALRC and other stakeholders as to whether the Terms of Reference included consideration of structural reform of the family law courts. The Inquiry was promoted by the federal government as the first comprehensive review of the FLA since 1976, so it was reasonable to interpret the Terms of Reference broadly to include structural reform (particularly when structural reform was being considered by Parliament), and other aspects of family law not specifically mentioned but “related to” the Terms of Reference.

The Federal Circuit Court and Family Court of Australia Bill 2018 and the Federal Circuit Court and Family Court of Australia (Consequential Amendments & Transitional Provisions) Bill 2018 (the Restructure Bills) were tabled in Parliament on 23 August 2018, while the ALRC was still conducting its Inquiry: after the Issues Paper was released in March 2018, but before the Discussion Paper was released in October 2018. The Bills were aimed at “increasing efficiencies and reducing delays” (para 1 of the Explanatory Memorandum to the Federal Circuit and Family Court of Australia Bill 2018) which addresses the first Term of Reference being “the appropriate, early and cost‑effective resolution of all family law disputes.”  Structural reform was a matter which could and should have been considered in depth by the ALRC as part of its “comprehensive review of the FLA”.

Interestingly, there was no express reference to child support in the Terms of Reference although this is a fundamental part of family law and continues to impact on families and children for many years after the parents have resolved their property disputes.

The ALRC, in its Issues Paper released in March 2018, recognised two deficiencies in the Terms of Reference: structural reform and child support.  It also referred to the quandary it faced because it considered that matters of state and territory responsibility and the child protection system are part of the “family law system”.

3. The ALRC’s Final Report

The Inquiry into the family law system was an initiative of the Coalition government and that government was returned at the federal election in May 2019.  The ALRC’s recommendations are therefore likely to be given serious consideration by the federal government and provide a blueprint for reform of the family law system.  There will be pressures from stakeholders – the family law courts, lawyers and special interest groups and organisations advocating for family violence victims and men’s rights.

The ALRC’s Final Report is over 570 pages with 60 Recommendations.  The ALRC claims that the implementation of its Recommendations will improve the family law system by doing the following:

• Promoting an integrated court response to family law matters, child protection matters, and matters involving family violence, providing better protection to individual litigants and their children;
• Assisting parties to understand the family law legislation and to resolve their disputes under the umbrella of the law, improving the consistency and fairness of negotiated outcomes;
• Assisting parties and the courts to arrive at parenting orders that best promote the best interests of the child;
• Assisting parties to understand and comply with parenting orders, reducing conflict and thus contributing to the welfare of children;
• Increasing the proportion of separated couples who are able to resolve their parenting matters and property and financial matters outside the courts through a process that ensures fairness and reduces ongoing conflict;
• Reducing acrimony, cost, and delay in the adjudication of family law disputes through the courts; and
• Ensuring that families who seek assistance from the family law system with legal and other support needs receive that support in a coordinated and efficient manner.

The ALRC pointed out (at 1.5) that it was constrained by time limits and by the breadth of the matters it was required to inquire into within a short timeframe.  As a result, the ALRC said it had to omit some issues and apologised for not producing a “bold new initiative” or “magic wand fix”.  Besides these constraints, the ALRC was also restricted by the narrow Terms of Reference – a major deficit was the omission of an express Term of Reference about the best structure for the family law courts. Whilst the Law Council of Australia and others, argued that the Terms of Reference allowed the ALRC to consider structural reform, the Attorney-General publicly declared that it was not part of the ALRC’s inquiry which was only dealing with principles and legal provisions of the family law system (Media Release 30 May 2018; “Law Council takes aim at Porter over family reforms” Australian Financial Review, 10 April 2019).

In the absence of a definition in the Terms of Reference, the ALRC interpreted (at p13) the phrase “family law system” broadly, to refer collectively to:

• The Family Court of Australia;
• The Family Court of Western Australia;
• The Federal Circuit Court of Australia;
• All family law and post separation services including family relationship services (such as government funded family counselling services, post separation parenting programs and children’s contact services);
• Legal aid commissions;
• The community legal sector; and
• Private legal services.

This broad definition, which incorporates matters under state and territory jurisdiction, rather than just federal jurisdiction, meant that the Inquiry made Recommendations which the federal government does not have the power to implement.

4. Over-arching principles

The ALRC said that it was guided by the following over-arching principles in formulating its recommendations:

5. The Recommendations

The Recommendations are listed under the relevant chapters of the Final Report are, with an indication of whether they are likely to receive wide stakeholder support are:

There are a number of appendices to the Final Report.  Appendix G contains examples of re-drafted parenting provisions.  Appendix H sets out a suggested restructure of the children’s provisions.  Appendix J sets out the existing and proposed decision making pathways in children’s matters.

6. Problems with the ALRC Final Report

The problems with the ALRC’s Final Report include:

• Failure to seek submissions on structural reforms of the family law courts, including the Restructure Bills.
• The ALRC identified two major deficiencies of the current family law system:

.1            The FLA was “impenetrable” for lay people and even many lawyers;

.2            The family law system has been deprived of resources to such an extent that it cannot deliver the quality of justice expected of a country like Australia, and to whose family law system other countries once looked and tried to emulate (at 1.8).  This has led to a loss of faith in the system.

Although the ALRC made recommendations to address the impenetrability of the FLA it did not make substantive recommendations to address the funding crisis of the family law courts.  It recommended that new services be funded, but not increased funding for current services.

• The emphasis given to qualitative data (rather than quantitative data), which was largely received through the confidential “Tell us your story” portal. The ALRC received approximately 800 stories. The key themes which emerged were negative. The likelihood is that people who had neutral or relatively better experiences of the family law system had little incentive to tell their stories.  This data bias is known as self-selection bias.  The Final Report placed significant reliance on this data.
• Many, even most, of the proposals in the Discussion Paper did not become Recommendations in the Final Report.  More problematic though was that many of the Recommendations in the Final Report were not discussed in the Discussion Paper, so there was no opportunity for those who made submissions to give their views on these Recommendations. It is not clear why the ALRC changed direction.  Due to the ill-health of Professor Helen Rhoades (a family law academic) there was a change of chair to Justice Derrington SC (a commercial lawyer).  Some of the change of direction was also presumably due to the submissions received to the Discussion Paper. Most of these submissions can be accessed online (except for those of judges and some others). However, the influence on the ALRC of these factors is impossible to gauge.  Changes of emphasis included that legislative clarity and support for family law clients were at the beginning of the Discussion Paper but at the end of the Final Report. Family violence had its own chapter in the Discussion Paper as well as featuring in other chapters. Family violence received less focus in the Final Report, but child protection received greater attention.  The ALRC’s Discussion Paper released on 2 October 2018 can be accessed at www.alrc.gov.au/inquiries/family-law-system. An article on the Discussion Paper by the author can be accessed at [WKC link]
• There is a lack of empirical data regarding the volume of and nature of the crossover between state and territory family violence courts, children’s courts and the family law courts.  In 2016 the Family Law Council recommended in its report “Families with Complex Needs and the Intersection of the Family Law and Child Protection System: Final Report – June 2016” that this research be undertaken which could then be used to respond to crossover cases more effectively.  As the ALRC did not refer to any research, presumably the recommended research which could have informed its Inquiry has not occurred.
•  There was a major shift in the Final Report away from the emphasis on family violence in the Discussion Paper.  Many of the proposals in the Discussion Paper which aimed to improve the response of the family law system to victims of family violence were costly to implement.  For example, multiple entrances and exits to all family law court premises, including circuit locations and state and territory courts, had the additional difficulty of involving expenditure by states and territories or by the federal government on properties of state and territory governments. However, there were some proposals which were more under the control of the federal government, such as family violence lists in the family law courts for high risk family violence matters and multiple entrances and exits at least to family law courts.  These were not Recommendations in the Final Report.  Proposals for reform in the area of family violence which were made in the Discussion Paper but abandoned in the Final Report, were not replaced by other Recommendations in the Final Report.

•  There were no recommendations about many aspects of family law needing reform, such as:

.1            Child support has become an overly complex scheme both in legislative terms and procedures for altering assessments.  The amounts payable are criticised by some for being too high and by others for being too low;

.2            The rights of trustees in bankruptcy vs the rights of creditors (particularly where there is a bankruptcy) to intervene in FLA proceedings, e.g. Grainger & Bloomfield (2015) FLC 93-677. For example, the definition of “creditor” in s 75(2)(ha) appears not to encompass the trustee in bankruptcy.  The ability of a bankrupt to continue parenting proceedings in which the bankrupt is the applicant has been called into question in Sloan & Sloan [2018] FamCA 610, unless the trustee in bankruptcy elects for it to continue under s 60 Bankruptcy Act 1966;

.3            Aligning the property and maintenance provisions which deal with married couples more closely to those that deal with de facto couples. They are similar, but not precisely the same;

.4            Does the definition of a de facto relationship need review?  Can it be made clearer?  There has been no change to the definition since it commenced in 2009, although there is now considerable case law on how difficult the definition is to apply in practice;

.5            Which court procedures work best? For example, there was no examination of the differing experiences and outcomes of parties whose first court date is a case assessment conference in the Family Court or a listing in a duty list in open court with 10 to 30 other cases in either of the family law courts;

.6            The involvement of third parties.  As family law matters have become more complex, the FLA has been amended and expanded to deal with third parties, but there has been very little review of the effectiveness of these provisions;

.7            Adult child maintenance which, like spousal maintenance, is probably under-utilised, and might benefit from a similar revamping of procedures as proposed by the ALRC for spousal maintenance;

.8            The uncertainty about whether financial agreements are binding or can be set aside.  The problems were highlighted by the High Court decision of Thorne v Kennedy (2017) FLC 93-807.

7. The ALRC’s structural reform proposal

The ALRC stated (at 4.4) that as the structure of the current federal family law system was not within its Terms of Reference, it had not considered the Restructure Bills.  However, the ALRC still concluded (at 4.7) that the existing family law court structure may, through no fault of the judges of the two courts, be “no longer fit for purpose”, and recommended a replacement family law court structure.

The ALRC challenged (at 2.12) the assumption that a federal family law court system was still appropriate and effective “for the resolution of family law disputes which involved complex matters of both state and federal law”.  It also considered that the current federal family court system hindered the development of “a more holistic approach” to a modern family law system with modern notions of parents and families and different cultural understandings of the meaning of “family”.

The ALRC controversially proposed, as its first Recommendation, the breaking up of the Family Court of Australia so that each of the states and territories have its own family court.  Recommendation 1 was not a proposal in the Discussion Paper, so was made without the ALRC having the benefit of the views of stakeholders.  In the absence of submissions, the ALRC relied on earlier inquiries and reports which expressed concerns about jurisdictional fragmentation (eg. para 4.3 of the Family Law Council Report Families with Complex Needs and the Intersection of the Family Law and Child Protection Systems Family Law Council Final Report 2016).

Family violence orders, FLA jurisdiction and child protection are dealt with in different courts, and there is a split of jurisdiction between state and territory courts and federal courts.  As a result there can be inconsistency of orders and children at risk are falling through the gap.  Some parties have to navigate the fragmented system in potentially three different courts.  Unfortunately the extent of the problems was not statistically supported and the various options to address the issues were not fully explored in the Final Report.

As there was no comparison with structural reforms proposed by the federal government and no consultation with stakeholders, Recommendation 1 comes across as a headline-grabbing after-thought – a belated attempt to present a bold new initiative that was otherwise lacking from the Final Report.

The structural reform options which were most frequently discussed during the period of the Inquiry, but not considered by the ALRC were:

• The Federal Government’s Restructure Bills;
• Des Semple’s “Future Governance Options for Future Federal Family Law Courts in Australia – Striking the Right Balance”, 2008 (the Semple Report).

These two reform proposals are discussed in “The Family Court: Restructure, Destruction or Fade Away?” which can be found here [WKC link] and the problems of hastily-introduced structural reforms were pointed out. In the author’s submission to the Senate Legal & Constitutional Affairs Committee which was considering the Restructure Bills she recommended that:

“The Australian Law Reform Commission be given extra time to consult before delivering its Final Report, to ensure that it addresses the issue of structural reform of the family law courts, as it indicated in its Issues Report that it would do. If necessary, the Terms of Reference be changed to make this an express Term of Reference.”

The New South Wales Bar made a similar recommendation to the Senate Committee:

“Before any restructure, and before completion of the ALRC’s final report, the terms of reference of the ALRC Review should be changed specifically to remit to the ALRC the review of the structure and role of the courts within the broader family law system as it is not feasible or responsible to consider policy development and reform of the family courts as independent of and from policy development and reform of the family law system.”

It is also unfortunate that the Recommendation in the Final Report for structural reform is inconsistent with many of the other Recommendations.  This incoherence is explained by the ALRC as arising from the length of time it will take to implement its structural reform recommendation and, in the meantime, the problems need to be addressed in other ways.

Recommendation 1 has high prominence in any inquiry. It should be a recommendation which the bulk of readers would say “of course”, or at least “what a good idea, we should consider that further”.  Unfortunately, the lack of consultation with stakeholders and the failure to refer to it in the Discussion Paper, means that the public reaction has been negative, or at least muted. It raises many questions, which were not discussed or inadequately discussed in the Final Report including:

1. The proposal is that the Commonwealth maintains legislative responsibility for family law, but the exercise of that jurisdiction be given to the states and territories. This is likely to create confusion and jurisdictional difficulties, particularly in financial disputes where the availability of bankruptcy jurisdiction, superannuation splitting and Corporations Act 2001 jurisdiction assist in the resolution of disputes under the FLA. There might also need to be some unbundling or streamlining of previous referrals of powers by the states and territories to the Commonwealth, such as in relation to children born of unmarried parents and property division for de facto couples . The double-bounce is constitutionally mind-numbing.  There was no consideration given by the ALRC to the complexities of its proposals.  Of course, there are some areas such as property law, trust law and personal injury claims, where there may be benefits not identified by the ALRC if FLA cases are resolved in state or territory family courts.  The lack of identification of positives, other than for child protection, reflects the lack of deep deliberation by the ALRC of the challenges and consequences of implementing Recommendation 1.
2. Under s 41(1) FLA if state and territory family courts are established they must be funded by the Commonwealth so there will not necessarily be any cost saving for the federal government, which is an objective of the Restructure Bills. There may also be funding disputes with the states and territories.
3. How will legal aid and community legal centres be funded? The Commonwealth currently funds the state and territory legal aid authorities for FLA matters.  Will the Commonwealth reduce funding for FLA matters particularly if the state and territory courts are also exercising state or territory jurisdiction?
4. The Family Court of Australia’s trial and appellate divisions will be abolished, but the ALRC considered it important to maintain a federal appellate division “to ensure consistency of jurisprudence across the country” and that could be a division of the Federal Court of Australia. This proposal was also in the Restructure Bills, but was dropped by the federal government because it lacked parliamentary support. It is unknown if, following the re-election of the Coalition government in May 2019, the original proposal will be pursued in the Restructure Bills. Inconsistency of jurisprudence throughout the country may be an outcome of Recommendation 1, regardless of a federal appeal division.  Relying upon litigants to spend money on appeals is not a practical method of achieving consistency of legislative interpretation between courts which will not be part of a unified court system.  At least the current Family Court of Australia and Federal Circuit Court are a dual court system, not an eight-court system.
5. The ALRC acknowledged (at 4.90) that the Family Court of Western Australia has not frequently exercised its child protection powers. In practice, most child protection matters in that state are dealt with by the Children’s Court of Western Australia. So, in the only state where FLA jurisdiction can be exercised by a state court, the child protection jurisdiction is infrequently exercised by that state court.  No contrary evidence was relied on by the ALRC as to why family courts in other states and territories would frequently exercise both child protection and FLA jurisdiction if they had the opportunity to do so.
6. The ALRC considered that the creation of state family courts was not (at 4.90) “a substitute for the creation of a single child protection system”. The implication of this statement was that a single child protection system was an unstated goal of the ALRC, but it was clearly beyond the scope of the Terms of Reference.
7. The inconsistent rules of the Federal Circuit Court and the Family Court of Australia were identified by the ALRC (at 4.10) as a source of confusion for parties, and harmonisation of the rules of the two courts was a way to achieve efficiencies. The problem of inconsistent rules can and is being addressed by the family law courts without the Restructure Bills having been passed. Inconsistent rules are likely to be a greater problem with all states and territories having their own family courts, and therefore the desire and ability to develop their own forms and rules. The problem of Magistrates’ Courts dealing with the inconsistent rules of the family law courts with their local rules of court was acknowledged (at 4.80), but not that state and territory family courts might have similar problems.
8. A problem identified by the PwC Report and the federal government was the bouncing of cases between the Federal Circuit Court and the Family Court of Australia although the reasons for this, and the extent of the problem, is unclear. Under the ALRC’s proposal, matters are likely to bounce between courts around the country when parties move. Currently, matters are referred within the same court if another registry in the country is more appropriate but (except for Western Australia) the same forms, rules and interpretation of the law applies.  This is unlikely to occur if cases move between the family courts of states and territories.
9. The ALRC was particularly concerned (at 3.94) that 45% of all final order applications in the Federal Circuit Court were referred to child protection authorities. It did not, however, identify how many of these referrals became active files. No statistics were provided as to how many of these referrals were minor matters which the child protection authorities justifiably find not to be worthy of further investigation. The percentage of referrals may have been simply symptomatic of the number of allegations made in Notices of Risk (which are mandatory to file in the Federal Circuit Court when parenting orders are sought, and mandatory to file in the Family Court of Australia where there are allegations of child abuse or family violence or there is a risk of child abuse or family violence) and reflective of the types of matters litigated in the family law courts.  The raw data does not demonstrate a need for family law and child protection matters to be dealt with by the same court.  Furthermore, the Western Australian experience suggests that it does not.

Most stakeholders, including the Law Council of Australia, acknowledge that having two federal courts exercising concurrent jurisdiction has been a failure.  However, the options discussed in the Final Report to produce a “one court” solution did not consolidate the Family Court of Australia with the FLA jurisdiction of the Federal Circuit Court, but instead looked at ways of linking the child protection jurisdiction exercised by the state and territory courts to the FLA jurisdiction of the federal courts.  The opinions considered to consolidate state and territory jurisdiction with FLA jurisdiction included (at 4.47- 4.128):

• Conferring FLA jurisdiction on state and territory magistrates’ and children’s courts. The ALRC noted that this was addressed in the Family Law Amendment (Family Violence and Other Measures) Act 2018 (Cth) but was only a partial solution;
• Creation of a national child protection system, through state referrals of power, to allow federal courts to hear child protection matters;
• Amendment of the Commonwealth Constitution to permit cross-vesting by state and territory courts to federal courts of child protection or family violence issues where a matter is otherwise before them;
• Creation of state family courts, as exists in Western Australia, in all other states and territories; and
• The devolution of the exercise of judicial power in family law to appropriate courts within the existing state court hierarchies, leaving the Family Court of Australia and the Federal Circuit Court with no residual family law jurisdiction, except at appellate level.

The ALRC confirmed (at 4.54) that there were constitutional problems with the referral of child protection powers to the federal family law courts unless the Full Court of the Family Court was prepared to revisit the exercise of accrued jurisdiction by the family law courts, suggesting (at 4.57 to 4.65) that the Full Court had taken an overly narrow approach.  If accrued jurisdiction was able to be exercised by the Family Court of Australia in relation to child protection and family violence, that would ameliorate some of the consequences of the jurisdictional gap (at 4.65).  Altering the Constitution to allow the Commonwealth to exercise child protection powers requires a successful referendum, but the history of referenda in Australia has not been one of success. The option of the states and territories referring their child protection powers to the family law courts (at 4.56) was only briefly mentioned and not considered by the ALRC to be a solution, relying on the Family Law Council’s conclusion (at 4.56) not to recommend it.

The ALRC acknowledged (at 4.32 to 4.36) that the family law courts regularly adjudicate parenting matters with multiple risk factors involving family violence, child abuse, drug and alcohol dependency and/or serious mental illness.  However, the ALRC seems to have concluded that the family law courts lacked the capacity to deal with these disputes, in part because they have no independent investigative body akin to a child protection department and cannot compel a child protection department to intervene in a family law case.  The evidence for this conclusion is unclear.  Although the unwillingness of child protection agencies to engage with FLA proceedings can be problematic, it is arguably an over-reaction to abolish the family law courts altogether for that reason. It is also inconsistent with the criticism by the ALRC of the family law courts for not adopting the approach of Allsop CJ (at 4.64), who interpreted “the proper party to fulfil the parenting responsibilities” as including the State and therefore the family law courts could require child protection departments to participate in FLA proceedings.  Given that Recommendation 1 requires the co-operation of the states and territories, another option is to seek that the states and territories agree to their child protection departments being involved more frequently in FLA matters before federal family law courts.  This would help to bridge the gap.  There are protocols for notifications to child protection departments of allegations that a child has been abused or is at risk of abuse, but the departments rarely become involved in FLA cases.

The law and procedures of the family law courts have been changed at various times to improve communication between the child protection system and the family law courts.  The Discussion Paper proposed further changes, such as the co-location of child protection workers at family law court premises.  Despite this proposal receiving considerable support, including of the Law Council of Australia, it was not in the Final Report’s Recommendations.

The ALRC expressly stated (at 4.8) that they were not suggesting “that specialist family law judges are not essential to the proper administration of justice in family law matters”.  Instead, it proposed that the federal government reconsider its opposition to state and territory courts becoming the primary fora for resolving family law disputes.

The ALRC did not point out that if state and territory family courts are established, the same judge may not determine all aspects of a family’s problems.  The history of a family may not transfer from one dispute to another.  For example, family violence orders are frequently made very soon after parties separate.  If a judge makes a finding that there should be a family violence order in contested proceedings, that judge cannot hear and determine other matters between the parties as the judge has already made a finding of credit against one party in the earlier proceedings.  In family violence proceedings there are no transcripts or judgments which can be relied on in FLA proceedings, even if they are heard in the same court.  Requiring, for example, the giving of reasons in family violence matters, may address part of the so-called jurisdictional gap but this was not discussed by the ALRC save that it supported the sharing of transcripts where they exist.

In the absence of submissions on the options for restructure of the family law courts (as these submissions were not sought) the ALRC reviewed previous inquiries and concluded (at 4.43):

“The various inquiries and reports over several decades, and especially those within the last 20 years, have all identified similar structural and systemic problems in the family law system.  They have all recommended improved inter-jurisdictional collaboration and cooperation though a variety of protocols, information sharing agreements, and the conferral of enhanced family law jurisdiction on state and territory courts.  In spite of those recommendations, the submissions to this Inquiry suggest that little progress has been made in protecting children and vulnerable parties from the ‘jurisdictional gap’.”

The ALRC stated that as the FLA already allowed state and territory family courts to be established, this was the best solution to jurisdictional fragmentation.  The ALRC accepted (at 4.9) that its principal recommendation would take significant time to implement and made other recommendations that could be implemented in the short-term to improve collaboration between the federal and state and territory jurisdictions.

There were 7 commissioners involved in the Inquiry when the Final Report was released.  Commissioner Faulks dissented on Recommendation 1.  He expressed similar concerns (at 4.103-4.112) to those set out in this article.  His alternative proposal involved a simplification of the paths between the courts, including that the court file travel with the parties.

8. Funding crisis of the family law courts

The ALRC confirmed that concerns about lack of funding in the family law courts has been problematic for 30 years and was “chronic”.  The words of Brennan J of the High Court in Harris v Caladine (1991) FLC 92-217 were quoted by the ALRC (at 1.8) and could have been written in 2019:

“It seems the pressures on the Family Court are such that there is no time to pay more than lip service to the lofty rhetoric of s. 43 of the Act.  It is a matter of public notoriety that the Family Court has frequently been embarrassed by a failure of government to provide the resources needed to perform the vast functions expected of the Court under the Act. But the Constitution does not bend to the exigencies of a budget and, if the humanly familial relations create a mass of controversies justiciable before the Family Court, Justices must be found to hear and determine them.”

The number of judges hearing family law matters has decreased significantly in the last 10 years.  In the Family Court, the number of judges has reduced by 39 or 18%.  Whilst in the Federal Circuit Court the number has increased over the same period by 33%, this was a numerical increase of 17 judges only and therefore overall the reduction in the two courts was 22 judges.  The ALRC stated these figures (at 3.61) but did not point out that Federal Circuit Court judges also hear general law matters so the reduction in the number of judges hearing FLA matters has been far greater than these raw numbers suggest.

The recognition by the ALRC (and the High Court) of the funding crisis of the family law courts underscores the questions as to the validity of the federal government’s stated justification for the Restructure Bills. The objective of the Restructure Bills was to solve the problem of court delays by increasing efficiencies, as recommended by PwC in its report Review of the Efficiency of the Operation of the Federal Courts (the PwC Report).  The PwC Report assessed the performance of the family law courts primarily by measuring the outputs of final judgments rather than all of the work undertaken by the family law courts. The recommendations in the PwC report were based on a key, but incorrect assumption, that “in practice, both the courts hear matters of similar complexity” (p.3), an assumption further discussed in “The Family Court: Restructure, Destruction or Fade Away?”  The PwC report itself said that it had not explored all possible opportunities, assessed all potential implications of each opportunity and recommended that further testing and design was required (PwC report, p.7).

Although the ALRC recognised the funding crisis of the family law courts, it did not make recommendations to address the crisis nor even make the observation that some of the problems in the family law system might be solved by greater funding.  It referred to the problems created by the lack of funding frequently, but only recommended increased funding for Registrars to deal with spousal maintenance claims, for an expanded role of family consultants including for post-order case management, for independent childrens’ lawyers, for Indigenous Liaison Officers and to better implement and expand the FLA’s Less Adversarial Trial provisions.  It did not recommend an increase in general funding of the existing family law courts including to fund more judges.

The absence of an examination of the costs of increasing funding to the current family law courts as against the cost of the measures recommended by the ALRC is a serious deficit in the Final Report.

9. Sharing of information

A number of the ALRC’s Recommendations are aimed at better enabling the sharing of information by the family law courts with state and territory family violence and child protection systems.

Recommendation 56 (at 4.164) is that s 121 FLA be redrafted to provide greater clarity.  As part of the redrafting it should be clearer that s 121 does not restrict the sharing of information with:

• Professional regulators;
• Government agencies;
• Family relationship services;
• Service providers for children in connection with the provision of services to the family; and
• A family member.

Recommendations 2 and 3 are specific proposals about sharing of information intended to give all the courts in the family law system and professionals working in it more timely and accurate information without the need to apply for subpoenas or rely on the parties’ perhaps inadequate evidence.  It is a very sensible Recommendation.

10. Children’s matters under the FLA

The ALRC deliberately described parenting matters under the FLA as “children’s matters”.

The ALRC said (at 2.33) that one of the most difficult issues raised in the Inquiry was whether it remained appropriate for children’s matters under the FLA to be resolved in a court.  It considered other modes of decision-making such as a Parent Management Hearings Panel.  There was pending legislation to implement this, the Family Law Amendment (Parenting Management Hearings) Bill 2017.  However the ALRC (at 2.36) “remained unpersuaded that the additional complexity of another layer of decision making within the family law system is desirable”.  A court appeal system would still be needed and a court system was still required for the determination of property rights and for parties unable to reach agreement in relation to children’s matters.

Reforming the children’s provisions in the FLA

The ALRC proposed major reforms of the shared parenting provisions introduced into the FLA in 2006. It recommended (at 5.23) a reshaped decision making framework for parenting orders:

• Retaining the paramountcy principle in its current form;
• Removing the objects and principles provisions;
• Collapsing the different tiers of considerations within the best interests factors;
• Clarifying, simplifying, and amending the list of considerations for determining what is in the child’s best interests;
• Amending the presumption of equal shared parental responsibility to be a presumption of joint decision making about major long-term issues; and
• Removing mandatory consideration of particular arrangements including equal time.

The changed pathway recommended by the ALRC was summarised (at 5.39):

“For care-time arrangements, the ALRC recommends that decision and agreement making should focus on the best interests of children, taking into consideration a more concise list of factors, and any other matters that are relevant.  In relation to parental responsibility, the ALRC recommends that the practical effect of the current law be preserved, but that the presumption of equal shared parental responsibility be replaced with a presumption of joint decision making about major long-term issues.  The link between a court’s decision on parental responsibility and the matters it must consider in relation to care-time arrangements should be removed.”

In its Discussion Paper, the ALRC proposed that the paramount consideration be “safety and best interests” (proposal 3-3) rather than the existing “best interests” in s 60CA FLA.  There was considerable concern from stakeholders that this proposal could have unintended consequences and it was not a Recommendation in the Final Report.

However, the ALRC recommended (Recommendation 4) the abolition of s 60B FLA which sets out objects of Pt VII of the FLA.  Many submissions referred to there being overlaps and some inconsistency with s 60CC.  The abolition of s 60B was recommended by Professor Richard Chisholm AM, a former judge of the Family Court, but possibly with a Statement of Principles replacing it.

One of the changes to s 60CC (at 5.61) removes the presumption that a relationship with a parent is necessarily in the child’s interests even when the child has had no relationship with that parent.  The ALRC intended that its proposed shorter version of s 60CC of the FLA will avoid the necessity for parties (and judges) to feel obliged to address all of the existing s 60CC factors, thereby reducing legal costs for matters which proceed to judgment.  However, only a minority of cases are affected as most cases settle prior to this.

Although intended to be covered under the catch-all phrase of “anything else that is relevant to the particular circumstances of the child”, there may be concern, or at least disquiet, that there will be no longer any express reference to:

• A child’s right to enjoy their Aboriginal or Torres Strait Islander heritage (existing s 60CC(3)(h));
• Making an order less likely to lead to further proceedings (existing s 60CC(3)(l).

Whilst the proposed changes to s 60CC were supported by the Law Council of Australia, this was in the context of s 60B remaining in place, with some changes which pick up, for example, the importance of maintaining Aboriginal and Torres Strait Islander identity.  Professor Chisholm’s proposal for reform of the parenting provisions recommended that the wording of the current s 60CC(3)(h) be retained and placed in the new section.  This seems inconsistent with Recommendation 6 which suggests a re-wording of the FLA to include an expansion of the requirement to consider Aboriginal and Torres Strait Islander identity.  It is not clear how the proposals fit together in the absence of a draft of the proposed provisions.

There is some overlapping in the current s 60CC factors, but the slimmed down version may lead to more litigation about what factors are relevant and how the shorter wording of, say, the relevance of a child’s views should be interpreted.

The proposal to repeal s 65BAA will simplify the legislative pathway in parenting disputes.  The ALRC considered that this would address the problem of parents assuming that there is a presumption of equal care, enable more appropriate decisions to be made where there is conflict and family violence, reduce the complexity of judgments, and was likely to reduce legal costs and improve outcomes for children.

With respect to the presumption of equal shared time, many submissions (at 5.108) criticised the presumption for introducing an unnecessary step in the process for determining care arrangements, detracting focus from the child’s best interests and safety needs and providing scope for exacerbating conflict.  The Family Court’s submission pointed out (at 5.113) that the FLA required the court to consider equal time or substantial and significant time, even when neither party sought it.  The ALRC proposed (Recommendation 7) that it be renamed as a “presumption of joint decision making about major long-term issues”.  This removes the link (or possible link) between parental responsibility and time children spend with each parent.

It is unfortunate that the ALRC did not more closely adopt the proposals of Professor Chisholm set out in “Re-Writing Part VI of the Family Law Act – A Modest Proposal” (2015) 24(3) Australian Family Lawyer 17,10-11 and reiterated in his submission to the ALRC.  Professor Chisholm’s proposal is comprehensive and well thought out.

The current decision making pathway is:

The recommended decision making pathway is far simpler:

Parenting time                                  Decision making about major long term issues

Case management of parenting matters

The ALRC recognised (at 5.141) that the Family Court has a philosophy of encouraging alternative approaches to dispute resolution and had:

“been conscious of the inappropriateness of pure adversarial approaches to the resolution of family law disputes since its inception.  The very establishment of the Family Court was premised on the acceptance of the belief that the existing courts had been found to be unsuitable and ill-equipped to deal sympathetically and helpfully with the particular problems of family disputes”.

As a result of its approach, the Family Court introduced significant changes to its procedures over the years.  The innovations included (at 1.12) a specialist multi-disciplinary court, an in-house counselling section staffed by psychologists and social workers with child welfare expertise, and mediation as a fundamental part of the system.  The ALRC recognised that many of the non-legal supports, such as in-house counselling, had been reduced or stripped away from the court and there were some submissions which wanted them to be enhanced or reinstated.

A 2003 survey of cases by the Family Court found that in considering the best interests of children, factors relating to risk of harm were unlikely to be of high or medium importance.  Illustrating the change in the types of matters before the family law courts since then (at 5.4):

“In contrast, a 2014 AIFS Study found that 53.7% of parents who used the courts as their resolution pathway in 2014 reported physical violence was relevant to their situation prior to separation.  Parents who used the court as their resolution pathway reported a mean of three complex factors and 38.1% reported four or more complex factors.”

The ALRC recommended (Recommendation 10) that the family law courts have combined rules which allow proceedings to be conducted under Pt VII Div 12A FLA – the existing Less Adversarial Trial program (LAT).  Judges and courts should be adequately resourced to carry out the statutory mandate in s 67ZN(1) FLA.  Section 67N(1) sets out 5 principles that the court is required to follow when hearing parenting matters or when the parties have consented, in property matters applying Div 12A.  The principles are:

1. The court consider the needs of the child concerned and the impact that the conduct of the proceedings may have on the child in determining the conduct of the proceedings.
2. The court actively direct, control and manage the conduct of the proceedings.
3. The proceedings be conducted in a way that will safeguard:

(a)    The child concerned from being subjected to, or exposed to abuse, neglect or family violence; and

(b)    The parties to the proceedings against family violence.

4. The proceedings, as far as possible, be conducted in a way that will promote cooperative and child focused parenting by the parties.
5. The proceedings be conducted without undue delay and with as little formality and legal technicality informed as possible.

The ALRC noted (at 5.51) that the existing less adversarial trial provisions of the FLA (LAT provisions) largely corresponded with the essential components of the multi-disciplinary panels or tribunal proposed in submissions and also by the federal government in the Family Law Amendment (Parenting Management Hearings) Bill 2017 (Cth). In particular, the LAT provisions were “expressly child focused, quasi-inquisitorial, focused on safeguarding parenting and … conducted without undue delay”.  This recommendation was, however, subject to the family law courts being properly resourced, a requirement which was mentioned several times (at 5.151, 5.152 and 5.160).

Besides resourcing, the ALRC considered (at 5.152) that it was possible that judicial officers felt constrained to exercise their powers fully under Div 12A because of concerns about the nature of the judicial powers vested in the courts by the Constitution.  This concern was emphasised by the High Court in R v Watson; ex parte Armstrong (1976) FLC 90-059 where “the High Court held that any discretion exercised by Family Court Judges must be in accordance with the exercise of judicial power and the duty to act judicially”.  However, the High Court majority did not reject the ability of the Family Court to dispense with such procedures and formalities as it saw fit with the consent of the parties to the proceeding.

The ALRC referred to practices in the Federal Court of Australia and in the United Kingdom, and somewhat condescendingly reassured the judges of the family law courts (at 5.158) that they “should have little concern that the use of less adversarial processes should be considered anathema to the exercise of judicial power”.

Re-emphasising the need for adequate resourcing of the family law courts, the ALRC concluded (at 5.160):

“The Family Court is required, by virtue of s 69ZN, to give effect to the principles that underpin this legislative framework.  It cannot comply with its statutory mandate unless it is provided with adequate resources.”

The ALRC seemed to accept without question that the LAT method, properly resourced, was better than traditional litigation.  It did not accept the opposing view, that the rules of evidence (which are relaxed in the LAT provisions) help to ensure that judges make decisions which are less likely to be appealed against and seem objectively “fair”.

11. Property Division

The ALRC made some sensible recommendations to the property settlement provisions of the FLA, as well as others which are more controversial.  It omitted making recommendations about many aspects of property settlements which need reform or review including bankruptcy, financial agreements and the definition of de facto relationships.  Its recommendation (Recommendation 20) that the LAT provisions be extended to property cases is likely to be controversial because of the relaxing of the rules of evidence.

Small Asset Pool Cases

The problem with small asset pool cases was a focus of the Discussion Paper, which included proposals for a simplified small asset pool process.  In a 2014 study, most parents reported asset pools of less than $300,000. After the release of the Discussion Paper, the federal government announced funding for a court pilot of two options for small asset pool cases.  In its Final Report the ALRC (at 10.82) did not make any recommendations with respect to small asset pool cases as it considered “these issues can be appropriately managed by the courts”. Whilst the conclusion is probably correct as the family law courts have been open to finding different procedures in the past, the absence of a formal recommendation is disappointing as at present there is only funding for a pilot and ongoing government funding would be easier to obtain if there was a specific ALRC recommendation.  There is also a 2 year trial of funding for legal aid (at 8.36) for small asset pool cases.  Funding these types of pilots is important because these cases are challenging to resolve cost-effectively.  The same issues can arise as in larger asset pool cases, but resolving them with legal costs proportionate to the size of the pool is not easy.

Simplification of property settlement framework

Introducing into the FLA a structured pathway (Recommendation 11) as to the steps to be followed when altering property interests has merit. Post Stanford v Stanford (2012) FLC 93-518, the pathway is less clear than it was prior.  The High Court did not endorse the four step approach set out in such cases as Hickey & Hickey and the Attorney General for the Commonwealth of Australia (Intervenor) (2003) FLC 93-143 and JEL & DDF (2001) FLC 93-075.  A structured pathway would assist parties, lawyers and the courts by simplifying and clarifying the legislation.

The ALRC relied on the experiences of individual contributors who (at 7.26) raised concerns about there being no obvious starting point for negotiations and that they had given up on obtaining a property settlement because it was too hard, due to the ambiguous legal framework and the problem of disclosure.

The ALRC sought a simplification of the property settlement framework (at 6.6) as:

“The Family Law Act should provide a clear and easily understood framework that provides sufficient guidance for courts, legal advisers, and the public on the factors that are to be considered when adjusting the property and financial interests of parties on the breakdown of a relationship.  Such a framework should assist parties to negotiate a division of their assets that is just to both parties and in the best interests of any children of the parties, without resort to formal dispute resolution processes.  A clearer and simplified framework should reduce conflict and improve satisfaction with property settlement outcomes.”

Submissions to the ALRC expressed a diversity of views as to whether the current discretionary system should continue.  One thought-provoking point was raised by the Family Court (at 6.35) that a prescriptive regime might have unintended consequences for people who do not appreciate that they were in a de facto relationship until a court declares that they were.  By contrast, married couples know that they are married and can be expected to know that there is a legal system to determine any financial dispute.  This links back to the omission by the ALRC to examine whether there should be reform of the definition of a de facto relationship.  The ALRC did not support the removal of judicial discretion (at 7.7) as it recognised “the importance of providing judicial officers with the scope to order a division of property that is just and equitable in each individual case.”

The ALRC recommended that the simplified pathway to property division (at 7.10) be:

1.            Ascertain the existing legal and equitable rights and interests, and liabilities, of the parties in their property;

2.            Presume equality of contributions unless a statutory exception applies; and

3.            Determine what adjustment should be made in favour of either party having regard to any matter that is relevant to the particular circumstances of the parties, including:

3.1       the caring responsibilities for any children of the relationship;

3.2       the income earning capacity of each of the parties;

3.3       the age and state of health of the parties; and

3.4       the effect of any adjustment on the ability of a creditor of a party to recover the creditor’s debt, so far as that effect is relevant.

There is no reference in the pathway to the requirements in s 79 FLA that the order be:

• appropriate (s 79(1));
• just and equitable (s 79(2)).

It is unclear whether the ALRC recommends that those requirements be removed or how they fit in, although the just and equitable requirement (referred to above) appears to remain, and was recognised as important.

Presumption of equal contributions

The ALRC recommended (Recommendation 12) the introduction of a statutory presumption that the parties made equal contributions during the relationship, with limited statutory exceptions. The presumption of equality of contributions could be displaced (at 7.9) with evidence that a party has:

• Wasted assets;
• Deliberately or unreasonably damaged property;
• Accumulated liabilities for his or her own benefit;
• Received compensation awards for pain and suffering or economic loss which have not been dissipated during the relationship and are otherwise traceable; or
• Received inheritances and gifts.

Difficulties with a presumption of equality of contributions were highlighted (at 7.21) by Professor Parkinson.  They included complications caused by the rise of de facto relationships and the increase in second and later marriages.  Parties may not pool their property and there may be no expectation that parties will support each other.  Whether a couple has children is, according to Parkinson (at 7.22) a better indicator of a change in a couple’s relationship than their marital status, and therefore, whether there should be a significant wealth transfer between people following the breakdown of an intimate relationship, which may arise from a presumption of equality of contributions.

The Family Law Council in 1999 supported a presumption of equality of contributions but the ALRC did not point out this recommendation was made 20 years ago, and prior to all states and territories except Western Australia referring to the Commonwealth their powers to make laws about the division of property after the breakdown of de facto relationships.  It was also prior to the expansion of jurisdiction under the FLA to include third parties in Pt VIIIAA and superannuation splitting in Pt VIIIB thus increasing the complexity of some cases.

A major problem with the presumption of equal contributions was not discussed by the ALRC.  A presumption is a difficult concept for lay people to understand. Earlier in the Final Report, the ALRC discussed how the presumption of equal responsibility had (at 5.19 and 5.114) created “community confusion” resulting in inexperienced parties believing they had no choice but to agree to equal time (at 1.32) and increased legal costs.  The impact of presumptions on victims of family violence (see Submissions of Domestic Violence Victoria, No 284; Women’s Legal Service, Queensland, No 286) was not discussed in the Final Report with respect to this proposed presumption.

There were sufficient concerns about the operation of the presumption of equal shared parental responsibility in submissions in response to the Discussion Paper to suggest that similar problems might arise in relation to a presumption of equality of contributions in property settlement cases.  A different view was taken by Professor Belinda Fehlberg who argued (at 7.23) that women who experienced family violence had significantly worse outcomes in property settlements than those who did not.  She considered that a starting point of equal sharing might be advantageous to these women.  However, the equality of contribution presumption has the potential to create a single step in many cases, and significantly reduce the property entitlements of the party with greater future needs.

The ALRC stated (at 6.16) that the complexity of s 79(4) and s 75(2) “particularly the lengthy list of factors with no clear hierarchy, does not assist readers to understand the process that a court would use to arrive at a just and equitable division of property”.

Needs factors

The ALRC recommended a shorter list of needs factors with respect to property settlements (at 7.8):

• The caring responsibilities for any children of the relationship;
• The income earning capacity of each of the parties;
• The age and state of health of the parties; and
• The effect of any adjustment for need on the ability of a creditor of a party to recover the creditor’s debt, so far as that effect is relevant.

The change to the s 75(2) factors by simplifying the list of factors (at 7.30) is intended to make “no change to the substantive law” but reduce the length of judgments and the risk of judicial error. The ALRC did not point out that there is no guarantee that the family law courts will interpret a shorter list in the same way as the existing list and therefore the law may change in ways it did not intend.  There was no recommendation for making a hierarchy of factors.  The expectation of the ALRC was that the law would not change. If the ALRC is correct, then in practice the law will become less transparent because the courts will consider factors not listed in s 75(2).

Valuing assets at date of separation

Legislating for the date of ascertaining the values of parties’ rights, interests and liabilities in property to be the date of separation unless the interests of justice require otherwise (Recommendation 13) has the benefit of making the law clear.  The FLA currently does not state when these matters should be assessed. There is, however, decades of family law jurisprudence relying on the date of hearing as being the relevant date (eg. Farmer & Bramley (2000) FLC 93-060); Woodland & Todd (2005) FLC 93-217; Omacini & Omacini (2005) FLC 93-218).  The advantages of the change, besides clarity, include removing the need to update valuations and to consider whether parties have spent funds appropriately since separation and allows parties to move on with their lives post separation.

The disadvantages of the change were not discussed in detail by the ALRC.  It was not a proposal raised in the Discussion Paper.  Possible disadvantages include the unfairness of making orders in a falling housing market based on higher housing values at separation (of course, the contrary applies in the current regime), the lack of recognition of post separation contributions, the difficulties and expense of obtaining retrospective valuations of real properties and the unfairness of leaving a party with property which no longer exists or has a significantly lower value through no fault of that party, such as shares and failed businesses.

There would also be challenges in dealing with superannuation which the ALRC recommended be split equally as to the amount accumulated during the relationship (Recommendation 16).  If the superannuation split is a dollar value rather than a percentage (which is usual) the member of the fund whose interest is split may be left with much less than envisaged if share markets are falling.  The superannuation splitting system is designed to give the non-member spouse interest on the base amount which compensates for any delays in the split coming into effect.  The system does not assume that superannuation will fall in value, although it may, particularly if there is a significant delay between the date of separation and when the split is implemented.

This Recommendation requires proper consideration of the pros and cons of the change.

Debts and bankruptcy

Although the ALRC indicated that most property pools were modest it devoted only 3½ pages in Chapter 6 and about 5 pages in Chapter 7 to examining how debts were taken into account and the impact of one party being a bankrupt.  It had no recommendations as to how they should be dealt with under the FLA, but recommended (Recommendation 14) the development of protocols and reform of other legislation so that where, for example an indemnity was given, this was recognised to the extent that the debt did not result in a negative credit rating of the indemnified person.  These Recommendations warrant further consideration.

Financial agreements

In the Discussion Paper, the ALRC considered that there was significant anecdotal evidence to conclude that financial agreements did not produce the level of certainty that was envisaged when they were introduced. There was growing concern within the legal profession about professional liability associated with drafting financial agreements if they were eventually set aside, and the difficulties in predicting the circumstances that may lead to a financial agreement being set aside. There were serious questions about whether the financial agreement provisions of the FLA, particularly in relation to prenuptial agreements, were meeting their original policy objectives, and why amendments to the FLA to allow them to do so were possible without unacceptable unintended consequences. The ALRC said in the Discussion Paper that there seemed to be a reasonable case that prenuptial agreements should be removed from the FLA.

The difficulties of financial agreements, although the ALRC acknowledged the impact of Thorne v Kennedy (2017) FLC 93-807, were discussed in only 2 pages in Chapter 6 and one paragraph in Chapter 7 of the Final Report.  No substantive recommendations were made to address the problems.

The ALRC raised possible reform options in the Discussion Paper but in the Final Report the ALRC welched on major reform proposals. It concluded that reform efforts should be directed to simplifying the property settlement provisions in the FLA so that it was easier for a party asked to sign a financial agreement to compare their entitlements under the agreement and their likely entitlements under the FLA without the agreement. This was a dramatic back-down in the face of significant ongoing uncertainty and litigation in the area.  Significant problems were identified by the ALRC in its Discussion Paper, but the Final Report was a lost opportunity to propose reform of an area in genuine need.

The options for reform raised in the Discussion Paper included to change the FLA to make the requirements clearer for them to be binding and not set aside, abolish them altogether and to require court approval as for the s 87 maintenance agreements which existed previously.  Given the significant amount of litigation with respect to financial agreements and the problems of undue influence and unconscionable conduct as recognised by the High Court in Thorne v Kennedy, it is quite incredible the ALRC did not recommend real reforms in this area.  Simplifying the legislative pathway for determining property settlement is not a solution to the significant problems with financial agreements for clients and for claims against lawyers.

Superannuation splitting orders

The recommendation (Recommendation 17) to work with the financial sector to develop standard superannuation splitting orders is well overdue.  This will not only make it easier for unrepresented parties to have superannuation splitting orders, but will also make legal costs cheaper for represented parties.  Each fund has its own preferred wording but there are not usually substantive differences.  At least in relation to accumulation funds, which are the majority of superannuation funds, the differences in preferred orders relate more to differences in legal advice given to the funds and personal preferences rather than any real difference in the needs or practical operation of the funds.

Tort of family violence

The introduction of a statutory tort of family violence into the FLA so that past family violence receives greater financial recognition than currently under the principle in Kennon & Kennon (1997) FLC 92- 757 may have some merit, but may increase litigation rather than reduce it. It was not a proposal in the Discussion Paper, which instead focused on family violence as a factor in the consideration of contributions and future needs (Proposal 3-11), leading to concerns about doubling up and not addressing the evidentiary problems (Law Council Submission, No 285).

12. Spousal maintenance and child support

Redrafting the spousal maintenance provisions (Recommendation 18) to more clearly set out for parties the process for assessing spousal maintenance and remove the cross-reference between property orders and spousal maintenance seems a sensible suggestion.  The ALRC also proposed greater use of registrars to make it easier for urgent applications to be heard.

Neither the Discussion Paper nor the Final Report dealt with child support. The ALRC made recommendations about spousal maintenance but managed to do this in a vacuum without reference to the changes in the child support formula which have reduced the amount payable, and how these changes have impacted on the financial circumstances of primary carers and the capacity of primary income earners to pay spousal maintenance.

13. Encouraging amicable resolution

The ALRC concluded (at 8.2) that as a majority of property and financial matters settle at the door of the court, stronger legislative encouragement to avoid courts and greater availability of family dispute resolution (FDR) and, for more complex matters, legally assisted dispute resolution (LADR), would mean more families would resolve their issues without litigation.

The settlement rates for property and financial matters which take the litigation pathway is much higher than for parenting matters.  Not discussed by the ALRC, but an obvious reason for this, is that it is much easier for a party to weigh up the costs of continuing proceedings as against the risks and possible benefits in financial terms in property proceedings than for parenting matters.  Time spent with children cannot be given a dollar value.

The potential impact of the proposed genuine steps requirement (Recommendation 21) will be, according to the ALRC, that (at 8.68) parties will first need to try to resolve their property and financial disputes without using courts, unless an exception applies.  Similarly to the Pre-action Procedures in the Family Law Rules 2004 which apply in the Family Court of Australia, the parties can take different approaches including:

• FDR;
• Mediation by a non-FDR qualified mediator; and
• Steps involving lawyers to negotiate a settlement.

Placing the duty of disclosure in the FLA rather than in court rules was (Recommendation 25), the ALRC said (at 8.133) consistent with the principles that the “law should be clear, coherent and enforceable, and drafted in a manner that is accessible to the parties”.  It recommended that the consequences for breach of the disclosure obligations by parties, and the obligations of all lawyers and FDRPs to advise clients about their duty of disclosure should also be in the FLA.

14. Arbitration

The ALRC opposed the introduction of compulsory arbitration but recommended (Recommendation 26) the expansion of arbitration to children’s matters except for more complex disputes such as international relocations, medical procedures requiring court approval, interventions, and where an Independent Children’s Lawyer has been appointed.

15. Case management

Recommendation 30 aims to ensure that FLA proceedings and any alternative dispute resolution processes are conducted in a way to facilitate (at 10.7) “the just resolution of the dispute according to law, as quickly and efficiently as possible, and with the least acrimony so as to minimise harm to children and their families”.  This is a great objective, but one which has a possible internal contradiction: fast justice may not pick up on the nuances of family violence, child abuse and other risk factors.  The problem of court delays impacting on families was raised (at 10.10) by some stakeholders.

Stakeholders raised a number of concerns about the present delays (at 10.10):

• The potential for children and parents to spend long periods living in limbo while waiting for trial;
• The safety risks to parties and children arising from delayed resolution of disputes that involve protective concerns, including contributing to homelessness;
• The scope for delay and uncertainty to exacerbate conflict; and
• The potential for clients to consent to outcomes that fall short of the security and protection a court order could provide.

The ALRC recommended (Recommendation 31) the introduction of an overarching purpose to impose similar obligations on parties, lawyers and third parties to facilitate the just resolution of dispute with the least acrimony and as quickly and inexpensively as possible.  The ALRC recommended that, to maintain consistency across federal jurisdictions (despite recommending the establishment of state and territory family courts), the provisions be modelled on the Federal Court of Australia Act 1976 (Cth) with modifications appropriate to family law:

• Including as an objective of the overarching purpose the consideration of the best interests of any child involved in the proceedings when considering how proceedings are being conducted;
• Including FDR within the scope of the obligation; and
• Requiring any person who provides financial assistance or other assistance to any party in so far as that person exercises any direct control, indirect control, or any influence over the conduct of a family law proceeding before the court (including negotiations for settlement) to take account of the duty imposed on the party and/or the party’s lawyer and assist the party and/or lawyer to comply with their duties.

In relation to s 117 FLA (the power of a court to award costs in FLA proceedings) the ALRC recommended major revisions including removing the general rule that each party bear their own costs (Recommendation 36).  The ALRC sought (at 10.37) that costs orders be made more frequently to act as a “brake” on unnecessary legal skirmishes and to discourage ambit claims.  Whilst these are admirable objectives, the party who is financially stronger and has greater knowledge can use their advantage to an even greater extent, by using the threat of a costs order against the weaker party who is less able to pay a costs order.  The ALRC also said (at 10.25) that it “be amended to expressly cover persons who provide financial or other assistance, so far as that person exercises any direct control, indirect control, or any influence over the conduct of a family law proceeding”.  This recommendation is specifically aimed at the parents of a litigant, new partners and well-meaning friends who provide funds for the proceedings and actively direct a party to act in a particular way or risk losing financial support.  Third party litigation funders were also identified as problematic.

The ALRC was concerned about the amount of costs paid by parties, but recognised (at 10.135) that:

“Over the years, the nature of the work has changed and the very small percentage of family law disputes not resolved by the parties and that fall to be determined by a court are increasingly complex and lengthy”.

The increased complexity of matters and the impact on legal costs was not acknowledged in the PwC report.

The misuse of processes and systems were identified as impeding post-separation re-establishment and recovery from family violence as well as parenting capacity.  Although not recommending any amendments to the definition of “family violence” in s 4AB(2) FLA, the ALRC said (at 10.33) that it was “essential that there be continuing professional development in relation to the nuances and emerging forms of family violence by all those who practice in the family law system, including judges”.  Again, the ALRC focused on the specialist nature of family law, including the judiciary, which is not the approach taken by the federal government in the Restructure Bills.

The ALRC recommended that the Family Court and the Federal Circuit Court consider producing a joint practice note covering a long list of case management matters (Recommendation 34).  The ALRC did not explain why these matters cannot be addressed in a common set of rules.  Practice notes are less accessible to unrepresented clients than court rules.

The ALRC recommended (Recommendation 37) that courts have express authority to exclude evidence of “protected confidences” in specific circumstances, such as where harm might be caused which outweighs the potential benefits of the evidence.  “Protected confidences” are records of a sensitive therapeutic nature.  These matters might better be addressed (if they are not already) in the Evidence Act 1995 (Cth), so that all evidentiary matters are together.

16. Compliance with parenting orders

These recommendations address the high rate of parents returning to court following the making of orders, the costs and stress of responding to contravention applications and the need to better support highly conflicted parents to implement parenting arrangements and develop positive communication.

Recommendation 41 largely puts the rule in Rice & Asplund (1979) FLC 90-725 into the FLA so that unrepresented litigants have greater awareness of the test for a change in parenting arrangements. The ALRC recommended that the FLA set out the more nuanced test from the cases and not just the Rice & Asplund test.

The expanded role of family consultants in post-separation parenting (Recommendation 38) is sensible but needs to be appropriately funded.

17. Legislative clarity

The ALRC was acutely aware that although the legislation is primarily read and used by judicial officers, lawyers and other professionals, key passages or terms are quoted when advising clients.  The needs of unrepresented litigants also needed to be considered as they are significant.  Recommendation 55 was the comprehensive re-drafting of the FLA and its subordinate legislation.

The ALRC’s specific recommendations (at 14.13) to simplify the FLA and its subordinate legislation are:

1. Dividing the legislative provisions between two statues, one comprising substantive provisions which indicate to parties how their dispute will be determined (FLA), and the other comprising provisions of greater relevance to professionals rather than parties (Family Law (Judicial and Administrative Provisions) Act);
2. Providing for one set of rules applicable in any court exercising family law jurisdiction. (How this would be enforced in the Family Courts or Magistrates’ and Childrens’ Court states and territories was not discussed);
3. Simplifying provisions to the greatest extent possible;
4. Restructuring legislation to assist readability, for example by placing the most important substantive provisions as early as possible;
5. Redrafting the Act, Regulations and Rules in ordinary English to the extent possible;
6. User testing key provisions for reader comprehension during the drafting process, for example, through focus groups, to ensure that the legislation is understood as intended; and
7. Removing or rationalising overlapping or duplicative provisions as far as possible.

In relation to specific recommendation 1 above, the redrafted FLA would include:

• The substantive provisions regarding children’s arrangements and financial matters;
• Provisions regarding procedure and evidence which describe for the parties how the court process will go about resolving any dispute;
• The overarching provisions contemplated in Recommendation 30; and
• Rights relating to appeals.

The other Act would include:

• Part IA ‘Protection of Names’;
• Parts II, III, IIIA and IIIB relating to court and non-court based services;
• Part IV ‘The Family Court of Australia’;
• Part IVA ‘Management of the Court’;
• Part VII Div 13 ‘State Territory and overseas orders’;
• s 62B regarding courts’ obligations to inform people about family services;
• s 70Q ‘Certain instruments not liable to duty’;
• Part IX ‘Intervention’;
• Part XIA ‘Suppression and non-publication orders’;
• Part XII ‘Recognition of decrees’;
• Part XIIIAA Relating to international conventions; and
• Part XIV ‘The Australian Institute of Family Studies’.

A simpler restructure of the FLA, not proposed by the ALRC, would put the court structure, the Australian Institute of Family Studies and the Law Council of Australia in a separate Act to the FLA but retain the substantive law provisions such as Pt IX, XIA and XII in the FLA.

The proposals to restructure the FLA and re-number it are sensible and well overdue.  New areas of jurisdiction have just been shoved into the middle, making the numbering of sections complex in relation to financial matters and jumbled in relation to parenting matters  The changeover will be painful for legal professionals and others, particularly when referring to judgments delivered before the change but the FLA will be easier to use. One example of the complexity of the numbering is that there are approximately 120 sections commencing with s 90 and numerous subsections of these, beginning with s 90 and ending with s 90XZH. Section 90 covers a broad range of financial matters, stamp duty, orders and injunctions binding third parties, financial agreements, de facto relationships and superannuation interests. A significant proportion of the FLA is squashed into s 90. There are also over 25 s 60s covering parenting and child maintenance.

Whilst the readability of the FLA for clients is an admirable and sensible objective, placing parts of the legislative regime in a greater number of legislative instruments, arguably makes the law less accessible.  There are other ways to make the law accessible, such as putting more resources into fact sheets explaining the law, and better funding legal aid commissions and community legal centres.

The ALRC recommended (at 8.78) that the factors that guide an assessment of suitability for FDR should be moved from subordinate legislation to the FLA. This is sensible as they will be easier for all users to locate.  However, proposals that other provisions be moved from the FLA to subordinate legislation or a secondary Act will make them more difficult to locate.  It is, for example, proposed in Appendix H that parenting provisions be divided between two Acts.

The ALRC proposed that the parentage provisions be re-written in consultation with the states and territories to ensure consistency of the definition of a parent throughout Australia, fill in gaps created by changes in society and technology, and create one comprehensive piece of legislation which applies for all purposes throughout Australia.  The writer’s views were quoted (at 14.24) in the Final Report:

“redrafting these provisions in consultation with states and territories was an ‘excellent idea’, albeit ‘ambitious and challenging’”.

Achieving this will require a high degree of co-operation between the states, territories and the Commonwealth, probably a referral of powers by the states and territories and consideration as to whether and how the states and territories can still retain jurisdiction with respect to surrogacy, registration of births and artificial reproduction procedures. It will be an ambitious and challenging undertaking if it proceeds.

The ALRC recommended (at 14.13) although it was not a specific recommendation, that one set of rules be established to cover all disputes in any courts exercising FLA jurisdiction, as differing rules increase complexity, duplication and confusion for professionals and parties.  This recommendation, which was also part of the Restructure Bills tabled before the May 2019 Federal Election, is a project which has already been adopted by the family law courts.

18. Accountability and transparency

In its Discussion Paper, the ALRC proposed the establishment of a Family Law Commission. The ALRC said that it received mixed responses to this, generally wary of the cost and additional bureaucracy. Instead the ALRC proposed (Recommendation 49) that the role of the Family Law Council be expanded to continuously monitor and assess the functioning of the overall family law system. The implementation of this Recommendation requires the Attorney-General to revive the Family Law Council as it is currently in abeyance with no new members appointed since 2016. The Family Law Council will also need to develop a set of performance indicators. This seems essential given that the ALRC did not complete the comprehensive review it was tasked with – admittedly a momentous job.  Some of the ALRC’s Recommendations need further investigation and other areas received only a cursory look or none at all. The Family Law Commission is the most obvious body to do this work.

In making its Recommendation (Recommendation 51) as to the characteristics and expertise of judicial officers in the family law system, the ALRC recognised that (at 13.43):

• Judicial appointments are critical to maintaining public confidence in the family law system and providing optimal outcomes and in-court experiences for litigants;
• That “establishing core competencies from judicial officers at the time of appointment is fundamental to ensuring good decision making” (at 13.44);
• That “the use of training to develop family violence competency for judicial officers is limited by the principle of judicial independence, as judicial officers cannot be compelled to attend or participate in training following appointment to the bench” (at 13.86);
• Whilst not recommending an advisory commission for judicial appointments the ALRC recommended that the process be more transparent than the current process.

However, Recommendation 51 is a watering down of the existing s 22(1) FLA and requires only that future appointments of judicial officers exercising family law jurisdiction “include consideration of the person’s knowledge, experience, skills, and aptitude relevant to hearing family law cases, including cases involved family violence”. The current s 22(1), which applies to Family Court, but not Federal Circuit Court appointments, is mandatory. The ALRC proposal does not set out mandatory requirements, only matters to consider.  It is, like the Restructure Bills, a move away from specialist judges at a time when clients increasingly seek specialist expertise in their lawyers (exemplified by the continued growth of the family law specialist accreditation scheme) and the ALRC proposes mandatory continuing professional development (CPD) in family violence for family lawyers.

Recommendation 51 illustrates a significant problem with the ALRC’s proposal.  If the states and territories have their own courts exercising FLA jurisdiction the federal government cannot impose the same standards on the judges of those courts, as it can on its own courts.

A Judicial Commission to handle complaints against judges was proposed in the Discussion Paper but was dropped from the Final Report. The ALRC agreed (at 13.63) with the submissions which suggested that any Judicial Commission should cover all federal judicial officers. The ALRC considered this was therefore beyond the scope of the Inquiry.  It is difficult to understand the ALRC’s reluctance to make this recommendation.

There was some support from submissions to the Inquiry for mandatory CPD on family violence for all lawyers. The ALRC recommended that all legal practitioners undertaking family law be required to complete at least 1 unit of CPD relating to family violence annually. It left (Recommendation 52) to the Law Council of Australia the difficulty of working with the state and territory regulatory authorities to implement this, including the problem of identifying which lawyers need to do the training.  For example, is it only lawyers who self-identify as family lawyers or is it all lawyers who act in at least one matter per year?

19. Reactions to the ALRC Final Report

There has been very little reported public response to the Final Report.  Perhaps this is because of the size of the Final Report.  Perhaps it is because the tabling of it was delayed until Parliament had almost ceased sitting before the May federal election.  Perhaps it is because the focus of stakeholders had already turned to the forthcoming federal election.  Perhaps it is because of the surprise by stakeholders about the headline recommendation, Recommendation 1.

The Law Council of Australia said in a Media Release on 11 April 2019 that it would carefully consider the ALRC’s Recommendations, but warned that immediate solutions were required to ease pressures on the Family Court and the Federal Circuit Court for the good of Australian families.  It saw any transfer of the FLA jurisdiction to the state and territory courts as a 5-10 year project and envisaged problems with that Recommendation.

Referencing the Restructure Bills, the President of the Law Council, Arthur Moses SC, said:

“Renaming a court to solve problems was a mirage – Australian families need real solutions and prompt action.  Similarly, shifting responsibility to another jurisdiction can never be the answer to a problem when a lack of resources is at its core.”

The Chair of the Inquiry, Justice Sarah Derrington, was quoted in an article in the Herald-Sun on 16 June 2019, “Family Court failure”, as supporting two proposals which were not in the Final Report:

• That magistrates or state-based judges rule on child protection as well as divorce, custody and property matters. There was no reference to the establishment of state-based family courts.  It is unclear if this was an error of the journalist or Justice Derrington has changed her position since the publication of the Final Report;
• That divorced parents take turns living in the former matrimonial home with the children, under a radical reverse-custody plan. There was no reference to this in the Final Report.  In the author’s experience this can work in some families for a short time after separation, but it is usually unworkable for a lengthy period because adults need privacy post-separation from each other, and they start re-building their new lives including establishing separate residences and may want to re‑partner or at least date other people.

Justice Derrington referred to the problem of cases dragging on for years and that:

“People become more emotive the longer the proceedings drag on. … So we’ve got another generation of children who are going to be damaged because their parents couldn’t resolve the matter quickly or efficiently.”

She did not suggest that greater funding and more judges might help the existing family law courts, or that the proposed new courts may be just as under-funded and therefore have as many delays as the existing family law courts.

20. Conclusion

The ALRC referred to earlier inquiries which have raised similar issues to those raised in the Final Report, but the recommendations of which have not been implemented.  This is, of course, a possible outcome for the ALRC’s recommendations.  However, the federal government, prior to the May 2019 election, demonstrated considerable drive to restructure the family law courts, and said it wanted to see the ALRC’s Final Report to consider what other reforms were necessary or desirable.

A good example of a seemingly simple and obvious reform, which may be too expensive for the federal government to prioritise, is the long-overdue re‑numbering of the unwieldy FLA.  These reforms would make the main Act more accessible for parties, lawyers, the courts and other users.  However, the cost of re-drafting the legislation and implementing the changes might be considered too high at a time when the federal government is committed to finding cost savings.

The difficulties the federal government will face in considering what actions to take as a result of the ALRC’s reforms include:

• The Restructure Bills were designed to promote efficiencies and cost-savings.  The ALRC’s recommendations do not have these objectives and are unlikely to achieve these objectives.
• The headline restructure reform of the ALRC was made in a vacuum and without consultation.
• Many of the Recommendations in the Final Report were not in the Discussion Paper.
• It was not a truly comprehensive review of the FLA and there are many gaps.

Most of the Recommendations are uncontroversial and likely to receive significant stakeholder support.  The more controversial ones may warrant further examination and discussion, perhaps by a revived Family Law Commission. Hopefully, the federal government and other stakeholders will not be too distracted by the controversy which will undoubtedly be attached to Recommendation 1, the limited recommendations for increased funding (although the ALRC acknowledged it was required), and will give the bulk of the Recommendations proper consideration and, hopefully, implement them.

© Copyright – Jacqueline Campbell of Forte Family Lawyers and Wolters Kluwer/CCH.  This paper uses some material written for publication in Wolters Kluwer/CCH Australian Family Law and Practice.  The material is used with the kind permission of Wolters Kluwer/CCH

Jacky Campbell, May 2019

The Truly Binding Finanical Agreement – Is concise drafting the key?

In a post Thorne v Kennedy [2017] HCA 49; (2017) FLC 93-807 landscape, it has never been more important to draft financial agreements with precision, fairness and full disclosure. This paper concentrates on the drafting essentials to minimise the risk of a financial agreement being found not to be binding or being set aside. It covers:

1. Ensuring compliance with the relevant sections of the Family Law Act 1975 (Cth) (FLA)
2. Independent legal advice and acknowledging that the advice has been received
3. Drafting to show full disclosure
4. Drafting for clarity and to avoid uncertainty
5. The pros and cons of a complex agreement
6. Drafting to demonstrate fairness in the terms – dealing with the test for “bad bargain”
7. Drafting to demonstrate no disadvantage or duress – is this a relevant consideration?
8. The problem of false recitals
9. Drafting lessons from Thorne v Kennedy
10. Other drafting tips.

1.         Ensuring compliance with the relevant sections of the Family Law Act

The basics

Before starting to draft a financial agreement, re-read s 90G(1) and (1A) (or the de facto equivalents of s 90UJ(1) and (1A)), s 90K (or 90UM noting that the de facto equivalent is differently worded) and s 90KA (s 90UN). This makes sure that the requirements and the wording are fresh while drafting. Sections 90G and 90G(1A) set out when an agreement is binding. Section 90K sets out when an agreement can be set aside and s 90KA deals with the enforceability of financial agreements.

The agreement also needs to comply with one of s 90B, 90C, 90D, 90UB, 90UC or 90UD, or be a termination agreement under s 90J or 90UK, so it is important to re-read the relevant section and check that the agreement covers matters that are within that section. There are subtle but important differences between them. As an example, s 90B states:

(1)   If:

(a)   people who are contemplating entering into a marriage with each other make a written agreement with respect to any of the matters mentioned in subsection (2); and

(aa)   at the time of the making of the agreement, the people are not the spouse parties to any other binding agreement (whether made under this section or section 90C or 90D) with respect to any of those matters; and

(b)   the agreement is expressed to be made under this section;

the agreement is a financial agreement . The people may make the financial agreement with one or more other people.

(2)   The matters referred to in paragraph (1)(a) are the following:

(a)   how, in the event of the breakdown of the marriage, all or any of the property or financial resources of either or both of the spouse parties at the time when the agreement is made, or at a later time and before divorce, is to be dealt with;

(b)   the maintenance of either of the spouse parties:

(i)      during the marriage; or

(ii)     after divorce; or

(iii)     both during the marriage and after divorce.

(3)   A financial agreement made as mentioned in subsection (1) may also contain:

(a)   matters incidental or ancillary to those mentioned in subsection (2); and

(b)   other matters.

(4)   A financial agreement (the new agreement) made as mentioned in subsection (1) may terminate a previous financial agreement (however made) if all of the parties to the previous agreement are parties to the new agreement.

By contrast financial agreements under Pt VIIIAB, which deal with de facto relationships, cannot contain “other matters” or deal with property and financial resources acquired after separation. A table setting out the types of agreements (except termination agreements) and the matters they can deal with is set out below:

With respect to Pt VIIIAB agreements, a de facto relationship within the FLA is required for the agreement to be effective. If it is a s 90UB agreement, the planned de facto relationship needs to commence or the agreement will not operate. The parties must be ordinarily resident in a participating jurisdiction (i.e. not Western Australia or overseas) when they make the agreement (s 90UA). In Darrow & Malden and Ors [2017] FamCA 497, the parties separated in 1993, and entered into the agreement in 2011, but did not “opt in” to the FLA. In Teh & Muir [2017] FamCA 138, the parties were never in a de facto relationship. The applicants engaged in unconscionable conduct and took advantage of the respondent’s dementia.

When is an agreement binding?

An agreement is binding if it complies with s 90G(1) (or s 90UJ(1)):

“Subject to subsection (1A), a financial agreement is binding on the parties to the agreement if, and only if:

(a)   the agreement is signed by all parties; and

(b)   before signing the agreement, each spouse 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 that the advice was provided, to that party of making the agreement; and

(c)   either before or after signing the agreement, each spouse party was provided with a signed statement by the legal practitioner stating that the advice referred to in paragraph (b) was provided to that party (whether or not the statement is annexed to the agreement); and

(ca)   a copy of the statement referred to in paragraph (c) that was provided to a spouse party is given to the other spouse party or to a legal practitioner for the other spouse party; and

(d)   the agreement has not been terminated and has not been set aside by a court.”

The original version of s 90G required the wording of the advice required (not the same wording as the advice required by the current s 90G(1)(b)) to be a term of the financial agreement (Black & Black (2008) FLC 93-357). This is no longer the case, but a clause stating the advice has been provided, repeating the wording s 90G(1)(b), is usually included.

To mitigate the strict technical interpretation of s 90G following Black & Black and make it more difficult for financial agreements to be set aside, remedial sections were introduced into Pt VIIIA and Pt VIIIAB relieving against the consequence of an agreement not meeting the requirements of s 90G(1)(b), (c) and (ca) (or s 90UJ(1)(b), (c) and (ca)). Section 90G(1A)–(1D) allows certain agreements which do not comply with s 90G(1) to be “saved”. Section 90UJ is similarly worded.

The effect of s 90G(1A) is that an agreement, provided that it is signed by all parties, which does not meet all the other requirements of s 90G(1) may be saved “if a court is satisfied that it would be unjust and inequitable if the agreement were not binding on the spouse parties”. In considering this, any changes in circumstances after the agreement was executed are irrelevant. Of course, agreements entered into between 14 January 2004 and 4 January 2010 have the difficulty of interpretation of the transitional provisions identified in Hoult & Hoult (2013) FLC 93-566 and Parker & Parker (2012) FLC 93-499.

Avoiding an agreement being set aside

An agreement which is otherwise binding can be set aside on any of the grounds in s 90K (s 90UM). Section 90K provides that:

“(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:

(i)     for the purpose, or for purposes that included the purpose, of defrauding or defeating a creditor or creditors of the party; or

(ii)     with reckless disregard of the interests of a creditor or creditors of the party; or

(b)   the 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; or

(e)   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.

(1A)  For the purposes of paragraph (1)(aa), creditor , in relation to a party to the agreement, includes a person who could reasonably have been foreseen by the party as being reasonably likely to become a creditor of the party.

(2)   For the purposes of paragraph (1)(d), a person has caring responsibility for a child if:

(a)   the person is a parent of the child with whom the child lives; or

(b)   a parenting order provides that:

(i)    the child is to live with the person; or

(ii)   the person has parental responsibility for the child.”

Other things to remember:

• Section 90UM, which applies to agreements between de facto couples, is worded and numbered differently to s 90K;
• Section 90G(1A) (and 90UJ(1)) are not linked to s 90K (and s 90UM). An agreement cannot be “saved” under s 90G(1A) if it is at risk of being set aside under s 90K;
• Maintenance provisions must comply with s 90E and 90F (or s 90UH and 90UI); and
• A separation declaration may be needed for certain clauses to take effect (property and financial resources – s 90DA and 90UF; and in relation to superannuation splits – s 90XP and 90XB).

2.         The Independent Legal Advice clause

Section 90G(1)(b) (and s 90UJ)(1)(b) is worded similarly) requires that each spouse party to the agreement is given independent legal advice from a legal practitioner about:

• The effect on the rights of that party.
• The advantages and disadvantages at the time that the advice was provided, to that party of making the agreement.

The advice must be given by an Australian legal practitioner (Ruane & Bachmann-Ruane and Anor [2009] FamCA 1101; Murphy & Murphy [2009] FMCAfam 270).

Burden of proof

The nature of and burden of proving independent legal advice was considered by the Full Court of the Family Court in Hoult & Hoult (2013) FLC 93-566. Justice Thackray’s clear explanation (at [60]-[63]) has been generally accepted:

“In my view, the onus of establishing that an agreement is binding falls upon the party asserting that fact because the legislation provides that an agreement is binding “if, and only, if” the prescribed matters are established. It follows that the party relying upon the agreement must establish the existence of all those matters, including the giving of the requisite legal advice to both parties.

I recognise the potential forensic difficulty faced by a party who seeks to uphold a Financial Agreement when the other party claims not to have received the prescribed legal advice. However, the fact there is difficulty in proving something within the knowledge of only the other party and their solicitor does not mean the legal burden of proof passes to the party who seeks not to be bound by the agreement.

Importantly, however, I consider that once the party seeking to rely upon the agreement produces in evidence the certificate signed by the other party’s solicitor, there is a forensic obligation on the other party to adduce evidence which would disprove, or at least throw into doubt, the inference or conclusion to be drawn from the certificate (especially when read with the recital in the agreement to the same effect).

This forensic obligation is properly conceptualised as the burden of introducing evidence and should not be confused with the burden of proof as a matter of law and pleading. For a discussion of the difference see Purkess v Crittenden [1965] HCA 34; (1965) 114 CLR 164 especially at 167-168 per Barwick CJ, Kitto and Taylor JJ and 170-171 per Windeyer J.”

Nature of the advice

How comprehensive and accurate must the advice be? If a party seeks to establish that the advice was not given despite the prima facie evidence of a signed Statement of Independent Legal Advice, what must that party show?

There are different judicial views as to the nature of the advice that must be given. The following views may not all be current, but illustrate the most recent approaches taken by the courts:

• The advice need not be correct. Justice Strickland in Senior & Anderson (2011) FLC 93-470;
• It may not be possible to advise that there are both advantages or disadvantages. Justice Strickland in Senior & Anderson interpreted s 90G(1)(b) (the agreement was entered into on 27 July 2009, but the Federal Justice System Amendment (Efficiency Measures) Act (No 1) 2009 (Cth) commenced on 4 January 2010 had retrospective effect)) as meaning:

“providing such advantages, if any, and such disadvantages, if any, as are apparent to the legal practitioner providing the advice.”

• The parties are required to simply obtain advice, which does not mean that it needs to be correct, accepted or followed. Justice Cronin in Ruane & Bachmann-Ruane [2009] FamCA 1101;
• The effect and implications of an amendment to the agreement were not explained to the wife in the same way that the terms of the original agreement were. Advice of a general nature was insufficient. Justice Strickland (the trial judge) in Parker & Parker [2010] FamCA 664;
• Advice given to the wife by her legal practitioner was incorrect. She was told that the agreement would not be binding. Justice Le Poer Trench said (at [325]):

“The point at issue in this case is that the legal advice was not only incorrect as to the fairness of the agreement, it was wrong as to the major and pivotal effect of the agreement, namely that the wife was surrendering her rights to seek any order under Pt VIII of the Family Law Act. That is a substantially different circumstance to one where the party entering an Agreement understands that the agreement may be important in proceedings between the parties under Pt VIII of the Act as opposed to excluding the courts [sic] ability to consider any application under that Part.”

The agreement was not set aside on this ground (but on other grounds), as the husband was not aware of the wife’s erroneous advice. If he had been aware, perhaps there might have been a finding of unconscionable conduct rather than non-compliance with the advice requirement. Pascot & Pascot [2013] FamCA 945.

• The absence of a list of assets and liabilities at the time of giving advice does not necessarily mean that the advice required by s 90G was not given. Justice Murphy, the trial judge in Hoult & Hoult (2011) FLC 93-489 said (at [66]):

“A practitioner providing the required advice might, of course, feel more comfortable, or consider it prudent, to have a list of assets and liabilities so as to give the client examples of the permutations that might be possible and what may, or may not, be seen as ‘advantages’ or ‘disadvantages’ as a result. In addition, it might well be that advice which can be seen to be comprehensive in terms of a solicitor’s duties, or that which is desirable in light of s 90G’s ramifications, might have many components to which a list of assets and liabilities might pertain. The issue is not what prudence or practice might dictate, but what s 90G requires of any advice.”

The Full Court allowed the appeal. One of the grounds was that Murphy J should have concluded that the solicitor’s certificate, particularly when read in conjunction with the recital in the agreement, should have been treated at least as prima facie evidence of compliance with s 90G. It was remitted for re-trial.

• Advice must be given under the FLA and not (at [91]) about “the commercial terms of that agreement and make sure they were agreed to”. The fact that the wife had been given advice under the FLA by 2 previous legal practitioners was irrelevant as they did not sign the Statement. Justice Jarrett in Adame & Adame [2014] FCCA 42.
• Advice must be given by the legal practitioner signing the Statement. The fact that the wife had been given advice under the FLA by 2 previous legal practitioners was irrelevant as they did not sign the Statement. Adame & Adame [2014] FCCA 42.
• Advice must be given in the terms set out in s 90G(1)(b). The legal practitioner’s role is not to simply “give a certificate”, but to give the requisite advice. In Renard & Geach [2013] FCCA 617 Judge Small said (at [83]):

“It is difficult to see how that role could be fulfilled in even a 50 minute interview, as it would require detailed instructions being taken as to the assets and liabilities of the marriage, the husband’s current position, and the history of the relationship before even looking at the agreement. I therefore consider that I do not need to make a finding on the exact length of time Mr Young spent alone with the husband … as even on Mr Young’s evidence, it was not in my view long enough to take comprehensive instructions and give detailed and comprehensive advice about the agreement.”

Judge Small, in contrast to Murphy J in Hoult, considered that a list of assets and liabilities was necessary to give advice. Justice Aldridge in Abrum also disagreed with Justice Murphy.

• The rights which are being ousted by the agreement must be identified. Justice Aldridge in Abrum & Abrum [2013] FamCA 897 said (at [38]-[45]):

“Nonetheless, when s 90G(1)(b) speaks of “rights” it must be speaking of the entitlement to bring a case under s 79 and the factors that weigh in favour of that person’s case under ss 79(4) and 75(2) otherwise it would have limited meaning.

In order to give advice about the effect of an agreement on the rights of a party, that is their rights under the Act in relation to property, a legal practitioner must establish what those rights are at the time the advice is provided. This is because s 90G(1)(b) requires advice to be given on the effects of the agreement upon the rights of that party and the advantages and disadvantages of the agreement. If their rights are not known then it is impossible to advise as to the effect of the agreement on them.

It is unhelpful to advise a person that a financial agreement might adversely affect his or her rights if those rights are not identified. A party must know more than some unknown or undefined right is being given up. He or she must have some idea, at least in general, of his or her present entitlements or rights (to use the words of the section) with which he or she may compare the provisions of the proposed financial agreement. It is only in that way that there can be actual advice about the effect of the agreement on those present rights.

It is quite clear that a person may choose to enter into an agreement where he or she may very well be much worse off than if he or she were left to rely on their rights under s 79 of the Act. Thus, there is a requirement for specific legal advice to be given. That is the safeguard the legislature imposes when it permits the parties to deal with their property by agreement and without possible interference from a court.

Accordingly, the advice must be real and meaningful. It must be directed to the parties’ circumstances and their present rights.

Proper identification of a parties’ rights can only be done by identifying the property of the parties then held and a consideration of the parties contributions (financial and non-financial) to the acquisition of that property and to the welfare of the children. Any other relevant factors under s 79(4), including s 75(2), would then need to be considered. Only by doing so can advice be given that complies with the terms of s 90G(1)(b).

In the present case Mr Lodge did not obtain any list of the parties’ property and liabilities. He did not seek to ascertain what financial and non-financial contributions the parties had made to that property or to the welfare of the children. He did not explore any of the other s 79(4) matters and the s 75(2) factors with the wife. In those circumstances he was entirely ignorant of the rights of the wife and could not give her therefore any advice about her rights. Mr Lodge did not suggest that he did so.

Similarly, advice about the advantages and disadvantages for a party making the agreement must involve a consideration and weighing of what would be their rights but for entering the agreement and those advantages and disadvantages after having entered the agreement. No doubt each would have its advantages and disadvantages and they need to be compared.”

• No evidence that the wife’s legal practitioner took any financial history on the wife or discussed what rights she had under Pt VIII of the FLA, particularly after she had children (she gave birth 8 days later with the parties’ first child). The 15-minute conference was inadequate to give the advice required under s 90G(1)(b), as well as advice in relation to Wills and testamentary dispositions, execute the agreement and certificate, and dictate the file note. Justice Watts in Raleigh & Raleigh [2015] FamCA 625 distinguishing from the facts in Hoult as the certificates annexed to the agreement indicated that advice was given on non-existent rights.

Independence of advice

The circumstances in which the legal advice given by a legal practitioner lacks independence is unclear. Obviously, each party must have their own legal practitioner and they cannot be from the same law firm. Circumstances in which the advice may arguably considered to be tainted is if the legal practitioner is:

• selected by the other party
• selected and paid for by the other party
• paid for by the other party, or
• paid for by the other party on the pre-condition that the costs are not greater than a certain amount.

The cases dealing with financial agreements under the FLA have confirmed the independence of the advice in at least the first three of the above four situations. For example, in Adame & Adame [2014] FCCA 42 the husband paid for two of the three legal practitioners seen by the wife. The first two refused to sign the Certificate of Independent Legal Advice. The third legal practitioner signed the Certificate of Independent Legal Advice on behalf of the wife, but was located and instructed by the husband and the file was opened in his name and emails were sent to his address. The husband had not provided the legal practitioner with the wife’s email address. The independence of the legal practitioner was accepted by Judge Jarrett who was satisfied that, contrary to the wife’s evidence, the agreement was signed by the wife without the husband being present. However, Judge Jarrett found that the advice did not meet the requirements of s 90G(1) on another ground, because the legal practitioner who gave the advice required by s 90G(1)(b) was not the legal practitioner who signed the certificate. The legal practitioner who signed the certificate said he did not give the advice required under the FLA (despite signing the certificate) and that he was only concerned with the “commercial terms” of the agreement and whether those terms reflected the parties’ intentions.  The fact that the file wasn’t opened in the wife’s name wasn’t an issue, but in other circumstances it may be a more important factor.

In Logan & Logan [2012] FMCAfam 12, Terry FM found that the wife had independent legal advice although there were strong indications that it was not. Arguments against the advice being independent despite the Federal Magistrate’s finding that it was, were:

• The parties jointly attended three of the wife’s four meetings with the wife’s legal practitioner without the husband’s legal practitioner being present.
• The wife’s legal practitioner had prepared wills for both parties.
• The wife’s legal practitioner effected the transfer of the home to the husband at the husband’s request.
• The only conference the wife had with the legal practitioner without the husband being present was the last of the four conferences, when she executed the agreement.
• The wife’s legal practitioner’s file note did not contain any reference to advice being given to the wife at the last conference and the husband did not contend that it was given at any of the previous three meetings.
• The husband ultimately paid the wife’s legal practitioner’s account.
• The wife’s legal practitioner told her when she sought parenting advice after the agreement was signed, that he could not assist her because he had acted for both parties in the property matter.

After 23 years of marriage the wife received 15% of the pool, but in upholding the agreement, the court seemed to be swayed by a finding that the wife was not under any special disability, felt guilt about ending the marriage and that the initial approach to the legal practitioner was made by the wife.

On appeal in Logan & Logan (2013) FLC 93-555, the duress and unconscionable conduct grounds were not pursued by the wife. The Full Court allowed the wife’s appeal as the trial judge mis-applied the burden of proof. Following Hoult & Hoult (2013) FLC 93-546, the onus of proof lay on the party seeking to establish that a financial agreement is binding. The husband could rely upon the Certificate signed by the wife’s solicitor and the forensic obligation was then thrown to the wife to adduce evidence to disprove or at least throw into doubt the inference or conclusion drawn from the Certificate. In this case, there was evidence to displace the inference. The Full Court did not decide if that evidence was sufficient, but ordered a re-trial.

The wife unsuccessfully argued that her legal advice was not independent in Balzia & Covich [2009] FamCA 1357. She was taken by the husband to see the legal practitioner and she asserted that the legal practitioner was mainly her husband’s legal practitioner. Justice Collier accepted that the husband was told to go away on the first occasion the wife saw the legal practitioner and that the husband had his own legal representation. The agreement was found not to be a valid agreement on other grounds.

In Vance & Vance [2012] FMCAfam 599, Baumann FM was satisfied that the wife received independent legal advice in circumstances where:

• Unbeknownst to the wife, the legal practitioner had acted for the husband five or six years prior and they fell out over fees. The fallout was important to the judge’s finding;
• The husband arranged the appointment, paid the wife’s legal fees, and accompanied the wife to the appointment;
• The legal practitioner had previously practised in family law but had spent the previous eight years concentrating on commercial, conveyancing, wills, estates and aviation law. The limited family law experience wasn’t a factor.

Federal Magistrate Baumann found that the legal practitioner was independent and was not required, nor was he able to assess all the future financial permutations that this couple’s financial journey could take. He agreed with Murphy J in Hoult (at [63]) that the legislation does not prevent parties from being “perfectly free to make a bad bargain”.

Federal Magistrate Baumann concluded (at [48]):

“I am satisfied that Mr King was both independent and a legal practitioner … I see nothing in a requirement prescribed by the relevant section to impose any obligation on the legal practitioner to have either specialist or other qualifications in family law. The section requires, by inference, some knowledge of this area of law otherwise it would be hard to be satisfied that the practitioner could be able to articulate the ‘advantage and disadvantages’ of the agreement or the effect of the agreement on the rights of the party being advised. Mr King did have some experience in family law over many years.”

In Moreno & Moreno [2009] FMCAfam 1109, the issue of the limitations placed on the wife’s legal advice by the husband was not considered in the judgment. Federal Magistrate Demack noted that the husband told the wife he would only pay for one hour’s advice. The wife was advised that it was not to her financial advantage to sign the agreement. The legal practitioner recognised the reasons she might do so anyway. In the face of sensible advice (which the wife did not follow) and the fact that the agreement was set aside on other grounds, the limitation placed by the husband on legal advice was not an important factor. However, in other circumstances it might arguably have assumed greater importance.

In Weldon & Asher [2014] FCWA 11, Thackray J found that the husband had independent legal advice in circumstances where:

• The wife’s sister identified potentially suitable legal practitioners whose names were given to the husband either by the wife or the wife’s sister;
• The wife’s sister made contact with the legal practitioners;
• The wife’s sister may have even made the appointment for the husband;
• The wife’s sister had a former professional relationship with the husband’s legal practitioner.

In Guest & Rasevic [2016] FamCA 91, the parties both saw the wife’s legal practitioner for the execution of the agreement. They thought that the husband had waived his right to independent legal advice. The wife conceded that the agreement was not binding after initially seeking that it be found to be binding under s 90G(1B).

More recently in Purdey & Millington [2018] FCCA 213, the wife had limited English and there was no interpreter when she was given advice. The husband’s legal practitioner suggested a legal practitioner for the wife. There was a dispute as to who made the appointment for the wife to see the legal practitioner, but the trial judge found that the husband probably made the appointment and that he was present when the wife saw the legal practitioner. The agreement was held not to be binding. Judge Jones found that the evidence before the court was sufficient to throw into doubt the inference which could be drawn from the wife’s legal practitioner’s statement attached to the financial agreement certifying that the wife was given independent legal advice, for the following reasons:

1. The arrangement for the wife to be provided with legal advice was not independently made by the wife. Rather, the husband arranged for the wife to attend on Ms J on the recommendation of Mr K, his legal practitioner, who drew up the financial agreement;
2. There was no record held by Sydney Legal House, the firm Ms J worked for when she met with the wife, of the wife as a client. The capacity in which Ms J acted was questionable;
3. Ms J received the financial agreement at the commencement of her meeting with the wife and the meeting took no longer than 20 minutes. In Judge Jones’ opinion, this was insufficient time for Ms J 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. She referred to Abrum & Abrum[2013] FamCA 897 (quoted above), where Aldridge J set out the obligations upon a legal practitioner purporting to give legal advice under s 90G(1)(b) of the Act (at [35]-[45]). In Judge Jones’ opinion, it would not have been possible for Ms J to have complied with these obligations in a time period of ten to 20 minutes;
4. The husband was responsible for and paid the fee for the meeting between Ms J and the wife;
5. The husband was present for the duration of the meeting between Ms J and the wife;
6. The absence of any file notes of the meeting support an inference that there was a lack of proper engagement by Ms J with the wife, a lack of competent legal service and a lack of the provision of any legal advice at all.

In the circumstances it was not appropriate for the agreement to be held binding under s 90G(1A).

Proving compliance with s 90G(1)

Although s 90G(1) does not require the Statements of Independent Legal Advice to be annexed to the agreement (as required in the first version of s 90G(1)), the better view is that they should be so, as to ensure that they stay together and that there is clarity about which agreement the advice was given.

Lawyers should be cautious about how they prove compliance with s 90G(1)(c) and (ca) (and s 90UJ(1)(c) and (ca)). Some lawyers draft a one page receipt or acknowledgement where the party acknowledges receipt of the advice, receipt of the Statement of Independent Legal Advice from their lawyer and receipt of the Statement of Independent Legal Advice from the other legal practitioner at the same time. Sometimes, receipt of a copy of the full executed agreement is also acknowledged. Section 90G(1) requires the parties to receive the Statements of Independent Legal Advice of each other, but not a fully executed copy of the agreement. A signed acknowledgement of receipt of the Statements of Independent Legal Advice of both legal practitioners and the fully executed agreement is good practice, but not a legislative requirement.

An example of a receipt is:

I Joseph Robert Williams acknowledge that the Section 90B Financial Agreement (“Agreement”) between me and Alice Louise Davis (“Alice”) dated the 15^th day of May 2019 was signed by me and Alice and that:

1. The signed copy of the Agreement was given to me.
2. Before signing the Agreement, I received independent legal advice from my legal practitioner, David Phillips, about:

2.1     The effect of the Agreement on my rights; and

2.2     The advantages and disadvantages, as the time that the advice was provided to me of making the Agreement.

3. I have received a signed Statement from my legal practitioner, David Phillips, stating that I received independent legal advice about:

3.1     The effect of the Agreement on my rights; and

3.2     The advantages and disadvantages, as the time that the advice was provided to me of making the Agreement.

4. I have received a signed Statement from Alice’s legal practitioner stating that before signing the Agreement Alice was provided with independent legal advice from her practitioner about:

4.1     The effect of the Agreement on her rights; and

The advantages and disadvantages, as the time that the advice was provided to her of making the Agreement.

Dated the       day of     2019

SIGNED by the said          )

Joseph Robert Williams     )

in the presence of:             )                     …………………………………………..

There are several different steps in complying with s 90G(1) and, although some can occur at the same time, they cannot all occur at the same time unless both parties and their lawyers meet to sign the Agreement and Statements and exchange the statements. If there is not a joint meeting, it is better to either divide the receipt into 2 separate receipts or acknowledgements or have the receipt or acknowledgement signed by the party who signed first after the final step has occurred.

If Joseph signs first, Joseph can only acknowledge 2 and 3. Alice then signs the agreement and can sign a receipt in the above terms. Joseph then can acknowledge receipt of the signed agreement and 1 and 4.

Of course, a written acknowledgement or receipt of the advice does not mean that a court cannot go behind that acknowledgement, just as it can go behind a statement of independent legal advice, e.g. Hoult & Hoult (2013) FLC 93-546 and Logan & Logan (2013) FLC 93-555. The acknowledgement and the Statement of Independent Legal Advice are prima facie evidence that the events occurred.

In Fevia & Carmel-Fevia (2009) FLC 93-411 one party did not receive a copy of the agreement until 7 years after it was executed. In Suffolk & Suffolk [No 2] [2009] FamCA 917 it was 4 years. These cases were decided when s 90G(1) required one party to have an original of the agreement and the other a copy. There was no temporal requirement in the provision, but the courts seemed to be prepared to read it in. In Purdey & Millington [2018] FCCA 213, the fact that the wife was not given a copy of the agreement shortly after she had signed it (although it was no longer a legislative requirement) was a factor in finding the agreement not binding under s 90G(1A). Non-provision or delayed provision of a copy of the executed agreement in a timely fashion seems to be problematic and understandably so.

3.         Drafting to show full disclosure

Disclosure isn’t a requirement for financial agreements but it does help to ensure it is not set aside.

There are several ways to deal with disclosure of each party’s financial position:

1. If there are proceedings before the court, the parties can rely on their financial statements and affidavits, and their compliance with their duty of disclosure. This is ideal – provided it is accurate – as it is open, transparent and on the court record.
2. The parties can provide summaries of their financial positions in the financial agreement, either in the recitals, in schedules to the agreement or both.
3. The parties can annexe sworn financial statements to the agreement.
4. The parties can do full mutual disclosure, even if there are no proceedings before the court. This might include formal valuations of real estate and businesses, or at least market appraisals of real estate and an accountant’s estimate of the value of businesses.
5. The parties can do limited mutual disclosure (such as recent tax returns and assessments, recent financial statements and tax returns of entities and recent superannuation member statements) and not all other possibly relevant financial documents such as bank accounts.
6. The parties provide no formal disclosure, but include a recital in the agreement that they waive any right to proper disclosure.
7. The parties include a recital in the agreement that they have full or sufficient knowledge of the other party’s affairs to enter into the financial agreement without formal disclosure.

Whatever approach is taken, it should be clear from the recitals how or if the parties have provided disclosure.

Difficulties can arise when one or both parties have a number of entities. The entities need to be referred to precisely, and not just as “the husband’s entities” or “the Marshall group”. The difficulties are exacerbated in agreements entered into before or during a relationship, as the way a business operates may change, particularly where one of the parties is involved in a business with other family members. The operations of the business may be moved from one entity to another, or a trust may be interposed, directorships and shareholdings may change and new entities formed.  How can they still be quarantined?

In Acker & Acker [2014] FamCA 891, the wife alleged that the agreement was obtained by fraud, by reason of non-disclosure by the husband of a material matter. He disclosed “what were described as beneficiary interests in wholly discretionary trusts the wife foreshadows that she will contend at all material times the property of the trusts was actually in the whole or at least partial ownership of the husband” (at [10]). There is no reported decision as to the outcome. Both parties agreed that the Family Court matter could not be determined until a tax dispute was resolved by the Administrative Appeals Tribunal. The husband in this case probably considered that he had provided proper disclosure of his interests in the trusts in the financial agreement, but he still ended up in court after separation with the nature of his interests in dispute.

The disclosing party can’t disclose a non-existent entity and it is difficult to protect an entity which doesn’t yet exist. A party’s interest in an entity at the end of the relationship may be different to the interest when the agreement was executed.

Superannuation may be a problem in pre-separation agreements, because of the difficulties of identification of the fund and giving procedural fairness, working out a split, naming the fund and ensuring the terms are enforceable. (See s 90XJ).

Tax can also be problematic in pre-separation agreements. It is impossible to predict if parties or entities will have significant liabilities and what tax consequences there may be in the future if property is to be transferred, particularly as tax law sand the parties’ circumstances may change. Often the best that can be done is to advise the client that it is impossible to predict the future and that possible tax consequences on disposition and transfer should be considered when making decisions about the acquisition of property during the relationship.

If the intention of the parties is that the weaker party will not have any tax consequences from the agreement or from their involvement in the stronger party’s entities, then this should be clear in the agreement, and appropriate indemnities given.

Checking instructions

It is important to remember that although full and frank disclosure is not a requirement for a financial agreement, establishing that there has been such disclosure is done to ward off a potential application to set aside a financial agreement under s 90K(1) or s 90UM(1).

Mistakes can be made by clients when giving instructions as to their financial positions, so it may be sensible to protect your client by:

• Obtaining ASIC searches of both parties and of any entities;
• Obtaining title searches (including index searches) of real estate of both parties;
• Having the client’s accountant check that the financial position of the client is accurately described in the financial agreement.

Post-separation, lawyers are likely to do title searches and ASIC searches, but that are also important pre-separation.

There are pros and cons for detailed disclosure being provided by parties entering into a financial agreement. On the one hand, by parties providing full details of their financial positions, if there are any errors, it may be easier for the other party to successfully apply to set the agreement aside for non-disclosure, misrepresentation or other grounds under s 90K. On the other hand, if the parties do not provide full details of their financial positions in the agreement, it may be more difficult to defend an application for the agreement to be set aside for non-disclosure of a material matter.

4.         Drafting for clarity and to avoid uncertainty

A financial agreement is a contract. To draft a contract, it is necessary to look at what the client wants to achieve. The following questions must be considered first:

• What is the goal?
• How is it to be done?
• Who is to do it?
• When is it to be done?
• How is it to be enforced if it is not done?

Both the agreement and any letters of advice should be easy for the client to read and understand. The agreement also needs to be enforceable as a contract, not as a set of orders. The clauses of the agreement should be drafted as a contract and not just copied from orders. The style is different and if the terms of the agreement are drafted in the same form as orders they may not be enforceable as they may lack clarity and certainty. Precedent clauses can help with the first draft of an agreement. The draft must be checked carefully and altered to fit the precise and unique facts of the particular case.

Care should be taken in using precedent agreements. Collier J in J & J [2006] FamCA 442 was critical of the use of precedent agreements without sufficient thought as to whether or not it was appropriate. Collier J concluded at [34]:

“However I am left in the position of having a very uncomfortable suspicion that the precedent that has been used has not been properly amended. I am further left unable to state with any certainty what was actually done and what was actually explained to each of the parties and the manner in which the document was actually executed and witnessed.”

In Squibb & Graham [2018] FCCA 1906, the trial judge considered that the agreement had the hallmarks of having been downloaded from the internet, but it was rectified to refer to the FLA and instead of referring to s 90KA, to refer to s 90B as being the type of agreement.

Matters to be covered

What clauses should be included in an agreement? As a starting point:

1. What property is excluded?

1.1     Define the excluded property;

1.2     Are there any circumstances where the financially weaker party will receive some of the otherwise quarantined property?

2. How will other (joint and separate) property be dealt with?

2.1     Who retains the house or will it be sold?

2.2     When will the other party vacate the home?

2.3     How will property be valued?

2.4     The arrangements for any sale;

2.5     How will the net proceeds of sale be distributed?

2.6     How will liabilities be dealt with (including tax)?

3. Will superannuation be split?

3.1     If so, how?

3.2     How will procedural fairness be given?

3.3     Who will retain any self-managed superannuation fund and clauses to give effect to this? What if parties don’t have one when the agreement is entered into but create one later?

3.4     The operative time for a payment split is the beginning of the 4^th business day after the day on which a copy of the agreement is served on the trustee accompanied by the other documents specified in s 90XI(1).

4. Spousal maintenance

4.1     Is the right to spousal maintenance ousted?

4.2     Will one party receive maintenance for a fixed period?

4.3     How will the requirements of s 90E be met?

4.4     Can the requirements of s 90F be met?

5. What contingencies have the parties considered?
6. Recitals – give sufficient background;
7. Schedule of the parties’ assets and liabilities;
8. Statement of Independent Legal Advice;
9. Separation declaration (if applicable).

Uncertainty and incompleteness

A contract may be held void for uncertainty or incompleteness if the intention of the parties cannot be determined objectively. The terms “uncertainty” and “incompleteness” are defined as:

• Uncertainty: The agreement, or an essential term of it is too vague or ambiguous for the court to determine the parties’ rights and obligations. The court cannot enforce an agreement or an essential term which is not definite and clear.
• Incompleteness: The agreement is incomplete because the parties failed to reach agreement on an essential term. Not everything necessary for the agreement to be implemented has been agreed.

Uncertainty

Points to note about uncertainty include:

• Courts are reluctant to strike down an agreement which parties intend to be binding. They endeavour to uphold contracts wherever possible.
• Courts try to objectively ascertain the parties’ intentions.

Clauses and agreements otherwise void for uncertainty may be saved by:

• applying an external standard such as the standard of reasonableness
• if the parties have acted on the agreement, their actions may clarify the uncertainty
• severing the uncertain part from the contract if it is not important.

Kostres & Kostres (2009) FLC 93-420

The Full Court found that an agreement was void for uncertainty. The agreement was entered into two days before the marriage. At the time, both parties mistakenly believed that the husband was an undischarged bankrupt. They did not tell their lawyers this. The parties’ mistaken belief about the husband’s status led to them acquiring assets in the wife’s name rather than in the parties’ joint names. Both parties sought that words be “read into” clause 6 of the agreement.

The Full Court was not satisfied that it could read words into the agreement. The agreement was particularly difficult to interpret as it used terms which were ambiguous or did not reflect the wording of the FLA, such as “acquired”, “assets”, “joint funds” and “from their own moneys”.

Parke & Parke [2015] FCCA 1692

This case involved two clauses in a financial agreement which created ambiguity and uncertainty. Pursuant to one clause, the wife’s half interest in a real property was excluded property which she retained in the event of a separation. However, pursuant to another clause the wife was required to transfer her 50% share to the parties’ son X within 60 days of a separation. A complicating factor which was not foreseen, at least by the husband when the agreement was entered into, was that X refused to accept a transfer of the wife’s half interest in the property and the agreement did not have a default provision setting out what was to occur in the event that X refused to accept the transfer.

The trial judge, Howard J, found that the clauses were essential terms of the agreement because they dealt with what was to happen in the event that the parties separated and the clauses could not be severed from the agreement. He set the agreement aside. The husband’s appeal was discontinued by the husband’s legal personal representative after the husband’s death.

Example:

An example of an attempt to quarantine the husband’s initial contributions, being his interest in a family group of entities, didn’t work. The agreement didn’t anticipate that the home would be put in the wife’s name for asset protection reasons. The agreement stated:

6. Unless excluded by the operation of previous paragraphs hereof, all assets and resources accumulated by Joseph and Alice jointly during their relationship shall be considered as joint assets (“the joint assets”).
7. The joint assets will be registered in joint names or in the names of entities in which Joseph or Alice have joint, director or beneficial ownership and joint control.

The matter settled on the basis that the wife kept the home because:

• the agreement did not anticipate that “joint property” might be in the sole name of one of the parties;
• The quarantining of the husband’s business interests may not have been effective as the structure had changed.

Incompleteness

An agreement is void for incompleteness if the parties failed to reach agreement on an essential term. Important points to note about incompleteness are:

• If it is clear that the parties intended to form a binding contract, the courts may imply an omitted term into the contract to save it.
• If an agreement provides the formula or machinery necessary to clarify an essential term, the agreement is not void.
• Tools which are helpful to save contracts from voidness for incompleteness may also be useful to save contracts from voidness for uncertainty (e.g. if only part of the agreement is incomplete, it may be severable).

Incompleteness and the limitations of the doctrine of rectification were discussed in Fevia & Carmel-Fevia (2009) FLC 93-411; [2009] FamCAFC 816, where it was unclear whether an annexure was part of the agreement. The agreement was incomplete. In Fevia, Murphy J quoted from Sindel v Georgiou [1984] HCA 58; (1984) 154 CLR 661 where the High Court said (at [13]):

“Rectification is a remedy which cures the erroneous expressions of the parties’ true intentions in a contract which is already binding. It is not a remedy which brings a contract into existence in a situation in which the parties have not by their own acts arrived at the concluded contract.”

Garvey & Jess [2016] FamCA 445

Justice Carew rejected the argument of the wife that the financial agreement was void for uncertainty as the parties only had an “agreement to agree”. The agreement provided that in the event of a breakdown of the relationship, the parties would “equally divide the joint assets”.

Justice Carew said (at [340) in relation to financial agreements generally:

“It is important, in my view, to have regard to the context in which agreements of this kind are entered into. They are not commercial agreements but arise as a result of a personal relationship which at the time of making is presumably a happy one. Parties to such agreements aim to avoid dispute as to how their assets should be divided if their relationship breaks down at some future time which may be decades away. The future circumstances of the parties cannot possibly be known at the time of entering into such an agreement.”

She concluded (at [41], [44):

“In my view, the deed is not void for uncertainty because:

a. The deed evinces an intention:

i) to be legally bound;

ii) to oust the jurisdiction of the court pursuant to Part VIII;

iii) to divide the assets in the proportion provided for in the deed.

It is not an ‘agreement to agree’.

b. While the term ‘joint assets shall be equally divided’ is an essential term, it is not uncertain nor is it incomplete because on the application of the objective test of a reasonable bystander, the term would be construed to mean that whatever assets they own jointly when the marriage breaks down are to be divided equally whether in specie or upon sale;

c. At the time of making the agreement the parties could not possibly have known what assets they may own at the relevant time and therefore it could not be said that the failure to allocate a mechanism for implementing the essential term of equally dividing the joint assets would have caused the husband or the wife to have refused to have entered into the deed because at that time they could not have known what mechanism would have been appropriate e.g. it was argued on behalf of the wife that the agreement should have stated who was to retain which asset or class of asset – in my view, such a suggestion would prove an impossible task when the nature and value of assets in the future could not be known at the time of entering into the agreement…

Applying the principles identified above, the term I would imply is to the effect that the parties will do all things necessary to give effect to the terms of the deed and in the event of dispute, a court may determine the method of implementing the terms of the deed. Such a term would be reasonable, would give business efficacy to the deed, “goes without saying”, is capable of clear expression and does not contradict any express term of the deed.”

This decision is unaffected by the appeal in Jess & Garvey (2018) FLC 93-827.

Plain English

Using plain English is important. Parties should be given what they are paying for: an agreement and an advice letter that they can read, understand, abide by, refer to at a later date and enforce if necessary. Traditional legal wording rarely achieves these objects.

Complicated words and sentence structure may be acceptable in some cases. It will depend upon the parties. Matters to consider in assessing the complexity of language which is appropriate for the parties include:

• How old are they? Clearer wording and better oral explanations may be required for the very young and very old.
• What level of education did they achieve? Different assumptions may be made about a party who finished school at 15 as opposed to one who completed a university degree.
• How fluent are they in English: reading, speaking and listening?
• What type of education did they have? A tertiary qualification does not mean that the client has a good understanding of legal and financial matters. For example, a recent graduate of a garden landscaping or nursing course will probably have less understanding of these matters than a recent accounting graduate.
• What work experience do they have?
• How recent is the work experience?
• What is the health of the client? For example, is the client suffering from depression, high blood pressure or a physically debilitating illness?
• Are the parties familiar with legal terms?
• How familiar are they with terms used about companies, trusts, financial statements, tax, a particular business operated by one or both of the parties etc?

Guidelines for writing plain English

Some principles for making documents and letters easier to understand include:

1. Use legal paragraph numbering. This means you might have a paragraph numbered 1.1.1.1 rather that 1(a)(i)(A).
2. Avoid large blocks of text. Try to limit the number of lines in a paragraph to five. Qualifying clauses, exceptions and conditions should be in subparagraphs or separate sentences. However, it may be clearer to repeat common words to avoid overly long and elaborate paragraphs.
3. Use short rather than long words.
4. Use short rather than long sentences.
5. Try to balance precision and simplicity, ambiguity and complexity. Vagueness may provide flexibility but there should still be a method of achieving clarity. This may be by reference to case law or legislation (eg, terms or phrases such as “separated under the one roof”, “ordinary course of business” and “good faith”) or by using a dispute resolution procedure (eg, value of business to be determined by an accountant appointed by the President of the Institute of Chartered Accountants in Australia, a valuation of real estate to be determined by a valuer appointed by the President of the Australian Institute of Valuers).
6. Use terms used in the Family Law Act 1975 where possible, as these terms have case law to support their meanings and the interpretation of the agreement will be clearer and more certain.
7. Use complex terms sparingly and define them when they are first used. Consider where best to put the definitions. A list of terms on the first page may discourage further reading but putting definitions in the body of the agreement may force the reader to search back for the definition later.
8. Replace jargon and legalese with short, common words. Do not use old-style or unnecessary legal words and phrases like “whereas”, “hereinbefore”, “whereof”, “hereinafter”, “herein”, “aforesaid”, “wherefore”, “said” (as an adjective), “same” (as a pronoun), “and/or”, “provided that” and Latin phrases. Limit the use of “such… as”. For example, rather than “take such steps as are appropriate” say “take appropriate steps”.
9. Dates are clearer if the form “12 December 2020” is used rather than “12th December 2020”.
10. Say “must” or “must not” to impose an obligation, not “shall” or “shall not”.
11. Preferably use “if” to introduce a set of facts rather than “where”. “Where” suggests place. If the event is uncertain use “when”. For example, rather than “where a party remarries”, use “if a party remarries”.
12. Avoid superfluous words. For examples of simplified wording, there is a longer table in the Australian Family Law & Practice Manual – paragraph 33-510. Some examples are:

The above guidelines are in part drawn from the following publications:

• “The Elements of Style” (W Strunk & E B White, 4th edn, Massachusetts, Allyn & Bacon).
• “The Penguin Guide to Plain English” (H Blamires, Penguin 2000).
• “Plain English Manual” (Office of Parliamentary Counsel opc.gov.au/publications/plain-english-manual.
• “A Plain English Handbook” (US Securities and Exchange Commission, August 1998 — obtainable from www.sec.gov/news/extra/handbook.htm).

Using FLA terminology

Terminology used in the FLA is referred to at point 6 of the Guidelines for Writing Plain English above. Examples of terms which a court has found difficult to interpret because they were ambiguous or did not reflect the wording of the FLA are:

• “acquired”, “assets”, “joint funds”, “from their own money”. Kostres (2009) FLC 93-420 discussed above.
• “matrimonial property”. Gibbs & Gibbs [2015] FamCA 630

5.         The pros and cons of a complex agreement

A simple agreement is easier to draft, but it may be too simple to cover all possible contingencies. To avoid the risk of an agreement being set aside because of one of these contingencies, many agreements include a recital to confirm that the parties have considered those contingencies.

An example of a recital of drafting for contingencies is:

Before executing this Financial Agreement, each party has had regard to the possibility that one or both of them may be subject to a change of circumstances including any or all of:

1. The birth of a child or children or adoption of a child or children;
2. Serious illness or injury of one of the parties or a child;
3. Death of one of the parties;
4. A significant increase or decrease in the value of the property and financial resources set out in Schedules A, B and C;
5. The bankruptcy of one of the parties.

A formula which gives cascading entitlements with the effluxion of time, the number of children or some other factor, are more complex to draft and implement.

The reason for including a cascading formula is to more closely match the increased property entitlements of a party under s 79 (or s 90SM) in longer relationships where there will almost certainly have been greater contributions (parenting, homemaking, financial and non-financial) of the financially weaker party to at least partially offset the greater initial financial contribution of the financially stronger party, than in a short relationship. If the agreement does not adequately provide for the other party in the event of one of the contingencies, then there may be a greater risk of the agreement being set aside or, at the very least, an application being made with all the associated financial and emotional stress. It may be better to provide for the contingency, but more complex and lengthy agreements are more likely to have inconsistencies in their drafting.

Simpler agreements set out clearly the respective entitlements of the parties, with perhaps a payment or transfer of property calculated as a percentage of certain property or a defined lump sum. If giving a percentage, the property of which the party receives a percentage needs to be described.

Sometimes, agreements are drafted so as to oust the jurisdiction of the court to deal with property but allow maintenance claims to still be made. Of course, the weaker party must still establish a need for maintenance, but allowing the weaker party the right to apply for maintenance may mean that the agreement can be more simply drafted and is not as much at risk of being considered a bad bargain (and set aside if there are vitiating factors, such as undue influence), than if the right to apply for spousal maintenance is ousted.

Ousting the right to apply for spousal maintenance may be ineffective in any event. Section 90F(1) provides that a financial agreement cannot exclude or limit the power of a court to make a maintenance order if s 90F(1A) applies – which states:

“This subsection applies if the court is satisfied that, when the agreement came into effect, the circumstances of the party were such that, taking into account the terms and effect of the agreement, the party was unable to support himself or herself without an income tested pension, allowance or benefit.”

What then is the relevant time when “the agreement came into effect” for the purposes of s 90F(1A)?

Section 90DA provides that in relation to s 90B and s 90C financial agreements, an agreement comes into effect in relation to provisions dealing with property and financial resources when a separation declaration is made.

The ability to make a financial agreement dealing with spouse maintenance is set out in s 90B(2)(b) and s 90C(2)(b), which are not referred to in s 90DA.

It appears that a provision asking for the ability to apply for maintenance to be ousted is determined at the time the agreement is entered into, and is therefore more likely to be effective. Exceptions are some agreements entered into during a relationship when the parties already have children or, as in Raleigh, where the wife gave birth 8 days later.

Including a right to seek maintenance may help establish that the parties did consider possible contingencies, such as childbirth, care of children, injury and ill-health, and not merely state these possibilities in a recital may help uphold the agreement.

However, a financially weaker spouse with the primary care of the children who is in employment, may not be able to make a successful maintenance claim. This means that more consideration should always be given to ensuring that the weaker party is not left with an extraordinary small share of the property (in s 79 terms), so that there is less motivation to attack the agreement.

Another option is to include a sunset clause so that the agreement no longer operates if the parties, for example, have a child. The difficulty with these is that they have not been tested and non-compliance with s 90J(1) may be a problem. Section 90J(1) states:

“(1) The parties to a financial agreement may terminate the agreement only by:

(a)   including a provision to that effect in another financial agreement as mentioned in subsection 90B(4), 90C(4) or 90D(4); or

(b)   making a written agreement (a termination agreement ) to that effect.”

A termination provision included in the original agreement may be ineffective if the requirements of s 90J(1) are not met. Therefore, to achieve the same outcome, a financial agreement can be drafted carefully with two parts:

1. The first part applies until a certain event occurs or does not occur;
2. After that time, the second part of the agreement applies. The parties’ rights under Pt VIII or Div 2 of Part VIIAB of the FLA could be restored, unaffected by the agreement. Alternatively the parties’ rights after that time are affected to a lesser extent than in the first part.

A requirement that the parties review an agreement if they have a child is almost certainly unenforceable if the intention is that the parties are forced to enter into a new agreement in different terms, it may encourage the parties to do it, but cannot force them to do it.

6.         Drafting to demonstrate fairness in the terms – dealing with the test for “bad bargain”

Since Thorne v Kennedy there is more concern among legal practitioners that the agreement not result in a “bad bargain” for one of the parties. There is, of course, no requirement that the terms of a financial agreement meet the “just and equitable”, “proper” and “appropriate” standards under s 79. It is rarely the case that both parties will be advantaged by the agreement. One party is almost always disadvantaged by the agreement.

However, if an agreement gives the weaker party entitlements which are close to the range of their entitlements, then that party is less likely to seek to set aside the agreement and less likely to succeed.

What is a bad bargain?

In Fewster & Drake [2016] FamCAFC 214; (2016) FLC 93-745, the Full Court was looking at s 90K(1)(d) and said (at [65]):

“It is to be recalled that, subject to compliance with the statutory requirements, people are free to enter such binding financial agreements as they see fit. There is no statutory provision which enables a binding financial agreement to be set aside merely because it is unfair: Hoult & Hoult [2013] FamCAFC 109; (2013) FLC 93-546 at 87,283 and 87,296 – 87,298.”

In relation to the hardship required by s 90K(1)(d), the Full Court said that s 90K(1)(d) required (at [68]):

“something more than unfairness. In In the Marriage of Whitford [1979] FamCA 3; (1979) FLC 90-612 (“Whitford”) at 78,144-78,145 the Court said that hardship is:

…akin to such concepts as hardness, severity, privation, that which is hard to bear or a substantial detriment…
…
In ordinary parlance, hardship means something more burdensome than “any appreciable detriment’”. We consider that in subsec. 44(4) the word should have its usual, though not necessarily its most stringent, connotations.”

In Higgins & Moruba [2018] FamCA 467, Thornton J said (at [80]):

“The Court in Fewster & Drake made it clear … that individuals are free to enter into binding financial agreements as they see fit and there is no statutory provision which enables one to be set aside merely because it is unfair. The wife’s argument, that there is hardship because she would obtain a different outcome under a s 79 application under the Act compared to the binding financial agreement is therefore not relevant to the Court’s consideration of whether there is hardship. Therefore, the order the wife seeks for full disclosure is not justified on this basis.”

The finding of a bad bargain will not be made in isolation of a vitiating factor, such as fraud, undue influence or unconscionable conduct, so in drafting, negotiating and executing an agreement it is important that legal practitioners and their clients avoid falling foul of vitiating factors. For example, ensuring that there is a trail of correspondence between lawyers negotiating the terms of the agreement, that the stronger party does not advocate “sign this agreement or there will be no marriage” and that there is ample time for the terms of the agreement to be considered before the wedding, are strongly recommended.

7.         The problem of false recitals

Recitals are statements at the beginning of a contract which set out preliminary matters, such as factual background and the reasons for the contract.

The false recitals which are most commonly problematic include:

1. Recitals which set out the financial positions of the parties or refer to schedules which do, may not accurately set out the true position. On the one hand, by parties providing full details of their financial positions, if there are any errors it may be easier for the other party to successfully apply to set aside under s 90K(1)(a) or 90UM(1)(a) because “the agreement was obtained by fraud” (including non-disclosure of a material matter). On the other hand, if the parties do not provide full details of their financial positions in the agreement, it may be more difficult to defend an application for the agreement to be set aside for non-disclosure of a material matter.
2. In Thorne v Kennedy, the agreement included an “acknowledgement” that the wife was able to support herself without an income tested pension, allowance or benefit, taking into account the terms and effect of the agreement when the agreement came into effect. This statement was designed to ensure that the agreement, in compliance with s 90F, ousted the jurisdiction of the court to make an order for spousal maintenance.

As the plurality in the High Court said, this statement was made (at [20]) despite the wife’s “extremely limited personal means”. The plurality made no findings on whether the s 90F declaration was effective, as submissions were not made with respect to it – either in the Full Court of the Family Court or in the High Court – but the plurality appeared to express doubt as to whether the wife was bound by her “acknowledgement”. The High Court drew the attention of the parties to the issue, but because of the way the case was presented it was significant only (at [20]) “as a matter of contextual construction”, which suggests that the incorrect statement may have assisted the plurality to reach the conclusions it made that there had been undue influence and unconscionable conduct.

3. If there are recitals which indicate that there has been a mutual exchange of disclosure when there has not been or state that there has been a mutual waiver of disclosure, particularly where there is unequal bargaining power, it may be easier for the court to find that there was undue influence or unconscionable conduct.

8.         Drafting to demonstrate no disadvantage or duress – is this a relevant consideration?

Recitals or clauses confirming that neither party has been subject to duress, undue influence or unconscionable conduct are often included in financial agreements. The problems with these clause include:

• They are technical terms and even with the benefit of legal advice a party may not know what they mean;
• Duress, undue influence or unconscionable conduct may still be established from the surrounding circumstances.

A better approach is to try to remove the possibility of these vitiating factors being established. From Thorne v Kennedy we know that an agreement is more likely to be upheld if:

• The terms of the agreement were negotiated between the parties rather than one party being told to sign the first version. Ensure there is a paper trail for the negotiations;
• The negotiated changes are substantive, or at least not just correcting minor drafting errors;
• There was time for “careful reflection”. The time required will vary depending upon the literacy, education and other circumstances of the weaker party. A recital can be included in the agreement setting out the period during which the terms of the agreement were negotiated. Again, a paper trail of this is important;
• The terms of the agreement were negotiated between lawyers rather than though the parties.

9.         Drafting lessons from Thorne v Kennedy

Following the High Court judgment in Thorne v Kennedy, whilst there are many uncertainties, there are some drafting lessons:

1. The High Court listed six factors (which were not intended to be exclusive) which will have prominence in assessing where there has been undue influence in the particular context of pre-nuptial and post-nuptial agreements. They need to be considered when taking instructions, negotiating, drafting and advising on financial agreements. They are repeated here because of their importance:

1.1     Whether the agreement was offered on a basis that it was not subject to negotiation;

1.2     The emotional circumstances in which the agreement was entered including any explicit or implicit threat to end a marriage or to end an engagement;

1.3     Whether there was any time for careful reflection;

1.4     The nature of the parties’ relationship;

1.5     The relative financial positions of the parties; and

1.6     The independent advice that was received and whether there was time to reflect on that advice.

2. An agreement which is fair and reasonable, perhaps close to a party’s s 79 entitlements, is more likely to be upheld.
3. Ensure there is mutual disclosure.

10.      Other drafting tips

The following checklist is not intended to be comprehensive, but lists a few tips to make sure that that things don’t go wrong:

1. Check the names of the parties are correct.
2. Check the section of the FLA under which the agreement is made is correct, e.g. s 90B or s 90C. The parties’ circumstances may have changed since the first draft.
3. Read that section of the FLA and check that the agreement covers matters which can be covered in that type of agreement.
4. How will the parties provide disclosure? See Part 3 of this paper.
5. If there is a list of assets and liabilities, it may need to be reviewed and updated if the drafting and execution of the agreement takes some time.
6. Have detailed and contemporaneous file notes of conferences, including the times the conferences started and ended and who was present.
7. Give the client a letter of advice about the final version of the agreement a few days before the agreement is signed.
8. Update the advice if amendments are made to the agreement, making sure that the advice is given in relation to the final version of the agreement, not just the amendments.
9. Don’t include general statements in the agreement which are not true – e.g. mutual disclosure has occurred, party able to support themselves without Centrelink.
10. Follow s 90G(1) (s 90UJ(1)). Look at the wording of this section before your client comes into the office to sign the agreement, when you write to the other lawyer and before you close the file. Create a checklist and keep it on the file.
11. Avoid, if possible, provisions relating to superannuation in agreements entered into before separation, as the s 90XJ(1) requirements may not be met.
12. Post-separation, finalising a property settlement in court orders is almost always preferable. A financial agreement ousting the jurisdiction of the court to deal with spousal maintenance may be a useful adjunct.
13. Property acquired after the end of a de facto relationship or after a divorce cannot be dealt with in a financial agreement.
14. If there are spousal maintenance provisions, ensure you have complied with s 90E or 90UH and s 90F or 90UI.
15. If it is a Pt VIIIAB financial agreement, make sure there is a de facto relationship in existence or that one will exist. If it is a s 90B agreement, there needs to be a marriage before the agreement can be effective. Do you need both a s 90B and s 90UC agreement? Will you do a combined agreement or separate ones? See Piper & Mueller (2015) FLC 93-686.
16. Check for uncertainties and inconsistencies in drafting. Use terms which are in the FLA.
17. Have another senior lawyer read the agreement.
18. Have you covered all the assets and potential assets?
19. Have you read the most recent cases on financial agreements, particularly of the Full Court and the High Court?
20. Are there potential claims in overseas jurisdictions now or later?
21. Don’t forget the kids. If the parties may have children, then provide for this.

Conclusion

Drafting financial agreements which are truly binding is not an easy task. The longer and more complex the agreement, the more that can go wrong.

Thorne v Kennedy has not changed the fact that agreements which follow the wording of the FLA, and give the weaker party enough so it is not a “bad bargain”, are more likely to be binding and not set aside. One party will always be disadvantaged by the agreement, but Thorne v Kennedy alerted lawyers to the fact that a bad bargain may be an indication of a vitiating factor.

© Copyright – Jacqueline Campbell of Forte Family Lawyers and Wolters Kluwer/CCH.  This paper uses some material written for publication in Wolters Kluwer/CCH Australian Family

Jacky Campbell, November 2018

The Family Court: Restructure, Destruction or Fade Away?

“Don’t it always seem to go

That you don’t know what you’ve got till it’s gone

They paved paradise

And put up a parking lot”

“Big Yellow Taxi” by Joni Mitchell

The Family Court of Australia (FCofA) was established in 1976 as a best practice model offering in-house alternative dispute resolution such as mediation and counselling (now described as “primary dispute resolution”) and court-based dispute resolution.

Internationally, the FCofA has been envied by lawyers and judges in other jurisdictions, the model copied, and its jurisprudence referred to in judgments. The ideal of a specialised “one-stop shop” for separating parties and their children when the FCofA commenced was in line with a worldwide movement (which is still ongoing) to establish specialised family law courts which focus on helping people to resolve their disputes.

The FCofA was established as a superior court in line with the jurisdiction exercised by the Supreme Courts of the States and Territories which dealt with the Matrimonial Causes Act 1959 and which it was replacing for this area of the law. The Federal Circuit Court of Australia (FCC), initially named the Federal Magistrates Court of Australia, was established in 1999. It deals with family law matters as well as other federal law matters, such as migration and bankruptcy. It is an inferior court and was set up to deal with matters which are less complex than the matters dealt with by the FCofA and the Federal Court, and to do this with simpler procedures than the superior courts.

The prospect of the FCofA disappearing as part of the Federal Government’s restructure of the family law courts has caused consternation and concern. What will it mean for parties in the family law system, lawyers and the courts?

The Attorney-General Christian Porter introduced the relevant Bills for the restructure into Parliament on 23 August 2018, and his original proposal was that the restructure or merger of the Family Court with the Federal Circuit Court occur from 1 January 2019. After demands for greater consultation were made by Parliament, lawyers, judges and the community, this timeframe is unlikely to be met. The closing date for submissions to the Senate Legal and Constitutional Affairs Committee was 23 November 2018.

Note: The views and opinions expressed in this article are those of the author. This article was first published on 7 November 2018, updated on 16 November 2018 and on 27 November 2018..

Summary of the changes in the FCFC Bills

The main changes are:

1. The administrative “restructure” of the 2 courts. It will have one point of entry rather than being a true merged court. The new court will be known as the Federal Circuit Court and Family Court of Australia (“FCFC”) with the existing FCofA to be known as the FCFC (Division 1) and the existingFCC to be known as the FCFC (Division 2). The Family Court of Western Australia will remain separate and is largely unaffected by the FCFC Bills except for the hearing of appeals. The position in Western Australia is not discussed in this article.
2. The substantial abolition of the Appeals Division of the FCofA with family law appeals to be heard by a new Family Law Division of the Federal Court.
3. Although not strictly part of the formal legislative reform, the Attorney-General has indicated that no further judicial appointments will be made to the FCFC (Division 1) and all future judicial appointments will be to the FCFC (Division 2). This will lead to the eventual abolition of the FCofA – the only specialist superior court in Australia dealing with FLA disputes. Funding cut-backs have already reduced the number of judges in the FCofA. This Government policy is assisted by the restructure and will accelerate the FCofA’s demise. There will be increased uncertainty about where certain applications should be filed, and a likely increase in the number of matters transferred between courts at a time when one of the Federal Government’s stated objectives is to reduce them. The Family Court of Western Australia will still operate in Western Australia and under the Family Court Act 1997 (WA). It has both a superior division and an inferior division.
4. The de-specialisation of judges exercising family law jurisdiction, at a time when community expectations are that there be increased specialisation of professions, will continue. The proposals of the Australian Law Reform Commission in its Discussion Paper “Review of the Family Law System” released in October 2018 are contrary to de-specialisation.

Background to the controversy about the FCFC Bills

There is broad agreement within the community and the legal profession that a restructure of the family law courts was inevitable. Establishing the FCC as a separate court to the FCofA (as the Federal Magistrates Court in 1999), rather than a separate division of the FCofA, was criticised at the time, and the criticism has continued – including in the reports referenced by the Attorney-General and available on his website:

www.ag.gov.au/LegalSystem/Courts/Pages/Structural-reform-of-the-federal-courts.aspx.

It is not easy to work out what all the proposed changes are and what impact they will have on parties. The difficulties in working out what else is proposed by the two Bills – the Federal Circuit Court and Family Court of Australia Bill 2018 (“FCFC Bill 1”) and the Federal Circuit Court and Family Court of Australia (Consequential Amendments & Transitional Provisions) Bill 2018 (“FCFC Bill 2”) arise from:

1. The length of the Bills, which total over 570 pages.
2. The replication of large parts of the existing Federal Circuit of Australia Act 1999 and the Family Law Act 1975 (“FLA”) in the two Bills so that it is a time-consuming task to discern which provisions are new. In his State of the Nation Address to the 18th National Family Law Conference on 3 October 2018, the Attorney-General, Christian Porter, said:

“Indicative of the essentially uncomplicated nature of the structural reform is the fact that the primary Reform Bill has only 20 new provisions and 18 substantially changed provisions to the current legislative situation which exists with the two courts.”

Unfortunately, the provisions referred to by the Attorney-General are not easily identifiable, which has hampered the community (including the legal community) in providing a response.

3. Incredibly, the FCFC Bill 2 amends over 140 Acts and over 25 Regulations and Rules, reflecting the degree to which family law matters involve other areas of law.
4. Criticisms or perceived criticisms of the FCofA by the Federal Government, including the Attorney-General (whose role is traditionally to defend the judiciary) such as:

• Promoting the FCC as better and more efficient than the Family Court; and
• Justifying the hearing of appeals by the Federal Court rather than the Full Court of the Family Court on the basis that Federal Court judges are “Australia’s most skilled judges” (“Court backlog blamed on slow results”, The Australian, 3 August 2018).

5. The FCFC Bills and the Federal Government have not addressed whether there are stresses on judges arising from the type of the work they do and their workload. There have been instances of FCC judges taking sick leave as a result of stress. These issues are not well publicised, although 2 recent suicides of Victorian Magistrates which have been blamed on the heavy workloads, isolation and stress of the magistrates of the Magistrates’ Court of Victoria have given more public attention to the issues (“What you don’t understand about our job: judges, magistrates speak out”, The Age, 3 August 2018). Some of the attacks on judges have been very personal, identifying and targeting judges without looking at the reasons (such as reduced funding) and possible solutions (“Judges leave families hanging without rulings delayed more than a year”, The Australian, 14 November 2018). In other workplaces, these leaks to the media might be described as bullying and a risk to occupational health and safety. This does not mean that under-performing judges should not be performance-managed. They should be, if appropriate, but it should be recognised that they are covered by the same employment laws as other employees.

There has been considerable media coverage of the views of judges, the Chief Judge of the FCC (who is also the Deputy Chief Justice of the FCofA and will be the Chief of both courts from 10 December 2018), the Attorney-General, legal professional bodies and others. There have been numerous articles – particularly in the Australian Financial Review and The Australian – attacking and defending each of the three courts involved in the restructure. One of the most recent was a two-page spread in the Australian Financial Review on 26 October 2018, in which current and former Federal Court judges were criticised for their delays in writing judgments. There was even a league table for each Federal Court judge, listing the average number of days they took to write a judgment, the average words per day and the average paragraphs per day.

Chief Justice Allsop of the Federal Court of Australia issued a statement on 29 October 2018 defending his judges and objecting to the approach taken by the journalist, who he said had not included the context of the statistics which had been provided, which meant that “the result is both misleading and unfair”. The journalist also failed to take into account all of the work of the Federal Court and the judges, and that “productivity” cannot be “compiled from a narrow and less than accurate date set” capturing only one aspect of the work done. He said that the compilation of the list appeared to be “calculated simply to embarrass individual judges”. The Chief Justice of the FCofA and the Chief Judge of the FCC have been noticeably silent and not replied to the attacks on their judges by the Attorney-General and the media.

The FCofA, the FCC and the Federal Court are being pitted against each other and forced to defend their efficiency, complexity of their work, skill and expertise, in a manner which is inconsistent with the tradition of a judiciary independent of government, and is unhealthy and unhelpful to their future co-operation, whether the restructure goes ahead or not.

The reason given by the Federal Government to justify the restructure is increased efficiencies, with the implication of reducing costs. There is, however, no recent independent report examining the options for restructure and making a recommendation for this particular restructure based on evidence and submissions from stakeholders, including the community. The community as a whole has a far greater stake in the operation of the family law courts than any other courts in Australia, as ordinary people are more likely to come into contact with them during their lifetimes. In the absence of an independent frame of reference or background document detailing and explaining the changes to justify its restructure proposal, the Federal Government relies on a PwC report it commissioned entitled Review of the efficiency of the operation of the federal courts (“PwC report”). The PwC report can be downloaded from the Attorney-General’s website above.

The PwC report estimates that after the restructure an extra 8,305 matters could be resolved by the FCC and the FCofA each year (p.8), including an extra 3,410 matters just by having a “single court entity” with one point of entry (p.8 and 81). How this will occur is not fully explained.

The recommendations in the PwC report are based on a key assumption, that “in practice, both the courts hear matters of similar complexity” (p.3).

This key assumption has been disputed by current and former judges of the FCofA. Former Family Court judge Peter Rose AM QC, who served on the bench for 13 years, said the plan was “simplistic” and the figures being cited are “a classic example” of the saying popularised by Mark Twain: “There are three kinds of lies: lies, damn lies, and statistics” (“What the Family Court Shake-up Really Means for Families”, Sydney Morning Herald, 18 August 2018).

Contrary to the PwC report, the annual reports of the FCofA and the FCC also refer to differences in complexity between the courts (Family Court of Australia Annual Report 2017/2018 p.10; Federal Circuit Court of Australia Annual Report 2017/2018 p.20). In the Senate Estimates hearing on 23 October 2018, Mr Soden (who is the Chief Executive and Principal Registrar of the FCofA) confirmed this when he said:

“My expectation would be, and I think the Judges of the Family Court would correctly assert that the cases that they dealt with are in the more complex category. So I think, in other words, I think it’s fair to say that the Family Court and the Federal Circuit Court deal with complex cases, but the Family Court deals with very complex cases.”

Other criticisms of the assumptions, statistics and conclusions of the PwC report have been made by current and former judges of the FCofA, the Family Law Section of the Law Council of Australia, the Law Council of Australia, the NSW Bar Association and individual family lawyers. Some of the areas of concern about the PwC report are noted later in this article.

When the PwC report was prepared, the FCofA and the FCC were under considerable stress and were often unable to hear cases in a timely fashion. This remains the position. Whilst the number of judges appointed to the FCC has increased in recent years (but still not enough to cope with the workload), the number of FCofA judges has reduced. It is difficult to find actual numbers, but it is the writer’s estimate that the number of judges in the FCofA has fallen between 5 and 7 in the past decade Australia-wide, (and this is far more likely to be an under-estimate than an over-estimate). In Melbourne, the effect of this has been that there is no longer a regular Duty Judge List, causing delays in the hearing of interim and urgent matters and the necessity for triaging them by registrars. Interestingly, the PwC report favours the FCC model of listing all matters in the first instance before a judge for case management, but the FCofA does not have the present judicial capacity to do that, and the analysis by PwC leading to that recommendation is thin (PwC report, p.62, 84, 100, 104).

The Attorney-General, Christian Porter, in his 2018 State of the Nation address warned family lawyers:

“If you fail to engage in the process of reform and fix the system, if Parliament misses the opportunity and if we as lawyers and practitioners and members of the Australian legal community, miss this opportunity then it will necessarily be the case that the Australian people will make demands for even greater and more radical proposals and change.”

Precisely what the Attorney-General meant by this threat of consequences if family lawyers opposed his reform proposals is unclear, but there is widespread concern amongst family lawyers that his proposals will not “fix the system”, in accordance with his stated objective. In circumstances where the Attorney-General has said that the structural change in the FCFC Bills “is less radical than other alternatives because it does not abolish any existing Court”, but at the same time uses the structural reforms to support his policy of appointing fewer judges to the Family Court so that court will cease to exist, it is difficult to envisage any reform which could be more radical.

The Attorney-General, after praising the single court structure of the Family Court of Western Australia, quoted Justice Thackray (the Chief Judge of that court and until recently the Head of the Appeals Division of the Full Court of the Family Court until he was controversially removed), who recently said about the proposed restructure that:

“We should be wary of law reform driven by statistics produced by firms of accountants in the guise of measuring or quantifying the productivity of the courts.”

The Attorney-General commented about Justice Thackray’s views:

“So elegantly written is this sentence I had to read it three times to work out if it was criticising me or the PwC Report I commissioned.

In the end it seems to be dismissive of both.

Guise is an interesting choice of words because it means that Reports like the three I have recently released for the Senate Committee process are commissioned for a purported purpose (in this case measuring or quantifying productivity) but that stated reason conceals some true reason for commissioning these reports.

I can say when I commission such reports I do so because they can deconstruct known problems and tell us more about those problems to inform the development of better solutions for Australians.”

Disputes about the assumptions on which the FCFC Bills rely, the purpose of the PwC report and the objectives of the reforms are likely to continue. The Federal Government assesses the courts, as it does other federal departments and agencies, in an annual report prepared by the Productivity Commission, which uses different criteria than are used in the PwC report, which used the same “metrics” to measure the efficiency of the 2 courts (PwC report, p.58).

In their annual reports, the FCC and the FCofA do not use the statistics relied on in the PwC report as the sole measure of their success. For example, both courts assess themselves against the International Framework for Court Excellence, which looks at a broader range of indicators: equality (before the law), fairness, impartiality, independence of decision-making, competence, transparency, accessibility, timeliness and certainty. These matters are not considered in the PwC reports. Even if the PwC report is correct in its assumptions and recommendations to increase the efficiency of the family law courts, is the Federal Government in basing its restructure on that report, proposing the best system for parties?

The PwC report only looked at restructuring the FCofA and the family law operations of the FCC, and ignored the non-family law operations of the FCC. Ideally, any inquiry should look at all aspects of the operations of the FCC, which would necessitate how that work relates to the Federal Court’s operations.

Why are the FCFC Bills so controversial?

The FCFC Bills are controversial for reasons which include:

The former Attorney-General George Brandis commissioned “the first comprehensive review of the FLA since its commencement in 1976” by the Australian Law Reform Commission (“ALRC”) in September 2017 (“Terms of Reference”). The ALRC released an Issues Paper in March 2018 and a Discussion Paper, “Review of the Family Law System”, in October 2018. The Final Report is due to be delivered by 31 March 2019.To many stakeholders it seems logical to await the Final Report and consider its recommendations before undertaking major structural reform of the family law courts, and although the current Attorney-General appears resigned to a later start date for the restructure than 1 January 2019, he is still keen for the Bills to be passed late in 2018 or early in 2019, before the ALRC’s final report is released.

The ALRC’s Discussion Paper is over 350 pages, asks 33 questions and makes 124 proposals for changes to the family law system. Although the Terms of Reference did not specifically include the structure of the family law courts – astonishingly for a “comprehensive review”, particularly when a restructure is perhaps universally acknowledged as inevitable – there is a catch-all Term of Reference of “any other matters related to these Terms of Reference”. There is no express mention of the structure of the family law courts which has been long recognised as problematic, along with other important matters such as child support, matters of State and Territory responsibility, and the child protection system. The ALRC recognised that it was appropriate to consider these issues, saying in its Issues Paper:

“However, as these issues are so closely related to and frequently interact with the family law system, concerns about the intersections and cooperation between these systems are matters that the ALRC will consider in the course of this Inquiry.” (Australian Law Reform Commission, “Review of the Family Law System Issues Paper”, para 5)

The ALRC in its Discussion Paper did not consider or make express proposals about the proposed court restructure at all. Disappointingly, the ALRC may have missed an opportunity which may not arise again for many years, to undertake a comprehensive review of the whole family law system. The ALRC should be asked to remedy this deficiency (including its failure to address child support), and be given extra time to consult on these issues before releasing its final report.

Many of the proposals in the ALRC’s Discussion Paper relate to family violence – in fact 34 of the ALRC’s 124 proposals refer to family violence – which is given little, if any, attention by PwC.

1. The Federal Government’s position is that the “restructure” of the two courts will “increase efficiencies, reduce delays, and lead to better outcomes in the family law jurisdiction” (FCFC Bill 2 Ex Memo para 52). Many family lawyers and judges do not accept that these ends can be achieved without additional funding being given to the family law courts, which is not part of the Federal Government’s proposals. The PwC report goes so far as to acknowledge the risk that additional resources might be required to “enhance” existing registrar and case management judge resources (p 86).
2. Increasing efficiencies may not lead to a better court system producing better outcomes. There is not a direct cause and effect relationship between efficiencies and better outcomes. The family law courts are not producing widgets: they don’t produce a product which can be measured solely with outputs of final judgments, which is the primary measure used by the PwC report. The family law courts deal with real people including the lives of parents and their children. The family law courts make interim and final decisions about whether and how often parents see their children and children see the parents, what the financial position will be of families after separation which impacts on such matters as whether they can buy or retain a home and how comfortable their retirements will be, and the safety of parents and children who have been or are exposed to family violence and abuse. In their annual reports the FCC and the FCofA assess themselves against the criteria of the International Framework for Court Excellence, rather than only against efficiency statistics.
3. One way it is said that efficiencies will be achieved is by most family law appeals being heard by Federal Court judges, with a default bench of a single judge, rather than three judges. The Full Court of the FCofA is abolished and replaced with a Family Law Division of the Federal Court (FCFC Bill 2, s 24B). It is unclear whether the desired efficiencies will be achieved and whether there will be unanticipated effects.
4. The debate about the proposed restructure on the hearing of appeals involves:

4.1.        The Federal Government asserts that appeals to single judges in the new Family Law Division of the Federal Court from the FCFC (Division 2) rather than the usual family law appeal bench of 3 judges will “free up considerable judicial resources to help reduce delays in family law appeal matters” (FCFC Bill 1, Ex Memo para 61). The three-member bench in the Full Court of the FCofA for appeals from the FCofA is set by the FLA (s 94). Appeals from the FCC or a Family Law Magistrate of the Family Court of Western Australia are also required by the FLA to be heard by the Full Court “unless the Chief Justice considers that it is appropriate for the jurisdiction of the FCofA in relation to the appeal to be exercised by a single judge” (s 94AAA(3)).

4.2.        The Federal Government says that Federal Court appeals, unlike FLA appeals, are usually heard by single judges. This is overly simplistic (see s 20(2) Federal Court of Australia Act 1976). In addition, the legislative presumption in relation to appeals from the FCC is the reverse of the legislative presumption which applies to appeals under the FLA. Appeals from judges of the FCC or courts of summary jurisdiction are usually heard by a single judge unless a Federal Court judge considers it appropriate for an appeal to be heard by a Full Court (s 25(1AA) Federal Court Act 1976).

4.3.        If the Federal Government wants family law appeals to be dealt with by single judges either consistently, or more frequently, it could amend s 94 FLA without such radical change as abolishing the FCofA and the Full Court of the FCofA, although there would be consequences of this change which are discussed below.

4.4.        Appeals from the FCC to the Federal Court are primarily migration appeals. In 2017/2018, 80% of the Federal Court’s appellate workload – both the Full Court and single judges – was migration (Federal Court of Australia Annual Report 2017-2018). Arguably these types of appeals are simpler than most family law appeals, usually involve only one party and a Government Department, one piece of legislation and there is little room for discretion.

4.5.        A 3-member bench provides the opportunity for parties to hear divergent views, but also to hear 3 judges agree that the trial judge exercised the discretion appropriately in their particular case. A single judge hearing an appeal from a single judge is rare in the common law world, including Australia, New Zealand, the United States and Canada. Usually, appeals are heard by 3 or 5 judges so if the decision of the single judge is over-turned, it so because more than a single judge disagrees with the original decision of a single judge. This helps to create certainty and the binding nature of precedent on which our legal system is built. There is a risk that single judge appeals may lead to more High Court appeals due to the discretionary nature of the family law jurisdiction.

4.6.        Under the restructure, family law appeals will generally be heard by judges in the Federal Court who may not have family law expertise, and are even less likely to have the family violence expertise recommended by the ALRC in its recently released Discussion Paper (Proposal 10-8). The Federal Government has not produced evidence that having judges without skills and experience in family law hear family law appeals is a more efficient use of judicial resources than the current system. Chief Justice Pascoe of the FCofA emphasised the importance of family law expertise in the hearing of appeals (State of the Nation Address to the National Family Law Conference, 3 October 2018).

4.7.        The Federal Government is relying on the judges of the Full Court of the Family Court to become trial judges of the FCofA, to give greater capacity for the FCFC (Division 1) to hear cases faster without appointing more judges to that Division (FCFC Bill 1, Ex Memo para 60). Since the FCFC Bills were proposed many of these judges have either retired or announced their intention to retire, so there will be very few extra trial judges in the FCFC (Division 1) to hear extra cases. The Federal Government has announced that it will not appoint any more judges to the new FCFC (Division 1) (“The Bitter Struggle to reform the Family Court”, Australian Financial Review, 17 August 2018), although the Attorney-General has suggested he may review that decision. The current intention of the Federal Government is that the FCofA, which will be the new FCFC (Division 1), will disappear and eventually be abolished.

4.8.        The cost of operating the new Family Law Division of the Federal Court of Australia, to hear family law appeals, has not been factored in by PwC.

4.9.        Eradicating the travel costs of the Full Court of the FCofA is said to be cost-saving, although the PwC report says it is only a modest percentage of the cost of the Full Court of the FCofA (5%). The PwC report compares the travel costs of the Full Court of the FCofA with the travel costs of FCC judges, but does not state that most travel of the former is interstate and of the latter is within a state. The PwC report has not taken into account that there may be travel costs for Federal Court judges hearing appeals after the restructure.

5. It is unclear whether all constitutional and jurisdictional difficulties associated with the restructure have been adequately addressed. They are referred to later in this article. A true unified court was a key recommendation of the Semple Report (“Future Governance Options for Future Federal Family Law Courts in Australia – Striking the Right Balance”, Des Semple, 2008 and discussed later in this article), which included proposals as to how the constitutional difficulties could be overcome. Despite the widespread use of the term “merger” in the media, to overcome the constitutional difficulties the FCFC will be established as “two courts, brought together in practice under a single, overarching, unified administrative structure” (FCFC Bill 1, Ex Memo para 57). The restructure is described as:

“It in no way would constitute either court absorbing the other, or either court being disbanded.” (FCFC Bill 1, Ex Memo para 57)

The FCFC will therefore be an administrative rather than a unified judicial court, with a single point of entry. The difference in costs of the two approaches and why there cannot be a true unified family law court as proposed in the Semple Report is not fully explained, except that the FCC is considered by PwC to be more efficient than the FCofA and the FCofA will be abolished anyway.

6. A common set of Rules for the FCFC (Division 1 and Division 2) will be imposed by the Chief Justice of the FCFC (s 56 FCFC Bill 1 in relation to Division 1) rather than the current system of approval by a majority of judges (s 123 FLA and s 81 Federal Circuit Court Act 1999). The system of a majority of judges is also used, for example, by the Federal Court (Federal Court Act (Cth) 1970, s 59(1)) and the Supreme Court of Victoria (Supreme Court Act (Vic) 1980, s 26). The Rules of the Supreme Court of New South Wales are set by a Rules Committee which includes 2 practising members of the legal profession – a solicitor and a barrister – as well as some of the judges of that court (Supreme Court Act (NSW) 1970, s 123). A majority of judges allows for there being differences of opinion between the States and Territories, as the litigation cultures are different and some practices which may be necessary or appropriate in one State are not suited to others. More importantly, it allows for the expertise and experience of trial judges and appeal judges to feed into the development of the Rules. The proposed Chief Justice of the FCFC had limited experience in family law before his appointment and has less than 12 months’ experience as a judge in either court, and that experience is primarily (or solely) as a judge hearing a few appeals. The current system seems to be more practical than the proposed new system, which may not ensure that the new Rules are workable and have the buy-in of the judges. There is no evidence that switching to an autocratic process for rule-making will be more effective, rather than the current democratic process. Rather, given the fact that a democratic process is widespread and of longstanding, it is fair to assume that taking away the contribution to decision-making from judges in this area will be as poorly-received as taking away democratic processes in other organisations or the community generally. Combined with reduced financial resourcing, pressure to work harder and the looming death of the FCofA, this may further negatively impact on morale and hamper buy-in to further change.
7. The PwC report concluded that harmonisation of the Rules of the FCofA and the FCC will give greater certainty in family law matters, make transfers between courts more efficient and avoid inconsistent outcomes (p. 59), but it did not give examples of how the discrepancies cause these results, or otherwise explain how these results will occur. No account was taken of the fact that the FCofA’s Rules, such as for disclosure, are designed for more complex matters, and how a single set of Rules could apply across both Divisions of the FCFC was not explained. There was no comparison of the differences in the Rules of the 2 courts. Of course, the PwC report did not accept that the FCofA’s work was more complex than that of the FCC.
8. A common scale of costs for both divisions does not take into account the greater complexity of the work usually heard by the FCofA or that the FCC’s party-party scale of costs is very low compared to the FCofA’s party-party sale of costs, as the FCC scale is based on the assumption that the types of matters dealt with by the FCC are less complex than the types of matters dealt with by the FCofA. The PwC report also assumes that parties pay party-party costs to their lawyers (p 4, 65, 75-77), rather than pay solicitor-client costs. The absurdity of this assumption is illustrated by the allocation of only four letters of 200 words each to the sample FCofA property matter file costing. Presumably, these are short letters about procedural matters and not letters of advice, letters relating to interim disputes, letters seeking compliance with orders and the Rules, and offers of settlement. If the approach taken is that lawyers cannot charge for these latter types of letters, the letters may not be written at all and more cases are likely to proceed to trial. They are not built into the FCC party-party costs scale either, and lawyers who charge on that scale may not put the extra effort in to ensure that parties are properly advised and that all reasonable attempts are made to settle interim and final disputes, rather than have recourse to the courts.
9. There is no legislative requirement for specialisation of judges in the FCC or appeal judges of the Federal Court. The FLA provides that a person shall not be appointed as a judge of the FCofA unless “by reason of training, experience and personality, the person is a suitable person to deal with matters of family law” (s 22(2)(b)). This is reproduced in s 11(2)(b) of the FCFC Bill 1 for the FCFC (Division 1). The ALRC Discussion Paper proposed that this requirement be expanded (not repealed) to include as part of the criteria for appointment as a judge to hear family law matters that they have “knowledge, experience and aptitude in relation to family violence” (para 10.4). Judges of the FCC are not currently required to have family law expertise, although according to the FCC’s website approximately 90% of its workload is family law. The FCFC Bills do not propose that this change for the FCFC (Division 2), nor that the Family Law Division of the Federal Court have the FCofA requirement or the ALRC recommendation. Instead, for the FCFC (Division 2), judges must have “appropriate knowledge, skills and experience to deal with matters that may come before” that court (FCFC Bill 1, s 79(2)(b)). Given that the FCFC (Division 2) will presumably continue to have 90% of its workload in family law, similar specialist family law (and family violence) expertise should be expressly required. It is impossible to determine from Austlii what proportion of FLA appeals are from FCC judges without family law experience as the appeal judgments often do not report the names of the trial judges. This statistic, if available, is one way of verifying the views of many family lawyers that parties are disadvantaged by appearing before some of the FCC judges who do not have an interest in family law and lack knowledge and experience of the area.
10. Legal practitioners may be ordered to bear costs personally if they fail to comply with the duty to facilitate the just resolution of disputes, according to law and as quickly, inexpensively and efficiently as possible (s 49(1), (2), (5) and (6) FCFC Bill 1). The PwC report recommends that judges have greater ability to make personal costs orders against lawyers (p.61). PwC says this “will see improved practices from practitioners” as this is “likely to drive compliance with orders and desired behavioural practices” (p.61). At the risk of the writer being accused of self-interest, there are several problems with this proposed change:

10.1.     Whilst the existing FCC and FCofA have this power (e.g. r 19.10 Family Law Rules 2004), the codification of the power in a jurisdiction where parties are often highly emotional and may act irrationally, refuse to comply with orders and not follow advice, leaves legal practitioners open to defending applications for costs orders to be made against them personally in circumstances where such orders may not be justified.

10.2.     There does not appear to have been consideration as to how legal practitioners can defend themselves against a proposed costs order. Their client is unlikely to waive legal professional privilege to enable the legal practitioner to explain that the conduct which was of concern was that of the client not the legal practitioner. It is difficult to see how a greater number of costs orders can be made against legal practitioners, without there being a failure to allow natural justice and due process.

10.3.      If faced with the possibility of a personal costs order, legal practitioners may stop acting for parties at an earlier stage than otherwise, potentially resulting in more parties being unrepresented. Legal practitioners will also be more reluctant to take on matters shortly prior to a hearing when an unrepresented party may decide they need representation, leaving the court to more frequently deal with unrepresented parties than it already does. Increasing the numbers of unrepresented parties may impact on the ability of parties to obtain fair outcomes and be a further burden on the family law courts, by reducing the likelihood of settlement and increasing the length of trials, although there is very little research on this area

10.4.      There is an underlying assumption that lawyers, not parties, are at fault for non-compliance and there is no discussion in the PwC report that a more effective option might be for costs orders which are rarely made against parties in family law matters for non-compliance with the Rules and court orders, to be more frequently made.

10.5.     There are already processes and standards to ensure “desired behavioural practices” by legal practitioners, such as the duty of legal practitioners as officers of the court, the ethical rules set by State and Territory Governments and Law Societies including the Legal Profession Uniform Law (NSW) (see particularly s 295-298. This has also been adopted in Victoria. The other States and Territories have similar legislation but have not adopted the Uniform Law), and the disciplinary bodies of the States and Territories which can rule on allegations of unsatisfactory professional conduct and professional misconduct. There is no evidence of a gap to be filled in this area.

11. Setting up stand-alone courts exercising family law jurisdiction is more common and a worldwide trend, rather than the position proposed by the Federal Government to collapse a specialist family court into a generalist court. The proposed FCFC is not a specialist family court, and this is emphasised by the words “Federal Circuit Court” preceding “Family Court” and that it retains the general law jurisdiction of the FCC. Presumably, the court is named in this way, with the superior court named last, as the words “and Family Court” will drop off once the FCFC (Division 1) no longer exists. Overseas jurisdictions which have their family courts as a division of a generalist court usually state clearly that they are family courts or combined family and juvenile courts. For example, the Family Court of New Zealand is a division of the District Court, and the Hong Kong Family Court is also a division of the District Court. Other jurisdictions have true specialist family courts, such as the Family Courts of the Philippines and the Thailand Juvenile and Family Courts. The United States does not have a federal family law system, but several states such as New York, Tennessee, Virginia and Hawaii have separate family courts or specialist courts which are divisions of generalist courts. Singapore established its Family Justice Courts in 1994 and used the FCofA (with advice and assistance from that court) as its model.
12. England has a Family Court and a Family Division of the High Court, and like Australia which has a Protocol, there are guidelines as to which matters are heard by each court. As the High Court of England is a superior court, it hears matters which require the exercise of inherent jurisdiction, special medical procedures and Hague child abduction matters. Also like Australia, some cases in England are transferred from the Family Court to the High Court and back so they acquire the jurisdiction of the superior court.
13. The loss of a specialist superior court hearing family law appeals combined with an appeal court being a single judge rather than a 3-judge bench, may mean that it will take longer for the law to settle after significant legislative changes. Full Court judgments carry more weight than those of single judges, and allow for a diversity of views. This was important after, for example, the introduction of the child support system in 1988-1989, the 2006 parenting reforms and the delivery of High Court judgments in cases such as Mallet v Mallet  (1984) FLC 91-507; [1984] HCA 21, MRR v GR (2010) FLC 93-424; [2010] HCA 4 and Stanford v Stanford (2012) FLC 93-518; [2012] HCA 52. The change may mean greater uncertainty about the law, more litigation and more appeals. Decisions of inferior courts like the FCC, whilst published on www.austlii.edu.au, are not usually picked up by the legal publishers.
14. The ideal of a “one-stop shop” for family law disputes has been dissipating for many years, but the proposed restructure takes this a step further by giving FLA jurisdiction to another court, the Federal Court and dispersing the jurisdiction even more widely. The original mediation, counselling and family report writing services of the FCofA have been largely out-sourced, and family law disputes are determined by both the FCofA and the FCC. Child support jurisdiction is currently exercised by DHS-Child Support, the AAT, the FCofA and the FCC and, in certain circumstances after the restructure, certain appeals will also be heard by the Federal Court. In addition, parties deal with family violence orders in the State and Territory Courts and, if the Family Law Amendment (Parenting Management Hearings) Bill 2017 currently before Federal Parliament is passed, there will be another tribunal or court – a “Parenting Management Panel”. Potentially, families may need to decide which of six or seven different decision-making bodies is most appropriate for each part of their case – hardly a “one-stop shop”.
15. The introduction of an overarching purpose is not controversial of itself. This generally mirrors s 37M of the Federal Court of Australia Act 1976. Overarching purposes have also been introduced for State courts, so the family law courts, although addressing some aspects of an overarching purpose in their Rules, are behind in this regard (see “The Duty Owed to Court: The Overarching Purpose of the Dispute Resolution in Australia”, Marilyn Warren AO, Bar Association of Queensland Annual Conference, Gold Coast 6 March 2011, Revised paper; “Civil Procedure Bench Book”). In Victoria it is contained in s 7 Court Procedure Act 2010 which, applies to the Magistrates’ Court, County Court and Supreme Court. Section 48(1) FCFC Bill 1 provides:

“The overarching purpose of the Family Law Practice and Procedure provisions is to facilitate the joint resolution of disputes –

(a) according to law; and

(b)   as quickly, inexpensively and efficiently as possible.”

Parties are required to act consistently with the overarching purpose (s 49(1)) and legal practitioners must assist parties to comply with the duty (FCFC Bill 1, s 49(2)(b)).

The only concern arises because the Federal Government proposes that the Bills be passed before the ALRC delivers its Final Report. In its Discussion Paper, the ALRC proposes that parties be required to lodge a genuine steps statement at the time of filing an application for property and financial orders (ALRC Proposal 5-4). It is unclear how this will fit with the overarching purpose.

16. Transfers between FCFC Division 1 and FCFC Division 2 will not be effective unless approved by the Chief Justice or Chief Judge of the Division to which the proceeding is being transferred (FCFC Bill 1, s 34(4) and 117(4)). This means that if approval is not given, cases could be delayed and perhaps even stuck between the 2 Divisions.

What did the PwC report get wrong?

The PwC report was prepared for the Attorney-General’s Department. Its Executive Summary states:

“The Review’s terms of reference required consideration of the differences in case allocation, case management rules and approaches, and Court Rules between the courts and how increased standardisation of the courts’ operations could result in time and cost efficiencies.

The efficiency opportunities, summarised on the following page, have been assessed by PwC through a high-level consideration of the following criteria. It is important to note that the potential efficiency gains are not intended as potential cost savings, but instead potential productivity gains for the courts to provide additional court capacity – i.e. implementing the opportunities could result in the ‘freeing up’ of court capacity to finalise more matters per annum.”

The Review took six weeks and resulted in a glossy document of over 100 pages interrupted by large and frequent redactions. There was limited consultation with stakeholders. PwC said that it concentrated the focus of the Review on “the Rules of the courts, case management rules and approaches, case allocation between and within the courts, and overarching process inefficiencies” (p.14).

PwC admitted that certain aspects were outside of its scope, including:

• reconsideration of the family law system as a whole;
• judicial use and/or effectiveness of specialist services such as family consultants and other forms of alternative dispute resolution (“ADR”);
• judicial treatment of urgent/serious cases (e.g. Magellan cases);
• future funding needs or expenditure allocation of the courts (p.14).

Arguably, those omissions are significant, particularly when the Attorney-General is using the PwC report to justify structural change which includes the abolition of a specialist court, the FCofA. PwC admits that a limitation of its report was that opportunities for time and efficiency costs have only been identified through:

• “engagement with senior family law court stakeholders;
• desktop assessment of court data to establish where variations exist within the family law system.

Given time constraints of this Review, not all possible opportunities have been explored, nor have the potential implications of each opportunity been fully assessed. Furthermore, detailed solutions have not been developed.” (p.14)

PwC consulted with heads of jurisdiction, but not judges, and did not consult with family lawyers and legal bodies such as the Family Law Section of the Law Council of Australia and the Law Societies and Bar Associations of the States and Territories (PwC report, p.14).

The Federal Government’s arguments for the proposed structural reform rely almost solely upon the PwC report. However, large chunks of the PwC report are redacted (including two of eight opportunities identified for further consideration (p 59-60), parts of caseload (p 47), differences in judicial practice (p 48) and the Executive Summary (p 5). Why the Federal Government considered that redaction was necessary is not clear, but it does arouse suspicion that those parts weren’t favourable to the FCFC Bills, the abolition of the FCofA or both.

The unredacted parts of the PwC report have many examples of erroneous assumptions and conclusions including

1. That the indicators used to assess efficiency and compare the courts don’t take into account all the work of each court and the different types of work that they do. For example:

1.1.        A comparison of the complexity of the cases dealt with by the FCC and the FCofA was found to be difficult, or even impossible, but PwC still concluded that the variation in productivity of the courts could not be explained by a different level of complexity (p. 3, 47);

1.2.        Applications for Consent Orders are excluded from the measure of matters finalised by the FCofA, but the Registrars who normally deal with these applications are fully included in the costs of the FCofA finalising other matters (p. 24, 28). Similarly, divorces are excluded from the FCC statistics, but its registrars are included in the costs. There is no attempt by PwC to compare the time taken to deal with each type of excluded matter of each court;

1.3.        It is unclear as to whether matters finalised by consent are included in the FCofA statistics, for proceedings commenced other than by way of Applications for Consent Orders. They appear to be included in the FCC figures but may not be in those of the FCofA (p 28). It is simply not easy to discern how they have been dealt with;

1.4.        Although finding that trials are approximately half as long in the FCC than in the FCofA, no consideration is given as to the reasons for this including the comparative complexity of the cases, what proportion of cases filed proceeded to judgment, the processes used by each court to resolve cases prior to trial, and how effective these processes are;

1.5.        Assessing efficiency on the basis of numbers of matters finalised by a contested hearing is not consistent with the philosophy of the FLA, the FCC and the FCofA and with community expectations that parties should be encouraged to resolve their matters by consent, rather than through a final contested hearing. The courts themselves do not use this as the sole measure of success (or efficiency), and refer to measures set by the International Framework for Court Excellence;

1.6.        The operating costs per finalisation of contested matters was assessed at one-third of the cost in the FCC compared to the FCofA (p 41), but this figure is simplistic as it does not take into account such factors as complexity, consent orders and whether FCC judges are currently underpaid for the work that they do;

1.7.        In the FCofA, “parties do not come before a Judge until trial, and trial judges have not had a role in pre-trial activities” (p.5). This obvious error is confirmed by the diagram of the process in each court (p.17), which omits interim hearings in the FCofA as if they do not occur, but refers to them in the FCC process;

1.8.        The recommended case management process, with a time to trial of 6 to 7 months from filing (p 62), is not suited to the many matters in both courts which need urgent interim orders, involve third parties, necessitate significant disclosure or require valuations of businesses, psychiatric assessments or family reports. Delays in litigation are not only caused by the lack of judicial availability, but also the nature of the cases. There is an assumption by PwC that most cases can speed along the same simplified case management pathway;

1.9.        There is an assumption that the FCC’s case management system of having a first return date before a judge is a significant driver of a higher percentage of cases settling prior to trial (p.5, 7 and 87). There is no evidence for this link;

1.10.     The FCofA has a lower percentage of ex tempore judgments than the FCC (3% compared to 11% of total judgments, p.6, and 15% compared to 60% of trial judgments, p.9) and therefore parties generally wait longer for FCofA judgments, but there is no analysis as to whether this relates to the greater complexity of cases or the length of trials, or both or neither. It appears that the courts do not have the statistics to work out the former, but Austlii could have been used to determine the latter. It is assumed that the Family Court could increase the ratio of ex tempore judgments and thus hear more matters (p.8 and 48). The variation in percentage of ex tempore judgments between the two courts is assumed to be because of a “variation in the practice/process between the courts” (p.31). Whilst arguably this may account for some of the difference, no consideration is given to the fact that trials are longer and cases generally more complex in the FCofA;

1.11.     The delay in delivery of written judgments is greater in the FCofA than the FCC because of the higher proportion of reserved judgments (p.5, 6, 8, 35, 48, 88). Increased efficiencies are said to arise by fewer judgments being reserved because the judges will spend less time out-of-court writing them. Unfortunately, the PwC report provides no comparison of reserved judgment rates and delivery rates in other courts and whether the FCofA is out of step with other superior courts. Long delays in delivery of judgments is obviously unacceptable as it prolongs uncertainty for parties and their children. Each of the FCofA and the FCC had approximately 30% of reserved judgments outstanding for more than 6 months (p.88). There is no analysis of the reasons for this, but it is proposed that more judgments be delivered ex tempore, without considering the reasons for the delay in the delivery of judgments, whether more ex tempore judgments are practicable and whether this will have an unanticipated and costly outcome of appeal rates increasing.

2. The necessity for, and impact of, interim applications is ignored. Applications for interim orders are the second largest category of filing in both courts (p.28). It is unclear how this number is calculated and whether it is only based on the numbers of Applications in a Case which are filed, but in any event, these applications are ignored as a measure of workload and assessment of efficiency. Final orders being used as the “key driver of family law caseload because they require determination and therefore require significant court time” (p.28) ignores the impact of interim hearings. Interim hearings are also ignored in the calculation of sitting days as it is assumed that FCofA judges “only hear trials as all pre-trial matters are managed by registrars and others” so FCC judges complete more tasks (p.48). Whilst accepting that an initial interim order can be “a legitimate intervention” until ADR has occurred, the need for multiple interim orders is not seen as valid, but only “indicates a lack of resolution by parties pending finalisation” (p.30). This ignores the complexity of many of the cases dealt with by both courts, but particularly the FCofA. A comparison of the length of time taken to determine an interim matter in either court is not made.
3. As the PwC report assumed that the complexity of cases in each court was the same, it ignored a number of notable complex matters which have clogged up the FCofA and been heard over many months or even years – for example, Jess & Jess and Others and Strahan & Strahan both have multiple judgments.
4. A transfer between courts is said to result “in a ‘restart’ to litigants, who must begin again in the court to which they’ve been transferred” (p.37). In 2016/2017 almost 1,200 families had their disputes transferred between the FCofA and the FCC, and then had to restart their proceedings using the procedures of the alternate court (FCFC Bills, Fact Sheet 2). In practice (despite PwC’s assumption) cases do not have to restart in the sense of filing fresh forms and going through processes such as a conciliation conference, which have already been undertaken.
5. The transfer statistics between the courts do not take into account the reasons for the transfer, which include:

5.1.        Matters may become more complex as they proceed and thereby necessitate a transfer from the FCC to the FCofA. A single point of entry will not overcome the problem that the complexity of cases can change over time. This may arise from the intervention of third parties, the development or exacerbation of drug or alcohol use, family violence, sexual abuse allegations, deterioration in mental health and mental health episodes, bankruptcy, transactions to try to defeat orders, the discovery of assets which had not previously been disclosed, etc. The statistic used by PwC that transfers from the FCC to the FCofA occur, on average, after 11.1 months, is consistent with matters becoming more complex as they proceed and FCC judges realising that they do not have the capacity to handle the expected lengthy trials in their lists. Interestingly, given the Federal Government’s intention to make no further judicial appointments to the FCofA, there were 100 more matters transferred to the FCofA from the FCC in 2016-2017 than the other way around (p. 37);

5.2.        Matters can become simpler as they proceed. For example, a case might start off in the FCofA with an application under the Hague Convention on the Civil Aspects of International Child Abduction, but if the parenting issues resolve, the property aspects might be relatively straightforward and more suited to the FCC;

5.3.        The writer is aware that some parties take advantage of the simpler and cheaper method of filing proceedings in the FCofA (no affidavit is required), and the benefits of a Case Assessment Conference where the case receives the focussed attention of a registrar rather than a first listing in the busy duty list of a FCC judge. Parties hope that their cases might resolve at a Conciliation Conference or shortly thereafter, thus saving them the expense of affidavits. If the cases do not resolve by that stage, they may be transferred to the FCC if the case is not complex enough for it to stay in the FCofA. The statistic used by PwC that the average delay before a matter is transferred from the FCofA to the FCC of 4.6 months is consistent with the timeline of transfers often occurring after a Conciliation Conference;

5.4.        Some cases are transferred from the FCC to the FCofA and back to the FCC for the sole purpose of picking up the jurisdiction of the FCofA. The picking up of Corporations Act 2001 jurisdiction, for example, as a reason for this double-bounce transfer was documented in such cases as Talbot & Talbot [2014] FamCA 128 and Beadline & Goodridge and Ors [2018] FamCA 737.

6. The number of cases in the FCofA which are unallocated to a trial judge is not a true measure of the backlog (p 39) or the impact on parties. It is not a helpful statistic, as cases allocated to a trial judge in the FCofA for setting a trial date, usually result in a trial within about three months, whereas the FCC usually allocates matters to a trial date on the first date the matter is listed before the court, but the trial date may be up to two years away. The PwC report refers to anecdotal evidence that FCC judges are “incentivised” by the backlog of cases assigned to them to clear cases as soon as possible: in other words to encourage them to work harder (p. 48). Whether or not the workload of the FCC judges is reasonable or it is fair on the FCC judges to increase their stress in this way is not discussed. Mr Moses, President of the NSW Bar, quoted later in this article believes their current workload is unreasonable.
7. The growth in the number of family law matters dealt with by the FCC and the reduction in the number dealt with by the FCofA was considered by PwC to be relevant, but there is no analysis of whether that is the cause or effect of a continued decline in the number of judicial appointments to the FCofA, and delays in the replacement of retiring judges. The reduction in the number of judges in the FCofA in the past few years is not mentioned.
8. The increased backlog of both courts was noted (p 29, 38-39) but the possibility that this could be related to an increased complexity of matters and the needs of parties in both courts, or insufficient numbers of judges was not considered. The anecdotal views of many family lawyers is that the complexity of their work has increased as the caseswith more straightforward issues and more co-operative parties are largely settled by the parties themselves using dispute resolution methods outside the court system, often with the assistance and encouragement of legal practitioners. This appears to be the experience of the courts as well, but there is no discussion or analysis by PwC of the possibility that the complexity of cases has increased.

Chief Justice Pascoe said that he has seen a rise in violence, substance abuse and mental health issues during his time as a judge of both courts. He said:

“Over the years I have been a judge, I have seen a very significant rise in violence and family dysfunction. If this is the experience of the courts, then I am sure it is also the experience of the profession. The number of self-represented litigants has grown sharply, as has the presence of mental illness and substance addiction. All of these factors put children at risk.

It is a sad fact that the spectre of violence and harm is present in courts every day and adds a high level of stress to the work of the judges, who must be commended for their efforts to protect those who are vulnerable. We have seen some awful cases since I have been a judge: cases such that of Darcey Freeman, and the recent Edwards’ murders. These are matters that haunt us all and lurk in the shadows as we face new cases with allegations of violence and wonder which seemingly commonplace case may suddenly take a horrific turn.” (State of the Nation Address, National Family Law Conference, 3 October 2018)

The Australian Institute of Family Studies found in its research (the findings were summarised in “Separated parents and the family law system: What does the evidence say?” by Rae Kaspiew, 3 August 2016) that families who use the family law system are “troubled”:

“They are much more likely to have a history of family violence, concerns for their own or their children’s safety as a result of ongoing contact with the other parent, mental ill health, substance abuse, gambling, problematic social media or pornography use … of parents who use the family law courts, 85% report emotional abuse and 54% report physical violence.”

9. A quick look at the FLA gives an indication of how much more complex the legislation has become and it is a reasonable assumption that this complexity has been reflected in the workload of both the FCC and the FCofA giving rise to a need for greater resourcing, not reduced resourcing as proposed by the Federal Government. Significant changes to the FLA since 2000 include the introduction of financial agreements, superannuation splitting, the shared parenting reforms, bankruptcy jurisdiction, de facto property jurisdiction, the family violence reforms and jurisdiction over third parties. Since January 2001, there have been over 60 Acts which amended the FLA.
10. For every appeal which is heard by a single judge instead of a Full Court, capacity is said to be created to hear two additional single judge appeals or two additional first instance family law matters. This assumption is incorrect as a trial usually takes much longer than an appeal and Full Court judges often co-write or share the work associated with writing judgments if they agree.  Even if they don’t agree, one judge may write the first judgment and include the factual matters and uncontested findings, whilst the judges who disagree partially or fully with the first judgment can refer to the first judgment and explain their disagreement without writing such a lengthy judgment.
11. Under-listing is assumed to be an under-utilisation of resources, as if a matter settles there is no opportunity to deal with other cases (p. 84). This fails to take account:

11.1.        There is no evidence in the PwC report as to how often this occurs;

11.2.        Both the FCofA and the FCC commonly over-list. This is reasonable for the reasons given in the PwC report. However, it can result in a waste of legal costs for the parties. An increase in over listing will increase the likelihood of parties attending court with their lawyers, being adjourned, and incurring wasted costs.

11.3.        It seems unlikely that if a case settles that judges simply go home or otherwise take the rest of the day off. It is more likely that they will write judgments, read a court file for the next day and do other paperwork.

The Chair of the Family Law Section, Wendy Kayler-Thomson, commented on the PwC report in her State of the Nation speech given at the National Family Law Conference on 3 October 2018 (and reported in the Australian Family Lawyer Volume 27/2):

“Even if the raw data is correct, it is the interpretation of that data that is fundamentally flawed. Today is not a day for statistics, but most of us are incredulous at the claim that the Federal Circuit Court can take on the more complex work of the Family Court and dispose of those cases more quickly or efficiently. The suggestion that the Federal Circuit Court can take on more work without any more resources being allocated to it for judges, family report writers, registrars and other court staff is astounding.”

The NSW Bar Association proposed a different model, based on the recommendations of the Semple Report. This was a report commissioned by a previous Attorney-General and delivered in August 2008, entitled “Future Governance Options for Future Federal Family Law Courts in Australia – Striking the Right Balance”. It can be downloaded from the Attorney-General’s website above. The NSW Bar Association’s President, Arthur Moses SC, said that “a justice system is not to be judged on spreadsheets” and that instead “it is to be judged on the quality of justice delivered to people at the most vulnerable time in their lives”. He referred to the “crushing workload” of FCC judges, with each judge having approximately 500 matters in their case list. He expressed concern about the collapse into the FCC of the most complex FCofA matters (“What the Family Court Shakeup Really Means for Families”, Sydney Morning Herald, 18 August 2018).

What did the earlier reports say?

There have been 2 other recent reports by accountants on the family law courts: “Review of the performance and funding of the Federal Court of Australia, the Family Court of Australia and the Federal Circuit Court of Australia” by KPMG in 2014 and “High Level Financial Analysis of Court Reform Limitations” by Ernst & Young in 2015. The Attorney-General has put them on the attorney-General Department’s website. The PwC report also relies on data from the Productivity Commission’s Annual Report on Government Services. The latest report was progressively released in January/February 2018.

The Productivity Commission assesses all Australian courts under the broad objective of performance. “Performance” consists of 3 factors: equity, effectiveness and efficiency. “Effectiveness” is where quality and court file integrity are considered. It is not just how many widgets the courts create, but the quality and integrity of the widgets. The Federal Government only asked PwC to look at efficiency, not equity and effectiveness (PwC report, p 12).

The Productivity Commission relies on the national benchmarks for “backlog”, which is a measure of a court’s active pending caseload and a factor in determining efficiency. These benchmarks are set by the Federal Government and they are different for the FCC and the FCofA:

1. For the FCC (and other inferior courts) the national benchmark is:

• no more than 10 per cent of lodgements p­ending completion are to be more than 6 months old
• no lodgements pending completion are to be more than 12 months old.

2. For the FCofA (and all other Superior Courts and the District/County Courts) the national benchmark is:

• no more than 10 per cent of lodgements pending completion are to be more than 12 months old
• no lodgements pending completion are to be more than 24 months old.

The PwC report did not refer to these different benchmarks, but assessed both courts against the same criteria and compared the courts with each other on the basis of the “key assumption” that both courts did work of the same complexity. It used the same “metrics” for both courts (PwC report, p 58).

The KPMG report includes many tables of data for the 2016-2017 financial year and earlier years. These tables have extensive notes of explanation and provisos which were not referred to in the PwC report, including:

• Some work is done by the FCofA and Federal Court for “free” for the FCC;
• The FCofA and the FCC have combined accounts because the back office functions have already been amalgamated. Estimates are therefore given as to the division of expenses;
• In relation to the court backlog statistics, the Productivity Commission noted that court backlog and timeliness of case processing can be affected by a number of factors:
  • Changes in lodgement and finalisation numbers;
  • Different case flow management practices across court levels and across jurisdictions;
  • A single case may involve several related applications or issues that require judgments and decision by the court;
  • Matters which may be adjourned at the instigation of, and by the consent of, the parties which are outside the control of the court;
  • The court may employ case management or other dispute resolution processes (for example, mediation) as alternatives to formal adjudication (p 17 of Table 7A.18).

There are assumptions and findings in the KPMG report which are inconsistent with those in the PwC report. For example, the KPMG report states:

1. The FCC diverts lower-level matters from the FCofA and the Federal Court, leaving those courts to receive the more complex matters (KPMG p 18). This is contrary to the key assumption by PwC that the FCofA and the FCC do cases of the same complexity.
2. Increasing case complexity is most clearly apparent in the family law jurisdiction and relates to both “the complicated nature of the legal issues to be determined”, particularly in the superior court (i.e. the FCofA), as well as “the increasingly complex profile of clients” (KPMG p 25) (e.g. family violence and unrepresented clients). Increasing case complexity was not discussed in the PwC report.
3. The numbers of litigants who are unrepresented in one or more stages of a legal dispute are increasing and the requirement to provide support and guidance to them whilst avoiding a perception of bias leads to delays (KPMG p 30).
4. Between 2009 and 2013, there was a 20% reduction in the number of “less complex” trials which are determined in 5 days or more, but a significant increase in the number of “more complex” trials, with a 263% increase in the number of trials determined in 15 days or more and a 217% increase in the number of trials determined in 20 days or more (KPMG p 34).
5. The savings achieved to date were considered to be encouraging but their overarching impact was limited by the fact that the larger savings measures – particularly implementation of the single administration arrangements between the two courts – had principally been returned to Consolidated Revenue. Not replacing judicial officers has not meant extra funding to the FCofA for other services, such as registrars. Only the ‘smaller’ savings measures had been reinvested by the courts. This limited the overarching impact of savings and efficiency measures on the courts’ financial position (KPMG p 73).
6. It appeared unlikely on available information that additional savings measures and efficiency initiatives (beyond those already implemented) were feasible without negative impacts on service delivery (KPMG p 73).

The Ernst & Young report was produced to provide a high level financial analysis of savings and implementation costs associated with 4 federal court reform areas proposed by the Attorney-General’s Department. A significant part of the report was devoted to the amalgamation of court back office functions, which has now been implemented (and as the KPMG report acknowledges, the savings were not passed on as funds to the courts, but as savings for Government). The scope of the potential changes to the jurisdiction of the FCofA was not sufficiently defined to allow for any cost analysis to be done (Ernst & Young p 4).

Are there any jurisdictional issues with the proposed restructure?

The Semple Report dealt with (although it did not directly address) the constitutional issues associated with the court restructure it recommended. Although there were some discussions during the preparation of that report as to the possibility of a single Federal Court incorporating the Federal Court, the FCofA and the then Federal Magistrates Court, this was outside the terms of reference and was not considered in the Report (p.51).

The Federal Government has not disclosed what, if any, constitutional and jurisdictional difficulties there are with the currently proposed restructure. There appear to be some potential problems:

1. The FCofA cannot be easily abolished until all of its current judges retire, and its youngest judge does not turn 70 until 2039 (“The Bitter Struggle to reform the Family Court”, Australian Financial Review, 17 August 2018). There are constitutional reasons preventing the Federal Government from cancelling the commissions of judges.  This means that the FCofA will have prolonged death throes and it could even be resuscitated by a different government. The uncertainty over the future of the FCofA is not beneficial to parties as it creates uncertainty for parties and its judges, affects morale and provides a justification for the Federal Government to continue cuts to resourcing.
2. The FCFC (Division 1) retains its status as a superior court, but the FCFC (Division 2) will not be one (s 9 and 10 FCFC Bill 1). Once the FCofA no longer exists, there will not be a superior court of record exercising FLA jurisdiction. Being a superior court gives the FCofA certain inherent procedural powers to, for example, regulate its own proceedings and make anti-suit injunctions. Whilst inferior courts such as the FCC are usually given these powers by statute or regulation, it is difficult to find any comparison as to whether these powers are the same as those of superior courts.
3. Judges of superior courts have absolute immunity from suit even if they exceed their jurisdiction, and decisions made in excess of jurisdiction are, at worst, voidable, and are valid unless and until they are set aside (Cameron v Cole (1944) 68 CLR 571, 590; DMW v CGW (1982) FLC 91-274). An inferior court’s decision which exceeds jurisdiction is a nullity without being set aside. A superior court can therefore more readily and confidently deal with more complex cases where the jurisdictional and constitutional limits may be tested, as they were when the third party jurisdiction under Pt VIIIAA FLA commenced. The advantages of the FCofA being a superior court and the disadvantages that the now FCC being an inferior court have arisen, not just in relation to individual cases but in relation to a substantial group of cases where particular jurisdiction was exercised. One occasion was after the commencement of the FLA jurisdiction with respect to the alteration of property interests of de facto partners (see “De facto relationships – welcome to the twilight zone”, Jacky Campbell, CCH, 22 February 2012). A similar issue arose earlier when the cross-vesting law given to the federal courts was found to be unconstitutional, although at that time there was no inferior court exercising federal jurisdiction so the repercussions were not as great (Re Wakim; Ex parte McNally [1999] HCA 27; (1999) 198 CLR 511; Residual Assco Group Limited v Spalvins [2000] HCA 33; (2000) 202 CLR 629). The Federal Government has not provided any detailed analysis of the potential impact of the loss of a superior court of record exercising FLA jurisdiction.
4. The FCofA has an excellent international reputation and its jurisprudence is recognised by courts in England, Canada, the United States and elsewhere. The FCofA, being a superior court in the Australian court hierarchy, is important in the development of precedent in Australia. If there are very few FCofA judges or the FCofA itself no longer exists, the only trial judgments will be those of the FCFC (Division 2). These judgments are inferior to those of the Supreme Courts of the States and Territories, and in the absence of FCofA judgments, the FCFC (Division 2) will arguably be bound by the decisions of the Supreme Court of the State or Territory in which the family law case is being heard. As family law cases often involve other areas of law, this could lead to greater diversity and inconsistency of decisions than is presently the case.
5. One of the possibly unforeseen consequences of the proposed restructure is likely to be the inability to register Australian FLA orders in some overseas jurisdictions (e.g. Singapore) which require that the orders be of a superior court. In practice this means, for example, that if the FCC makes an order, it needs to be registered in the FCofA before it will be recognised and registered by the Family Justice Court of Singapore. A recent example where an overseas court was asked whether it was preferable for the order of the Australian court to be of a superior court to minimise the risk of the orders being unenforceable or appellable in the overseas court was Biondi & Koen [2018] FamCA 746. Although it made no difference in that case, the fact that the question was asked shows that the family law courts are aware of the potential issue. Changes to treaties and the legislation of overseas countries will be required in some instances, to ensure that the FLA orders of an inferior court (the FCFC (Division 2)) are recognised. In Australia, the Foreign Judgments Act 1991 (Cth) and the Foreign Judgments Regulations 1992 (Cth) (which do not cover “matrimonial causes” but may cover “de facto financial causes”) demonstrate that in Australia, overseas judgments of superior courts (and limited inferior courts) are most commonly recognised by Australian courts and vice versa. The purpose of the Foreign Judgments Act is to give mutual substantive reciprocating recognition for the enforcement of money judgments between overseas superior courts and Australian superior courts (s 5(4) and clauses10-12 of the Explanatory Memorandum). It is unclear whether the Federal Government has considered the impact on parties who need their FLA orders recognised overseas, and has a plan as to what needs to be done so that these parties are not disadvantaged.
6. The FCFC (Division 2) is given some new jurisdiction (s 100, FCFC Bill 1 – the original version of this article incorrectly referred to 2 other sections of the Bill), but some jurisdiction is particular to the FCofA or can only be exercised by a superior court. Further legislative change is required to give the FCFC (Division 2) effectively all the powers of the existing FCofA, which may not in all cases be possible. It is curious that these gaps were not addressed in the Bills. It is also interesting to consider the position in England which has a superior court and inferior court exercising family law jurisdiction and a division of work discussed earlier in this article, similar to Australia. Why is there this division? Is there a benefit or advantage in the superior courts exercising this jurisdiction? There may be a narrowing of the types of disputes which can be dealt with by the FCFC, as the FCFC (Division 1) shrinks as is proposed. The problematic jurisdiction includes:

6.1.        Possibly, the parens patriae jurisdiction, including special medical procedures. Both the FCC and the FCofA have welfare jurisdiction under s 67ZC FLA, but the extent to which this is broadened or assisted for the FCofA by the inherent jurisdiction of a superior court is unclear. Special medical procedures are currently dealt with by the FCofA, not the FCC, so the FCC’s powers have not been tested. The powers of the FCofA have been tested – e.g. the inability of the welfare power to bind third parties was decided by the High Court in Minister for Immigration and Indigenous Affairs v B (2004) CLR 365; (2004) FLC 93-174.

6.2.        Jurisdiction under the Corporations Act 2001. The FCFC Bill 2 amends that Act to substitute the FCFC (Division 1) for the FCofA, but does not give the existing Corporations Act jurisdiction exercised by the FCofA to the FCFC (Division 2).

7. There are other areas in which the FCofA has built up significant expertise over a number of decades, such as complex jurisdictional issues, international relocations and Hague child abduction proceedings. It will take some time for the FCFC (Division 2) and the Family Law Division of the Federal Court to acquire similar experience and expertise. A judge of the FCofA has long been Australia’s nominated member of the International Hague Network of judges. The specialist family law judges nominated to the network have, as one of their functions, to assist in judicial communications between countries with respect to the various Hague Conventions dealing with family law. In common law countries it is usual for superior courts to handle Hague child abduction matters. There is no specific requirement under that Convention, but it is a reflection of the serious nature of these matters, and the complexity of inter-jurisdictional issues. Examples are England, Canada and the federal courts of the United States (the courts of the individual states also handle Hague matters and many, if not all, use their superior courts, e.g. New York, California).  It is possible that overseas courts will see the transfer of Hague matters to an inferior court without experience in dealing with them as a negative step by Australia in how it treats Hague matters.

Chief Justice Pascoe recognised the importance of a superior court exercising Family Law Act jurisdiction:

“There is a clear need for a superior court in family law to deal with matters such as complicated financial cases that involve complex trust and corporate structures; allegations of extreme child abuse; international cases that involve conflicts of laws; adoption and abduction; and those that are on the cutting edge of developments in technology, medicine and psychology. These require the attention and precedent-setting decisions of a superior court.” (State of the Nation Address, National Family Law Conference, 3 October 2018)

Can the Federal Government make the FCFC (Division 2) into a superior court?

In theory, any issues about the FCofA being a superior court could be overcome by the Federal Government legislating to make the FCFC (Division 2) a superior court. Some superior courts are inherently superior, such as the State and Territory Supreme Courts. Others, like the FCofA and the Federal Court are superior by statute.

The Federal Government is, though, unlikely to want to make the FCFC (Division 2) into a superior court as this will undoubtedly create pressure from the judges of that court to increase salaries and change their pension arrangements, which are much less than those of superior courts.

Conclusion

The Federal Government plans to continue to reduce funding to the Family Court and not replace judges, many of whom are retiring shortly. The concerns expressed in the PwC report and by the Attorney-General about the numbers of matters transferred between courts are not likely to be addressed by the restructure proposals if combined with a reduction, rather than an increase in the number of Family Court judges. The number of matters transferred to the FCC from the Family Court is likely to increase, as the Family Court will be increasingly unable to deal with its traditional work. By pushing more cases to the FCC, particularly more complex matters and lengthier trials, FCC judges will be under even more pressure, unless the Federal Government greatly increases the numbers of judges and registrars in the FCC.

The PwC report was prepared in haste – in only 6 weeks. It is a glossy “overview” which does not annexe the tables of data and demonstrate the level of analysis of data of the Productivity Commission, KPMG and Ernst & Young reports. Although the Attorney-General has placed the KPMG and Ernst & Young reports on the Attorney-General Department’s website, there is no evidence that PwC referred to them. In fact, the many contradictions between the PwC report and the other reports suggest to the contrary. The PwC report states that it relied on the Productivity Commission data, although it makes adjustments to the data based on assumptions not borne out by that report or the other reports. It is difficult to deny the necessity for some reform to the structure of the family law courts, but it is a missed opportunity for the Federal Government to try to push through structural reform without relying on actual data and without looking at the possible consequences of the particular structural reform it is proposing. The problem of two courts exercising FLA jurisdiction occurred for political reasons. It is now seen as a mistake. It will also be a mistake to try to fix the problem without proper research and consideration of the options. The PwC report itself said that it had not explored all possible opportunities, assessed all potential implications of each opportunity and recommended that further testing and design was required (PwC report, p.7).

Many of the assumptions in the PwC report are incorrect. The absence of a recent investigation or review of options, or even a proposal to implement the recommendations of the decade-old Semple Report which involved consultation with stakeholders, mean that the proposed restructure and the abolition of the FCofA are being considered in a vacuum without any genuine assessment of the advantages and disadvantages for parties. Ordinary people, already affected by the cuts to resourcing of the FCofA in particular, will be further detrimentally affected by “efficiencies” which are implemented ostensibly for their benefit. Any serious restructure or reform of the family law courts should be based on research and evidence that it will produce better outcomes for parties, not simply designed as a way to save money.

The underlying implication of the FCFC Bills, the PwC report and the Attorney-General’s comments is that FCofA judges are lazy and need to work harder. There is no evidence of this. Putting extra pressures on the judges of both courts who work in a difficult and complex area of the law with people who have complex problems and are at a low-point of their lives is unreasonable and unfair without proper, or indeed any, evidence that they are not working hard. Judges don’t need to create more widgets: the community expects their judges to ensure that the process is fair and produces the best outcomes for parties and their children.

Australians will notice that Australia no longer has a specialist family court. In the short term to medium term, they may have to go to Queensland to find the last remaining FCofA judge to determine a particular matter which requires FCofA expertise or superior court jurisdiction. The FCFC (Division 2) will probably have more difficulty accommodating the larger and more complex cases which the FCofA currently deals with. The expertise of the FCofA in dealing with Hague Child Abduction and medical treatment cases will be lost and take time to re-build. Parties with foreign elements to their cases may have fewer options for the enforcement of orders in an increasingly mobile world. The loss of the respect currently given by overseas courts to judgments of the FCofA will not be easily given to an inferior court.

Without proper thought and checking of the possible repercussions from the loss of a superior specialist court exercising FLA jurisdiction, the true costs and consequences of the court restructure may not be known until the FCofA is barely operational or no longer exists.

© Copyright – Jacqueline Campbell of Forte Family Lawyers and Wolters Kluwer/CCH. This paper uses some material written for publication in Wolters Kluwer/CCH Australian Family Law and Practice. The material is used with the kind permission of Wolters Kluwer/CCH.

Jacky Campbell, May 2019

Financial Agreements: still worth the candle?

Post Thorne v Kennedy (2017) FLC 93-807, family lawyers and clients have reconsidered the worth of financial agreements under the Family Law Act 1975 (FLA). At the outset, it is impossible to guarantee to clients that financial agreements are binding and will not be set aside. Lawyers can, however, take steps to reduce the risks. There are also pro-active measures that can be taken to protect an agreement which is under attack or may be under attack. This paper covers:

1. What goes in and what stays out?
2. Disclosure requirements
3. Minimising the risk of equity intervening – lessons from Thorne v Kennedy
4. Defending a financial agreement – what weapons are available when the threat of attack is pending?
5. Preparing watertight agreements – drafting strategies to protect and deliver certainty for your client

Recent cases are discussed under the above headings.

1.        What goes in and what stays out?

What goes in?

1. Technical requirements. It sounds basic, but the case law demonstrates that it is hard to do. The agreement should be drafted to meet the technical requirements of the FLA – see s 90G(1) for Pt VIIIA FLA agreements and s 90UJ(1) for Pt VIIIAB FLA agreements.  Although an agreement may be “saved” under s 90G(1A) or s 90UJ(1A), it is preferable that the technical requirements are met in the first place.
2. Matters that can be covered by the agreement. This depends upon which type of agreement is being entered into by the parties. Using s 90B (pre-nuptial agreements) as an example, the parties can, under s 90B(1)(a), make a written agreement with respect to any of the matters in s 90B(2). Section 90B(2) states:

“The matters referred to in paragraph (1)(a) are the following:

(a)   how, in the event of the breakdown of the marriage, all or any of the property or financial resources of either or both of the spouse parties at the time when the agreement is made, or at a later time and before divorce, is to be dealt with;

(b)   the maintenance of either of the spouse parties:

(i)    during the marriage; or

(ii)   after divorce; or

(iii)  both during the marriage and after divorce.”

The phrase “dealt with” is defined in s 90A as including the meaning given by s 90F(2). Section 90F(2) states:

“To avoid doubt, a provision in an agreement made as mentioned in subsection 90B(1), 90C(1) or 90D(1) that provides for property or financial resources owned by a spouse party to the agreement to continue in the ownership of that party is taken, for the purposes of that section, to be a provision with respect to how the property or financial resources are to be dealt with.”

There is no all-inclusive definition of “dealt with” in the FLA and little, if any, judicial authority on the phrase with respect to financial agreements.  Presumably, it allows provisions to deal broadly with property and financial resources, not just quarantine, transfer or sell.  It may be broader than the phrase “or otherwise deal with” which is often used in orders if there is not a preceding list of words such as “sell, mortgage or encumber” and limit its meaning.  Options to purchase are amongst the other ways property can be “dealt with”.

The breadth of matters which can be covered by s 90B agreements is extended by s 90B(3), which states:

“A financial agreement made as mentioned in subsection (1) may also contain:

(a)   matters incidental or ancillary to those mentioned in subsection (2); and

(b)   other matters.”

There is very little case law on the meaning of the phrases “incidental or ancillary” and “other matters” in the context of financial agreements, but there is authority in different contexts.

Incidental or ancillary

In the context of s 90 FLA, Gibbs CJ in Gazzo v Comptroller of Stamps (1981) FLC 91-101 looked at the meaning of “incidental or ancillary to the subject matter”:

• “necessary to effectuate its main purpose” from Grannall v Marrickville Margarine Pty Ltd (1955) 93 CLR 55 (at [13])
• “reasonably incidental to the complete fulfilment” of the subject matter from Burton v Honan (1952) 86 CLR 96 (at [14])

The cases below suggest that if a “matter” is sufficiently autonomous, important in its own right, multifaceted, self-contained, etc., then it is not ancillary or incidental. Further, if a matter is only remotely or indirectly ancillary and incidental to the specified matter, this is not enough. Matters which are merely subservient or subordinate to the specified matter, but not remotely or indirectly, are more likely to be ancillary and incidental. Many of the cases focus on whether a purpose or use is incidental or ancillary to another use or purpose, rather than looking at “matters”.

In Rothmans v Australian Broadcasting Tribunal [1985] FCA 91 the Full Court of the Federal Court adopted with approval the definition of “incidental” in the Oxford English Dictionary (at [29]):

(1)   Occurring or liable to occur in fortuitous or subordinate 
conjunction with something else; casual . . . 

(2)   Casually met with . . . .

In R v Holmes; Ex Parte Public Service Association (NSW) [1977] HCA 70; (1977) 140 CLR 529 Gibbs J set out the test (at [17] and [18]):

“The questions whether one activity is incidental to or ancillary to another is one of degree. For example, the duties of traffic police, and of magistrates sitting in the traffic court, might in one sense be said to be ancillary to transportation, but nevertheless it could confidently be said that their activities are not directly connected with transportation. Similarly it should in my opinion be held that the duties performed by the clerks and administrative officers employed in the Department of Motor Transport are only incidental to transportation in a remote and indirect way. But what is more important is that their duties are not in their nature industrial, because they stand “outside the whole world of productive industry and organized business”. It is not a sufficient distinction between the position of clerks in the Treasury, and that of clerks employed by the Commissioner for Motor Transport who collect taxes and charges, that the funds raised by the latter are devoted to special purposes relating to transportation. The tasks of licensing, and registration, and formulating rules for the governance and safety of traffic, also cannot properly be described as industrial. They are bare administrative functions, such as could not be performed in industry under our system.

For these reasons I hold that the dispute between the Commissioner for Motor Transport and his clerical and administrative officers is not an industrial dispute within s. 51 (xxxv) of the Constitution, or within the [Conciliation and Arbitration] Act. That of course is not to say that no employees in the Department are engaged in industry. What is said is limited to employees engaged in clerical and administrative work.”

In R v McMahon; Ex parte Darvall (1982) 151 CLR 57; [1982] HCA 56, the High Court determined the activities of universities were not ancillary or incidental to industry on the basis that the role of the modern university was so: autonomous; important in its own right; and multifaceted, that its activities could not be considered ancillary or incidental to industry (at 456).

In Enoka & Ors v Shire of Northampton (1996) 15 WAR 483 the fact that a panel beating business could be said to be self-contained and not merely subservient to a service station on the premises deemed it was not ancillary or incidental to the service station.

In City of Swan v Taylor [2005] WASCA 88 Johnson J held (at [67]) that the determination of whether a particular land use is “incidental to” another land use “requires the identification of a predominant use and a determination of whether the proposed use is consequent on such a use or naturally attaching, appertaining or relating to such a use.”

It isn’t possible to predict how “incidental or ancillary to” will be interpreted in the context of financial agreements.  The Explanatory Memoranda and the Minister’s Second Reading speech did not refer to the phrase.

Other Matters

The phrase “other matters” only applies to agreements entered into after 21 November 2008 under Pt VIIIA and not agreements entered into under Pt VIIIAB. Sections 90C and 90D are similarly worded to s 90B. However, sections 90UB, 90UC and 90UD, which are for de facto relationships, do not include reference to “other matters”. “Other matters” is broader than “matters ancillary or incidental to”, but there is no judicial authority on what is covered by the phrase in relation to financial agreements.

Bloomfield & Grainger [2018] FamCA 36

The parties and their lawyers overlooked the fundamental and preliminary point of the subject matter of the agreement in the long-running Bloomfield & Grainger litigation which commenced in 2014 and ended in 2018.

There were many hearings at which no issue was taken as to whether or not the litigation was about a financial agreement.  In Bloomfield & Grainger [2018] FamCA 36, Justice Hogan finally determined that the agreement in question was not a financial agreement, because it did not deal with the subject matter set out in s 90C Family Law Act 1975, although it purported to be an agreement under s 90C.

The parties’ intention was to transfer the wife’s interest in the property to the husband prior to the wife’s imminent bankruptcy. In summary the agreement provided:

1. The wife was to transfer, after execution of the agreement, her legal and beneficial interests in the T Street property to the husband to be held for the maintenance of the children during the marriage.
2. In the event of a separation the husband would assume all liability under the mortgage. The court did not consider whether this liability was “property” and therefore brought the agreement within s 90C, so that is a question for another day.
3. A recital and a substantive clause were the only paragraphs to use the words “breakdown of the marriage”. These paragraphs stated that neither party was precluded from further exercising any right available to them under the FLA in relation to how any or all of the “property of the marriage” is dealt with “in the event of the breakdown of the marriage”, in circumstances where the property or the needs of the parties’ children have materially changed.

After executing the agreement the transfer of the property was effected and the husband relied on the financial agreement to obtain an exemption from stamp duty. Notably, the agreement did not provide for how the T Street property would be dealt with in the event of a breakdown of the marriage, but only how it would be dealt with immediately upon the execution of the agreement.

Whilst a financial agreement under s 90C may deal with incidental or ancillary or other matters, it must deal with one or both of the matters in s 90C(2).

Justice Hogan held that the agreement was not a financial agreement as defined by s 90C FLA because it did not deal with either:

1. How, in the event of the breakdown of the marriage between the parties, their property or financial resources (or the property of each of them and their respective financial resources) are to be dealt with; or
2. The maintenance of either party.

The effect of this finding was that the transfer of the wife’s legal and beneficial interests in the property was not done pursuant to a financial agreement. The agreement did not need to be set aside to attack the transaction. A remedy under the relation back provisions of the Bankruptcy Act 1966 could have been sought by the trustee in bankruptcy without the agreement being set aside.  Four years of litigation was unnecessary.

Child maintenance and child support

Child maintenance and child support are not specifically referred to as matters which can be covered by a financial agreement. They appear to be able to be covered under both Pt VIIIA and Pt VIIIAB agreements as being within “matters incidental or ancillary to” as:

• Child maintenance is referred to in s 90E and 90UF. Section 90E states:

A provision of a financial agreement that relates to the maintenance of a spouse party to the agreement or a child or children is void unless the provision specifies:

(a)   the party, or the child or children, for whose maintenance provision is made; and

(b)   the amount provided for, or the value of the portion of the relevant property attributable to, the maintenance of the party, or of the child or each child, as the case may be.”

Section 90UF is similarly worded for de facto relationships.

• Section 84(5) of the Child Support (Assessment) Act 1989provides that “nothing in this Part is to be taken to prevent the same document being both a child support agreement and … a financial agreement”. For an example of a financial agreement enforced as a child support agreement, see Huckle & Harl (Child Support) [2018] AATA 4895. However, it seems sensible to keep them as separate documents. Child support arrangements are usually more fluid than property settlements. Although the ground for setting aside binding child support agreements because of changes in circumstances relating to parenting arrangements appears more difficult than the ground for financial agreements, it is unknown how the court will interpret this provision.

3. Third parties can be parties to the agreement or their rights can be protected. The rights of third parties are also discussed later in this paper, but the options include:

• • Make third parties (such as parents lending money) parties to the agreement. For example, s 90B(1) states “The people may make the financial agreement with one or more other people”;
  • Make it clear in the agreement that third parties have disadvantaged themselves in reliance upon the agreement. Abrum & Abrum [2013] FamCA 877;
  • Annexe an agreement between the parties to the financial agreement and the third parties to the financial agreement and refer to the annexed agreement.

4. FLA terms – Use terms that are in the FLA to reduce the risk of uncertainty (discussed below).
5. Disclosure of assets, liabilities and financial resources (discussed below).
6. Contingencies – Refer to the possible contingencies which the parties have considered, such as having children, illness and bankruptcy.
7. Sunset/review/termination clauses – Consider a sunset or review clause. Will it be effective? These are discussed below.
8. Jurisdiction clause – Will a provision that the Australian jurisdiction applies be enough? Do the parties need an agreement in an overseas jurisdiction?

What goes out?

  1     Property acquired after divorce or separation:

1.1     Agreements entered into after divorce under s 90D cannot cover property of the parties acquired after divorce. Sections 90B and 90C are similarly worded. Section 90D(2)(a) expressly states that the agreement can cover “how all or any of the property or financial resources that either or both of the spouse parties had or acquired during the former marriage is to be dealt with”.

1.2     Agreements with respect to defacto relationships cannot cover property or financial resources of the parties acquired after separation (s 90UB(2)(a), 90UC(2)(a), 90UD(2)(a)).

1.3     Divorced parties who want to deal with property acquired after divorce will need to obtain s 79 orders to deal with that property rather than use a financial agreement. They can still use a financial agreement to oust rights to apply for spousal maintenance. Likewise, separated de facto parties who want to deal with property acquired after separation will need to obtain s 90SM orders for property, but can still use a financial agreement to oust rights to apply for spousal maintenance.

1.4     If the parties enter into a s 90D or s 90UD financial agreement without realising the problem, the repercussions are:

• • A claim may still be able to be made under s 79 or 90SM for a property settlement or maintenance order in respect of the property or financial resources not covered by the agreement;
  • Any property acquired after divorce or separation which is to be transferred between the parties will not attract capital gains tax rollover relief and stamp duty exemptions;
  • The agreement may be able to be set aside as impracticable under s 90K(1)(c) or 90UM(1)(f), or void, voidable or unenforceable for uncertainty, mistake or misrepresentation under s 90K(1)(b) or 90UM(1)(e).

    2      Lifestyle clauses – These may be able to be included as “other matters” in Pt VIIIA agreements. If so they can be included in Pt VIIIAB agreements. If they are within “matters incidental or ancillary to” they can be included in Pt VIIIA agreements, but not Pt VIIIAB agreements. Prior to the referral of powers over financial matters after the breakdown of de facto relationships to the Commonwealth, in Hagenfelds v Saffron (1986) DFC 95-025 Powell J of the Supreme Court of New South Wales (at p 75,322) considered whether lifestyle terms in agreements between de facto parties were void for uncertainty. He said in dicta that:

“I would have held that promises ‘(to be) the de facto wife of the defendant’ and ‘(to) provide for the plaintiff’s material needs … at a high material level’ were too vague and uncertain to give rise to legal objectives.”

Whether or not the FLA allows lifestyle clauses in Pt VIIIA agreements but, more importantly, there may be enforceability problems. If they can’t be enforced, then they should not be included as they may put the whole agreement at risk of being set aside.

An example of a lifestyle clause arose in Parke & Parke [2015] FCCA 1692. The parties separated after a lengthy de facto relationship where the wife was subject to considerable family violence. They reconciled and agreed to marry.

They married 2 days after entering into a financial agreement which contained the following clause:

“8.   Both parties agree that they will not engage in any physical, emotional or financial abuse of the other and that they will each participate in relationship counselling and mediation in the event of there being any difficulties in the relationship.”

The agreement was made in 2001 and the parties separated for the second time in 2013. The wife sought that the agreement be set aside on various grounds which were successful, but she also sought that it be rescinded because the husband had breached clause 8. The trial judge accepted that the husband had breached that clause, but said (at [200]):

“Given that the respondent remained married to the applicant notwithstanding the applicant’s breach of clause 8 of the agreement – I am of the view that it is too late for the respondent to seek to rescind the contract on that basis after the end of the marriage. I consider that the respondent has waived her right to rescind on that basis.”

The husband appealed, but he died before the appeal was heard and his estate abandoned the appeal ([2016] FamCAFC 248). So, the Full Court did not have the opportunity to consider (even in dicta) whether clause 8 was an unenforceable clause. The trial judge was satisfied that the wife would not have entered into the agreement and married the husband unless she was assured of strict performance with clause 8. In these circumstances, the wife may have been able to rely on misrepresentation by the husband or unconscionability by him in the making of the agreement in an application to set the agreement aside. The difficulty of course is that the wife would have to prove that the husband knew when he entered into the agreement that he would breach that clause.

Similar causation difficulties arise with clauses which require, for example, fidelity, sharing of household labour, no swearing, no gambling, no weight gain, the frequency of visits to the in-laws, frequency of sex, and the up-bringing of children, such as choice of religion.

Whilst one view is that lifestyle clauses are not enforceable, it is possible to draft an agreement which gives different financial outcomes in the event of a separation, depending upon whether a party abided by the lifestyle clause.

However, just because clauses are valid doesn’t mean that they are easily enforced. In many cases, the complexity of proving compliance or non-compliance (particularly if there is a significant financial penalty for non-compliance) will result in lengthy litigation and thus not succeed in bringing about one of the outcomes which the agreement was intended to achieve – avoidance of litigation. There may also be reluctance by a court faced with the task of making a finding as to whether there has been infidelity, for example. Not since the Matrimonial Causes Act 1959 was replaced by the FLA have courts had to hear evidence about whether or not there has been infidelity. Courts may decide on public policy grounds, that they are not prepared to do so, given that making such determinations is not required under the FLA and they may believe they have more important issues to determine in other cases.

    3     Maintenance provisions payable by a third party during the marriage are of no force and effect (s 90DB(1)). Maintenance provisions cannot cover de factos during their relationship anyway.

    4     Where a separation declaration is needed:

4.1     Provisions in s 90B and s 90C agreements which are for “other matters” or “matters incidental or ancillary” are of no force and effect until the marriage breaks down (s 90DB(2)). Lifestyle clauses are therefore not enforceable during a marriage.

4.2      The same applies in relation to “matters incidental or ancillary” in s 90UB and 90UC agreements (s 90UG).

4.3     Provisions in financial agreements which deal with how property and financial resources are dealt with in the event of a breakdown of a marriage are of no force and effect until a separation declaration is made (s 90DA(1)). The situation is similar for de facto relationships (s 90UF). So, agreements cannot include provisions for how property and financial resources are dealt with during the marriage or de facto relationship.

    5     Maintenance clauses if a party is unable to support themselves without an income-tested benefit as they will be of no force and effect (s 90F and 90UI).

    6     Uncertain terms are void – The competing principles which arise when part of an agreement appears to be uncertain include:

6.1     Courts are reluctant to strike down an agreement which parties intend to be binding. Difficulties of interpretation and ambiguity do not necessarily render a contract void for uncertainty. Courts endeavour to uphold contracts wherever possible (Upper Hunter CDCv Australian Chilling & Freezing Co Ltd (1968) 118 CLR 429 at pp 436–437 per Barwick CJ).

6.2     Courts try to objectively ascertain the parties’ intentions (Upper Hunter CDCv Australian Chilling & Freezing Co Ltd.

Clauses and agreements otherwise void for uncertainty may be saved by:

6.3     Applying an external standard such as the standard of reasonableness (e.g. Kingv Ivanhoe Gold Corp Ltd (1908) 7 CLR 617);

6.4     If the parties have acted on the agreement, their actions may clarify the uncertainty;

6.5     Severing the uncertain part from the contract if it is not an essential part (Life Insurance Co of Australia Ltdv Phillips (1925) 36 CLR 60; Whitlock v Brew (1968) 118 CLR 445).

In Kostres & Kostres (2009) FLC 93-420, the Full Court found that an agreement was void for uncertainty. The agreement was entered into two days before the marriage. At the time, both parties mistakenly believed that the husband was an undischarged bankrupt. They did not tell their lawyers this. The parties’ mistaken belief about the husband’s status led to them acquiring assets in the wife’s name rather than in the parties’ joint names. Both parties sought that words be “read into” clause 6 of the agreement.

The Full Court was not satisfied that it could read words into the agreement, saying (at [124], [129]–[131]):

“The principle that words ‘may generally be supplied, omitted or corrected, in an instrument, when it is clearly necessary to avoid absurdity or inconsistency’ is a well-recognised principle in the law of contract (see Fitzgerald v Masters [1956] HCA 53; (1956) 95 CLR 420 at 426; Westpac Banking Corporation v Tanzone Pty Limited & Ors [2000] NSWCA 25).

While, for the purpose of construing the agreement a court should, as in the context of a commercial agreement, apply an objective test of a reasonable bystander to the construction of an agreement, it cannot give meaning to an agreement whose terms are so imprecise or ambiguous the parties’ intent cannot be discerned. …

The differing arguments of the legal representatives in this case as to how the terms ‘acquired’, ‘assets’, ‘joint funds’ and ‘from their own moneys’ should be construed brings into sharp focus the ambiguities in those terms found in the drafting of clause 6 of the agreement.

We think it is particularly relevant that this agreement, which the parties entered into with the intention of dealing with their property and financial resources during their marriage and if it broke down, did not reflect the terms of the section (s 79) which it sought to bypass. Clause 6 does not refer to ‘contributions’, either financial or non-financial, nor does it, except in clause 6(d), refer to ‘property’ or ‘financial resources’. These terms are ones which are well known and the subject of a considerable body of case law as to their interpretation.”

Parke & Parke [2015] FCCA 1692 involved two clauses in a financial agreement which created ambiguity and uncertainty. Pursuant to one clause, the respondent’s half interest in a real property was excluded property which she retained in the event of a separation. However, pursuant to another clause the respondent was required to transfer her 50% share to the parties’ son X within 60 days of a separation. A complicating factor which was not foreseen, at least by the applicant when the agreement was entered into, was that X refused to accept a transfer of the respondent’s half interest in the property and the agreement did not have a default provision setting out what was to occur in the event that X refused to accept the transfer. The trial judge found that the clauses were essential terms of the agreement because they dealt with what was to happen in the event that the parties separated. He set the agreement aside, as the clauses could not be severed from the agreement. The husband’s appeal was discontinued by the husband’s legal personal representative after the husband’s death.

A financial agreement was set aside for uncertainty in Gibbs & Gibbs [2015] FamCA 630. Justice Hogan said (at [8]–[9]):

“I am not persuaded that the uncertainty of terms as expressed in the Agreement touches upon only aspects or claims which could be severed so as to preserve the existence of the Agreement.

I think, instead, that essential terms (for example: matters such as ‘matrimonial property’; what happens to property acquired after marriage but before dissolution — to use only two examples) of the Agreement are vague.”

In Garvey & Jess [2016] FamCA 445, Carew J rejected the argument of the wife that the financial agreement was void for uncertainty as the parties only had an “agreement to agree”. The agreement provided that in the event of a breakdown of the relationship, the parties would “equally divide the joint assets”

Checklist of clauses for drafting an agreement

Recitals

1. Details of the parties:

1.1     Occupations; and

1.2     Incomes

2. The parties’ current and/or future relationship
3. The type of agreement, e.g. s 90B
4. The length of time the parties have been considering the terms of the agreement, discussing and negotiating.
5. The nature of the disclosure between the parties
6. What is the agreement intended to do? E.g. oust maintenance rights only?
7. Justifications for the outcome to be delivered by the agreement such as:

7.1     Initial contributions;

7.2     Inheritances received or likely to be received

8. Justification for clauses used if there is external evidence such as market appraisals, bank valuations, expert valuations

Operative Parts

1. Binding on executors, administrations and assigns
2. How the agreement interacts with wills and deceased estates.
3. Compliance with s 90G(1), or equivalent provision.
4. How the breakdown of the relationship is defined.
5. How property interests are determined upon the declaration of the relationship.
6. Spousal maintenance and compliance with s 90E and s90F.
7. The contingencies which have been considered.
8. Review of the deed and/or sunset clause (with a Termination Agreement) included in the financial agreement and/or a 2-part agreement with the second part coming into effect on the occurrence of a contingency such as the birth of a child.
9. Indemnities

Boilerplate Provisions

Remember that these will not all be the same in each agreement

1. Commencement of deed
2. No other financial agreements
3. No collateral agreements – entire understanding
4. Governing law and jurisdiction
5. Dispute resolution
6. Severability
7. Waiver
8. Disclosure
9. Independent legal advice
10. Reconciliation
11. Rights on death

Schedules

1. Separate property of the parties
2. Property of both parties
3. Separation declaration

Annexures

1. Statement of Independent Legal Advice
2. Acknowledgement by parties
3. Receipts by parties

Other questions to consider include:

1. Where should the definitions be placed? They can be in a separate section in the recitals or defined as they are used.
2. Where do you put the details of the parties’ financial positions at the time of entering the agreement? For example, by detailing quarantined property in the recitals and also in the schedules, there is a risk of inconsistency and therefore uncertainty.
3. The wording of the FLA is fairly clear that a financial agreement does not need to cover all of the property and financial resources of the parties, by using the phrase “all or any of the property or financial resources of either or both of the parties” (e.g. s 90B(2)(a)). But what is the effect of this? How does a court deal with the property not covered by a financial agreement? For example, if one party’s significant assets are quarantined under the agreement and not to be considered in relation to the assessment of contributions and s 75(2) factors, how will the other potentially modest property be divided between the parties at the end of a marriage of several years where the financially weaker party has the primary care of children? Is it against public policy to have an agreement which quarantines certain property and leaves it to the court to decide how the non-quarantined property is divided without reference to the quarantined property? Is it even possible for the court to do this? How does the court ensure that the order is just and equitable, proper and appropriate?

2.        Disclosure requirements

An explicit duty of disclosure is not set out in the FLA in relation to financial agreements. The duty is almost a negative one – if a party does not disclose their financial circumstances, the agreement is at greater risk of being set aside under s 90K(1)(a) or s 90UM(1)(a) or perhaps s 90K(1)(e) or s 90UM(1)(h).

A duty of disclosure may arise in relation to financial agreements in various ways:

• the Family Law Rules 2004, especially r 13.04(1) and the Pre-Action Procedures and the Federal Circuit Court Rules 2001, especially r 24.03
• the meaning of fraud” in s 90K(1)(a), (aa) and (ab), and 90UM(1)(a) – (d)
• the common law and equitable doctrines incorporated by s 90K(1)(b), 90UM(1)(e), 90KA, and 90UN, e.g. misrepresentation, unconscionable conduct.

Rule 13.04(1) requires that in any financial case there be a “full and frank disclosure of the party’s financial circumstances”. This suggests that silence and failure to disclose material facts amount to statutory fraud upon the court or the other party.

However, r 13.04 only applies to “a financial case” which is defined in the Dictionary to the Family Law Rules so as not to include the making of a financial agreement, but only proceedings to set one aside under s 90K or s 90UN. Justice Murphy said in Hoult & Hoult [2011] FamCA 1023 (at [126]) that there was an argument that financial agreements ought to embrace the fundamental principle in the Family Court’s Rules, namely the duty of full and frank disclosure.  In any event, the FLA specifies that fraud for the purposes of s 90K(1)(a) can be constituted by material non-disclosure.

There are several ways to deal with disclosure of each party’s financial position:

1. If there are proceedings before the court, the parties can rely on their financial statements and affidavits, and their compliance with their duty of disclosure. This is ideal – provided it is accurate – as it is open, transparent and on the court record.
2. The parties can provide summaries of their financial positions in the financial agreement, either in the recitals, in schedules to the agreement or both.
3. The parties can annexe sworn financial statements to the agreement. This is rare.
4. The parties can provide full mutual disclosure, even if there are no proceedings before the court. This might include formal valuations of real estate and businesses, or at least market appraisals of real estate and an accountant’s estimate of the value of businesses.
5. The parties can provide limited mutual disclosure (such as recent tax returns and assessments, recent financial statements and tax returns of entities and recent superannuation member statements) and not all other possibly relevant financial documents such as bank accounts.
6. The parties can provide no formal disclosure, but include a recital in the agreement that they waive any right to proper disclosure.
7. The parties can include a recital in the agreement that they have full or sufficient knowledge of the other party’s affairs to enter into the financial agreement without formal disclosure.

Whatever approach is taken, it should be clear from the recitals how or if the parties have provided disclosure.

Difficulties can arise when one or both parties have a number of entities. The entities need to be referred to precisely, and not just as “the husband’s entities” or “the Marshall group”. The difficulties are exacerbated in agreements entered into before or during a relationship, as the way a business operates may change, particularly where one of the parties is involved in a business with third parties. The operations of the business may be moved from one entity to another, or a trust may be interposed, directorships and shareholdings may change, part of the business sold, a new business acquired or developed, and new entities formed. The disclosing party can’t disclose a non-existent entity and it is difficult to protect an entity which doesn’t yet exist. A party’s interest in an entity at the end of the relationship may be different to the interest when the agreement was executed.

In Acker & Acker [2014] FamCA 891, the wife alleged that the agreement was obtained by fraud, by reason of non-disclosure by the husband of a material matter. He disclosed “what were described as beneficiary interests in wholly discretionary trusts” whilst the wife foreshadowed that she would contend “at all material times the property of the trusts was actually in the whole or at least partial ownership of the husband” (at [10]). There is no reported decision as to the outcome. Both parties agreed that the FLA dispute could not be determined until a tax dispute was resolved by the Administrative Appeals Tribunal. The husband in this case probably considered that he had provided proper disclosure of his interests in the trusts in the financial agreement, but he still ended up in court after separation with the nature of his interests in dispute.

Superannuation may be a problem in pre-separation agreements, because of the difficulties of identification of the fund and giving procedural fairness, working out a split, naming the fund and ensuring the terms are enforceable.  Sections 90XH and 90XJ are hard to reconcile.

Tax can also be problematic in pre-separation agreements. It is impossible to predict if parties or entities will have significant liabilities and what tax consequences there may be in the future if property is to be transferred, particularly as tax laws and the parties’ circumstances may change. Often the best that can be done is to advise the client that it is impossible to predict the future and that possible tax consequences on disposition and transfer should be considered when making decisions about the acquisition of property during the relationship. If the intention of the parties is that the weaker party will not have any tax consequences from the agreement or from their involvement in the stronger party’s entities, then this should be clear in the agreement, and appropriate indemnities given.

Checking instructions

It is important to remember that although full and frank disclosure is not a requirement for a financial agreement, establishing that there has been such disclosure is done to ward off a potential application to set aside a financial agreement under s 90K(1) or s 90UM(1).

Mistakes can be made by clients when giving instructions as to their financial positions, so it may be sensible to protect your client by:

• Obtaining ASIC searches of both parties and of any entities;
• Obtaining title searches (including index searches) of real estate of both parties;
• Having the client’s accountant check that the financial position of the client is accurately described in the financial agreement.

Post-separation, lawyers are likely to do title searches and ASIC searches, but that are also important pre-separation.

There are pros and cons for detailed disclosure being provided by parties entering into a financial agreement. On the one hand, by parties providing full details of their financial positions, if there are any errors, it may be easier for the other party to successfully apply to set the agreement aside for non-disclosure, misrepresentation or other grounds under s 90K. On the other hand, if the parties do not provide full details of their financial positions in the agreement, it may be more difficult to defend an application for the agreement to be set aside for non-disclosure of a material matter.

The problem of disclosure may also arise in relation to the advice requirement under s 90G and 90UJ. In Abrum & Abrum [2013] FamCA 897, Aldridge J was not satisfied that the wife had received the requisite advice because the legal practitioner did not ask for, make or see a list of the parties’ assets and liabilities. There were numerous other issues with the advice to the wife, but the failure to take instructions as to the parties’ financial positions led to a concern that if the advice was given by a legal practitioner where there was inadequate disclosure, the advice might not be “real or meaningful”. Justice Aldridge said at [38]-[43]):

“Nonetheless, when s 90G(1)(b) speaks of “rights” it must be speaking of the entitlement to bring a case under s 79 and the factors that weigh in favour of that person’s case under ss 79(4) and 75(2) otherwise it would have limited meaning.

In order to give advice about the effect of an agreement on the rights of a party, that is their rights under the Act in relation to property, a legal practitioner must establish what those rights are at the time the advice is provided. This is because s 90G(1)(b) requires advice to be given on the effects of the agreement upon the rights of that party and the advantages and disadvantages of the agreement. If their rights are not known then it is impossible to advise as to the effect of the agreement on them.

It is unhelpful to advise a person that a financial agreement might adversely affect his or her rights if those rights are not identified. A party must know more than some unknown or undefined right is being given up. He or she must have some idea, at least in general, of his or her present entitlements or rights (to use the words of the section) with which he or she may compare the provisions of the proposed financial agreement. It is only in that way that there can be actual advice about the effect of the agreement on those present rights.

It is quite clear that a person may choose to enter into an agreement where he or she may very well be much worse off than if he or she were left to rely on their rights under s 79 of the Act. Thus, there is a requirement for specific legal advice to be given. That is the safeguard the legislature imposes when it permits the parties to deal with their property by agreement and without possible interference from a court.

Accordingly, the advice must be real and meaningful. It must be directed to the parties’ circumstances and their present rights.

Proper identification of a parties’ rights can only be done by identifying the property of the parties then held and a consideration of the parties contributions (financial and non-financial) to the acquisition of that property and to the welfare of the children. Any other relevant factors under s 79(4), including s 75(2), would then need to be considered. Only by doing so can advice be given that complies with the terms of s 90G(1)(b).”

­

The agreement was not set aside for other reasons. The position taken by Aldridge J in Abrum is, however, contrary to the position taken by Murphy J who was the trial judge in Hoult & Hoult (2011) FLC 93-489. Justice Murphy considered that whilst it might be prudent for a legal practitioner giving advice about a financial agreement to have a list of assets and liabilities, it was not a requirement of s 90G.

Besides fraud, there are other possible grounds for an agreement to be set aside where disclosure has been inadequate, such as unconscionable conduct, misrepresentation and mistake. It is beyond the scope of this paper to discuss these principles.

3.        Minimising the risk of equity intervening – lessons from Thorne v Kennedy

Following the High Court judgment in Thorne v Kennedy, there are lessons for legal practitioners negotiating and drafting financial agreements:

1. The High Court listed six factors (which were not intended to be exclusive) which will have prominence in assessing where there has been undue influence in the particular context of pre-nuptial and post-nuptial agreements. They need to be considered when taking instructions, negotiating, drafting and advising on financial agreements. They are repeated here because of their importance:

1.1     Whether the agreement was offered on a basis that it was not subject to negotiation;

1.2     The emotional circumstances in which the agreement was entered including any explicit or implicit threat to end a marriage or to end an engagement;

1.3     Whether there was any time for careful reflection;

1.4     The nature of the parties’ relationship;

1.5     The relative financial positions of the parties; and

1.6     The independent advice that was received and whether there was time to reflect on that advice.

2. An agreement which is not a “bad bargain”, but is instead fair and reasonable and perhaps close to a party’s s 79 entitlements, is more likely to be upheld.
3. Don’t include general statements in the agreement which are not true – e.g. mutual disclosure has occurred, party able to support themselves without Centrelink.
4. Ensure there is mutual disclosure.
5. Accept that the advice requirement in s 90G(1) is important and if there is a “bad bargain”, the absence of advice may mean that it cannot be “saved” under s 90G(1A).

Whilst Thorne v Kennedy considered undue influence in particular, there is likely to be further development of the case law in relation to undue influence, unconscionable conduct and duress.  The High Court was not required to consider whether “lawful act” duress is a vitiating factor nor whether unconscionable conduct in s 90K(1)(b) was the same as in s 90K(1)(e).

There was a useful discussion of the concepts of “unconscionability” in s 90K and whether there is a distinction between unconscionability under s 90K(1)(b) and (e) in Weldon & Asher [2014] FCW 11.  Some of the points made by Thackray J were:

1. Section 90K(1)(e) was introduced in Parliamentary debates about the Bill introducing financial agreements to the FLA and although the then Attorney-General, Darryl Williams QC, considered it to be surplus, the intention of the Democrat amendment was to broaden the grounds for exemption in s 90K(1)(b), albeit “just a little”.
2. The use of the word “unconscionable” in the Trade Practices Act 1974 (Cth) (TPA) (now known as the Competition and Consumer Act 2010 (Cth)) was referred to in the Senate debate. Section 51AA of the TPA qualifies the word “unconscionable” by stating “unconscionable within the meaning of the unwritten law from time to time, of the States and Territories”. Section 51AA of the TPA and s 90K(1)(e) of the FLA do not have the same qualification. Justice French in the Federal Court in ACCC v CG Berbatis Holdings Pty Ltd (at [26]) and the High Court in the appeal reported as ACCC v Berbatis Holdings Pty Ltd [2003] HCA18; (2003) 214 CLR 51 where Gleeson CJ (at [7]) and Cummins and Hayne JJ (at [32]) made remarks which Thackray J said (at [19]) “may be seen as providing support for the proposition that the absence of any words of qualification to the word ‘unconscionable’ in s 90K(1)(e) may have significance”.

Professor Dal Pont in Equity and Trusts in Australia 5^th Ed observed at 9.170 that had s 51AA “been intended to apply to unconscionable conduct generally, it could have ended with the word ‘unconscionable’”. As Thackray J pointed out, this is “precisely what has occurred with s 90K(1)(e)”.

As the husband did not adduce sufficient evidence to satisfy s 90K(1)(b), Thackray J thought it proper to consider (at [94]) whether s 90K(1)(e) had “some independent application and that relief might therefore potentially be available in circumstances where equity would not intervene”.

Justice Thackray concluded (at [95]):

“However, given what I perceive to be the manifest differences in factors underpinning commercial contracts and those underpinning agreements between prospective spouses, it may well be entirely appropriate for the grounds for relief to be “just a little” wider than those applying in the commercial sphere, as the Democrats intended.”

4.        Defending a financial agreement – what weapons are available when the threat of attack is pending?

If faced with the possibility that a financial agreement will be attacked, which your client wants to enforce or otherwise withstand attack, is there anything that can be done to pre-empt the attack?

1. Gather evidence

1.1     This is stating the obvious, but the earlier the search starts for evidence the better. Look for diaries, emails, text messages, letters and other documents which may show:

1.1.1     The states of mind of the parties;

1.1.2     The nature of the negotiations about the agreement;

1.1.3     The surrounding circumstances;

1.1.4     That s 90G(1) or 90UJ(1) was complied with.

1.2     Obtain statements from family members and close friends as to their recollections.

1.3     Obtain the file from the legal practitioner who signed the Statement of Independent Legal Advice on behalf of your client.

2. Consider the rights of your client under the agreement

There may be circumstances where the respondent to an application to set aside an agreement or an application that it be held not to be binding, may prefer that this occur. It is important before deciding to oppose one or both of these applications, that the respondent has advice as to their rights and entitlements under the FLA if the agreement was set aside. The respondent to what they would be under the FLA, perhaps with greater knowledge than the applicant of the respondent’s financial circumstances, may be better off if the agreement was set aside or found not to be binding. Alternatively, their entitlements may be so close under the FLA to those under the agreement, that the costs of litigation mean that opposing the application is not worthwhile.

3. Implement the agreement

An agreement may be able to be implemented, or only partially implemented, without a formal application to the Court. If the agreement has been implemented the other party may be estopped from applying to set it aside so it may be sensible for your client to take steps to implement the agreement. For example, in Chalker & Laine [2011] FMCAfam 506 the parties acted on the agreement for 5 or 6 years before the husband took action to have it found not to be binding. The court found it was unjust and inequitable if the agreement was not held to be binding under s 90G(1A).

Similar contractual principles to estoppel which may apply and may prevent the agreement being enforced are:

• The other party has not insisted on their strict rights under the agreement.
• A party may have elected to affirm a contract after a serious breach. The election must be by unequivocal words or conduct by a party with full knowledge of the facts.
• A party loses the right to insist on performance of a contract due to unreasonable delay or negligence. It is an equitable defence rather than the basis of a claim. By delaying the institution of proceedings the party may have caused the party in default to alter their position relying reasonably on the other party’s acceptance of the status quo.
• Involves delay or refraining from proceedings for a sufficient time that those rights have been abandoned.
• Part Performance. This is an equitable doctrine which allows a party who has partly performed an oral contract to either obtain an order for specific performance or to claim damages. It does not mean that the agreement itself will be enforced but the equities arising from the acts of part performance can be enforced (McBride & Sandland (1918) 25 CLR 69). The use of this doctrine may be useful where the parties have a collateral agreement despite the financial agreement stating that there are no collateral agreements.

4. Apply to enforce the agreement

Whilst applying to enforce the agreement might bring on a formal application to set it aside, there may be strategic reasons to do this. For example, the application might be made before the other party has properly resolved their legal position so as to be able to rely on an Anshun estoppel. It may be better to be proactive so that the weaker party has less time to sort out their case and obtain funding for litigation. See Anshun estoppel below.

5. Discretion whether to set aside or find it not to be binding

The court has a discretion under s 90K(1) and 90UM(1) to set aside a financial or termination agreement. It may refuse to do so even where a ground under s 90K(1) and 90UM(1) is established. The first part of the section reads that a court “may make an order setting aside a financial agreement or a termination agreement if, and only if, the court is satisfied” of a particular circumstance.

Factors which might influence a court not to exercise its discretion to set aside are probably similar to the factors which could influence a court as to whether or not to order revocation of a contract. The following examples arose in or were considered in cases dealing with the revocation of s 87 maintenance agreements which are no longer available under the FLA:

• The agreement had been in effect for a substantial time since the grounds for revocation arose (see Leafv International Galleries (1950) 2 KB 86).
• The applicant delayed (Fryda andJohnson (No 2) (1981) FLC 91-058).
• The rights of bona fide third parties had intervened. All the property dealt with under the agreement was disposed of leaving nothing about which a court could make any orders under s78 or 79 after revoking the approval.
• The applicant had acted unconscionably or did not have “clean hands” (Windeyer J in Smithv Jenkins (1970) 119 CLR 397 at 414-417).
• Other factors in the overall position of the parties such as the ages of the parties, the arrangements for the children and the respective financial circumstances of the parties (Fryda and Johnson (No 2)).

There is very little case law where a ground to establish the setting aside of a financial agreement was established, but the court exercised its discretion not to set the agreement aside. Arguably, Nyles & Nyles [2011] FamCA 565 is an example, although it is also an example of where the applicant was found not to have relied on the non-disclosure. Justice Mushin held (at [194]-[195]):

“The wife failed to make a full and frank disclosure in accordance with the requirements of the law. Further, in some instances she has acted fraudulently within the meaning of that word in the relevant legislation. Accordingly, the husband has established a prima facie ground for the setting aside of both the consent orders and the BFA.

However, the husband did not rely on either the wife’s failure to make a full and frank disclosure or any misrepresentation, whether fraudulent or otherwise, made by her. At all relevant times, he had competent and experienced family law solicitors acting for him and was also represented by senior counsel with a highly specialised practice in family law. The ultimate advice received by the husband was the letter dated 9 March 2004 which was extremely detailed, articulate and most competently written. The husband chose to ignore that advice.”

In Abrum & Abrum [2013] FamCA 897, Justice Aldridge found that the agreement did not meet the s 90G(1) requirements because:

(a)        The wife was not given the advice required by s 90G(1)(b);

(b)        The certificates did not comply with s 90G(1)(b);

(c)        A copy of the agreement was not given to the wife until five years after it was signed and five months after separation;

(d)        A copy of the statement required to be given by s 90G(1)(ca) was not given to the wife until the copy of the agreement was given. Although the FLA does not give a time-frame, Aldridge J considered that the better view, but not a concluded view, was that a prompt exchange was necessary.

The wife’s entitlements under the agreement were limited to 5/44ths of the value of a waterfront property transferred by the husband’s parents to the husband at under-value.

Justice Aldridge said that the lack of proper advice to the wife was significant and constituted a very substantial failure to comply with s 90G(1)(b). However, he found that the agreement was binding, persuaded by the following factors (at [103]–[104]):

“On the other hand, it is clear that the gift of the property would not have occurred but for the wife entering into the Binding Financial Agreement along with the Deed of Family Arrangement and the Contract to Make Mutual Wills. These agreements not only involved the parties to the marriage but the paternal grandparents. It is more likely than not that the gift would not have taken place without those agreements being entered into. The husband’s parents acted to their detriment in reliance on the Binding Financial Agreement.

Also to be taken into account is the fact that the agreement does not oust all of the wife’s property rights but only those against this specific property. This carries less weight in this case because the evidence does not suggest that there were other assets of substance, or of the magnitude of the waterfront property, available against which property orders could otherwise be made. The only asset to which the evidence referred as being owned in February 2007 was the Suburb E property.”

Justice Aldridge did not look at the unfairness of the bargain for the wife (which a court might have felt justified in doing post Thorne v Kennedy despite the majority in Hoult saying it was irrelevant), but was persuaded by the fact that the parties acted in reliance on the agreement and in accordance with its terms and that the husband’s father had also complied with the agreement by transferring a waterfront property at gross undervalue, thereby effecting a gift of 39/44ths of a waterfront property of $1.7 million to the husband and the husband’s parents moved out of that property. Third parties, being the husband’s parents, acted to their detriment in reliance on the financial agreement. It was unjust and inequitable for the agreement not to be binding.

6. Discretion whether to enforce

Even if the court finds that an agreement is binding and/or that it should not be set aside, the court still has a discretion as to whether to enforce the agreement and the court “may order that the agreement, or a specified part of the agreement, be enforced as if it were an order of the court”. Section 90KA(c) states that the court “may order that the agreement, or a specified part of the agreement, be enforced as if it were an order of the court”.

In Fan & Lok [2015] FamCA 816 the wife’s deceased estate sought to enforce a financial agreement. In earlier proceedings, The Estate of the late Ms Fan & Lok [2015] FamCA 300, the husband was unsuccessful in his applications to either have the agreement set aside or have it found not to be binding. The two decisions raised the question of the distinction between seeking that an agreement be set aside or declared not to be binding and an application opposing its enforcement. This arises particularly where there is a determination in the earlier proceedings that it would be unjust and inequitable for the agreement not to be binding.

The power of the court to enforce orders is discretionary rather than absolute, and the husband sought that the court exercise its discretion in his favour.

Although not expressly referred to in the judgment, the court is directed by s 90G(2) and 90UJ(4) that it “may make such orders for the enforcement of a financial agreement that is binding on the parties to the agreement as it thinks necessary”, reinforcing the discretionary nature of enforcement in s 90KA.

A pre-nuptial financial agreement (under s 90B) provided that in the event of separation a property at suburb C was to be sold and the proceeds used to discharge a mortgage for which one of the security properties was a property in the name of the wife in suburb G. The wife died shortly after separation. The husband arranged for the suburb C property to be transferred into his sole ownership by right of survivorship.

The applicant was the executrix of the wife’s estate and was one of the wife’s children. She sought orders to enforce the agreement.

In the first case, the husband sought to set the agreement aside. He unsuccessfully argued that either the agreement was impracticable to be carried out or that there had been a material change in circumstances.

The certificates of advice set out that the parties received advice in relation to a s 90B agreement when in fact it was a s 90C agreement. Rees J did not deal with the argument that the agreement may have still been valid (eg Wallace & Stelzer (2013) FLC 93-566), but exercised her discretion under s 90G(1A)(c) and made a declaration that it would be unjust and inequitable if the agreement was not binding on the husband.

In the second case, the husband sought that the application for enforcement be dismissed. He submitted that the court should exercise its wide discretion and find that it was not just and equitable to enforce the financial agreement by requiring him to sell his property at suburb C as the agreement envisaged that he would retain that property.

Justice Rees noted that the contention made by the husband, that it was not just and equitable to enforce the terms of the agreement, was the subject matter of the determination she had made in the earlier proceedings. She found (at [22]) “. . . that res judicata estoppel arises in relation to the submission that it is not just and equitable to enforce the agreement”.

In case she was wrong about issue estoppel, Rees J dealt with the husband’s other arguments and dismissed them.

Justice Rees found that she could enforce the agreement. She considered that an order which provided for the sale of the suburb C property, in the event that the husband failed to comply with his obligation to pay the amount owing under the mortgage, was available to the court in the exercise of its wide powers pursuant to s 90KA. If she was wrong about this, she was also satisfied that the court had an inherent power, as stated by the Full Court of the Family Court in Molier & Van Wyk (1980) FLC 90-911, to impose consequential provisions for the sale of the suburb C property to ensure that the orders made requiring the husband to discharge the mortgage were carried into effect.

In addition, Rees J relied on r 20.05(a) of the Family Law Rules 2004 which expressly provides that the court may make an enforcement order, in relation to an obligation to pay money, for the seizure and sale of real property.

7. Try to set up an Anshun estoppel

In Jess & Garvey (2018) FLC 93-827, the Full Court considered whether Anshun estoppel applied where the wife had not raised causes of action at an early stage in proceedings issued by the husband to enforce a s 90B financial agreement. The agreement was signed and the parties married in 2006.

After the parties’ separation in 2015, the wife’s solicitors reserved the wife’s position with respect to the financial agreement. On 11 March 2016, the husband filed an Application in a Case seeking that the financial agreement be enforced as if it were an order of the court and specifically sought orders as to how the agreement should be enforced. The husband’s solicitors wrote to the wife’s solicitors, and this was considered to be important by the Full Court (at [95]):

“In the event that your client contends that the agreement is one other than one binding upon the parties, this is not a matter that your client has sought to put in issue to date, notwithstanding prior requests seeking to ascertain your client’s position. If your client contends, would you advise by reply both as to the same and provide particulars as to the legal and/or financial basis for any such contention.”

On 12 April 2016, the wife filed a Response to the husband’s Application in a Case, seeking that the husband’s application be dismissed or, in the alternative, if the court determined to enforce the agreement, that it be enforced in a particular manner as set out in the wife’s Response.

At the hearing of the parties’ respective applications on 27 May 2016, the wife’s position was that there was no agreement, because the purported agreement was void for uncertainty. No other grounds were raised by the wife as to why the agreement should not be enforced. This aspect of her Response was dismissed.

Five months later, on 1 November 2016, the wife filed an Amended Initiating Application seeking:

“That pursuant to s 90K of the Family Law Act (Cth), or alternatively pursuant to s 90KA, the Court order that the Financial Agreement entered into between the parties on 3 August 2006 be set aside or alternatively a declaration be made that the said Financial Agreement is not valid, enforceable or effective.”

In the alternative, she sought that the agreement be enforced in a particular manner. The wife was ordered to provide particulars of the grounds on which she sought that the agreement be set aside or declared to be not valid, enforceable or effective. They were:

a.     Section 90K(1)(d) – there has been a material change in circumstances since the agreement was entered into and as a result the children or the respondent will suffer hardship if the agreement is not set aside;

b.    Section 90K(1)(b) or (e) – the agreement should be set aside as a result of unconscionability at the time of entering into the agreement;

c.     Section 90K(1)(a) – the agreement should be set aside as a result of the non-disclosure of a material matter amounting to fraud;

d.     The agreement was abandoned;

e.     The agreement was a sham.

The husband sought that the wife’s Amended Initiating Application be summarily dismissed. Justice Carew in Garvey & Jess [2017] FamCA 783 dismissed the wife’s application to set aside the agreement or declare it to be not valid, enforceable or effective. Justice Carew found “much force” in the husband’s argument that it was “too late for the [wife] to raise fresh grounds upon which to attack the financial agreement” (at [43]) and said, at [71]:

“The [wife], despite ‘notice, invitation and opportunity’, elected to limit her [previous] challenge to the financial agreement to one of uncertainty. The [husband] invited the [wife] as early as August 2015 to indicate her position in relation to the financial agreement. Her position, both in her filed Response to the Application in a Case and articulated by her Queen’s Counsel at the hearing on 27 May 2016 made her position abundantly clear, namely, if she lost on her argument as to uncertainty the next step would be how the agreement should be enforced and the [wife] had set out the order she would seek in that event.”

There were no special or exceptional circumstances which would cause the application of the Anshun principle to be unjust.

The wife had two arguments on appeal:

1. There were different causes of action before the court on 27 May 2016 and 17 July 2017. The cause of action before the court in May 2016 was (at [117]) “whether the essential terms of the agreement were so lacking or uncertain that there was in fact no agreement”. However, the cause of action before the court in July 2017 was “a claim to set aside the financial agreement pursuant to s 90K (and/or s 90KA) of the Act for reasons that had nothing to do with any claim of uncertainty”. Entirely different questions were raised, and the resolution of the earlier proceedings could not prevent the pursuit of the later proceedings.
2. The earlier proceedings were interlocutory so the Anshun principle did not apply.

The Full Court found (at [121]) that the manner in which the wife framed her case in May 2016 was that there was no impediment to the agreement being enforced as a “financial agreement” under the FLA. In fact, she advanced the very opposite position; she argued that it should be enforced, if it was not void for uncertainty. The Full Court agreed with the trial judge (at [122]) “that the wife had ‘notice, invitation and opportunity’ to argue her case that the agreement should not be enforced” in the 2016 proceedings. The Full Court held (at [123]):

“Thus it was not open to the wife to subsequently pursue a claim to set aside the agreement for reasons that could, and should have been put before the court previously, in the context of determining the issue of enforceability.”

The issue before the court in May 2016 (at [125]) was whether the agreement should be enforced, and the wife had been put on notice by the husband that she should bring forward all arguments that went to that issue, and plainly that included any claim to set aside the agreement pursuant to s 90K (and/or s 90KA). The court had also ordered that the wife respond to the application for enforcement, and the wife clearly had the opportunity to present all her arguments as to why the agreement should not be enforced. Nevertheless, she chose to limit her challenge to a claim that the agreement was void for uncertainty, and she went further and set out how the agreement should be enforced if it was not void for uncertainty. Moreover, shortly after filing her Response the wife filed an Initiating Application predicated upon the financial agreement being enforceable and seeking an adjustment of any property of the parties not caught by the financial agreement.

The Full Court (at [127]) held that the claims pursuant to s 90K and/or s 90KA were –

“so connected with the subject matter of the first proceeding as to have made it unreasonable in the context of that first proceeding for the claim not to have been made or the issue not to have been raised in that proceeding”.

The relevance of an earlier order being “interlocutory” as opposed to “final” is to differentiate between when an issue had been finally determined between the parties and when it has not. In this case, the Full Court held (at [134]) that the issue of the enforceability of the agreement was finally determined.

An application for special leave to appeal to the High Court was refused in Jess & Garvey [2018] HCASL 202 on the ground that the appeal did not “enjoy sufficient prospects of success”.

The lessons from Jess & Garvey are:

1. A party may be estopped from raising other grounds upon which an agreement should not be enforced, where one ground has already been raised and dismissed;
2. The party seeking enforcement of an agreement should, at an early stage, invite the other party to raise all possible arguments. This forces the other party to set out their case, locks them in, and once these arguments are determined means that it is likely that different arguments cannot be raised later;
3. The party seeking to enforce the agreement may be advantaged by an early application to enforce the agreement before the other party has properly formulated the causes of action which are likely to be successful, bearing in mind the risks of a costs order will deter the raising of all vaguely possible arguments.

An Anshun estoppel was applied in Caitlin & Caitlin [2017] FamCA 818, which was an application to enforce a financial agreement.

In Selkirk & Caporn and Anor [2016] FCWA 26 Walters J was dealing with a s 86 maintenance agreement. These can no longer be made but the decision was only in 2016 and raises relevant issues.  It provided for the payment of child maintenance, but the parties were able to apply for a child support assessment. The wife took steps to register the s 86 deed with the Deputy Child Support Registrar and the parties treated this registration as recasting the obligation to pay child maintenance as a child support obligation.

Although Justice Walters considered that the majority of the elements of res jusdicata estoppel had been established, he was not persuaded that he should apply the doctrine. He was satisfied “that the child maintenance provisions of the Section 86 Deed were never validly recast as child support obligations.” (at [350]).

In relation to an Anshun estoppel, Walters J said (at [361], [362], [365]):

“I recognise the potentiality of serious injustice arising as a result of an inappropriate application of Ashun estoppel, and that it should only be applied “in the clearest of cases”. I am satisfied, however, that the husband could have and should have raised (and pressed) in the earlier proceedings the questions or issues to which I have referred above, namely:

a.     the validity and enforceability of the child maintenance provisions of the Section 86 Deed; and

b.     whether those provisions were ever validly recast as enforceable child support obligations.

It does not matter whether the husband failed to raise these questions or issues as a result of negligence, inadvertence or even accident. They were so relevant to the subject matter of all the various proceedings in this Court in which the husband was a party over the years (and, indeed, to the subject matter of the proceedings in the Federal Magistrates Court of Australia before the Lucev FM, as his Honour then was) that it would have been plainly unreasonable not to raise them for consideration by the relevant judicial officer. Indeed, they were intimately connected with the subject matter of the various proceedings. In my opinion, all parties would have had an expectation that the husband would raise these questions or issues to enable them to be determined within and as an integral part of whichever proceeding he was then involved. That the husband may have assumed (erroneously) that the child maintenance provisions of the Section 86 Deed had been validly recast as enforceable child support obligations is of no consequence. He has had ample opportunity over many years to raise the relevant arguments….”

Justice Walters referred to the discretion he had as to whether or not to apply the principles of Ashun estoppel once he had found it was established. He took into account the long history of the litigation in the Family Court and the Federal Magistrates Court and the lack of a satisfactory explanation for failing to press the questions or issues earlier.

8. Consider what your client needs to disclose, and whether your client should disclose

If a threat is made against a financial agreement, should a party defending a financial agreement provide disclosure which might fill in the gaps in the other party’s knowledge? It is possible that the party defending a financial agreement is not required to provide financial disclosure, unless and until the agreement is set aside. However, there is contrary authority.

The situation is similar to where there is a challenge to the jurisdiction of a court in relation to a de facto relationship. The Full Court of the Family Court held in Norton & Locke (2013) FLC 93-567 that it did not have the power to grant an interlocutory injunction under s 114(2A) of the FLA as a “de facto financial cause” had not been established which was (at [42]) “dependent upon the establishment of facts central to jurisdiction which are bona fide in dispute and which have not been established”.

Norton & Locke was followed in Holden & Wolff (2014) FLC 93-621. The Full Court held that the trial judge erred in requiring the appellant to file an updated financial statement and provide financial disclosure before determining whether or not there was a de facto relationship which ended after 1 March 2009 as a jurisdictional fact. The only disclosure required was that relevant to the determination of the issue of whether there was jurisdiction.

So, what is the situation where there is an application to set aside a financial agreement? In Higgins & Moruba [2018] FamCA 467 the wife sought broad disclosure akin to an application under s 79. She relied on Fewster & Drake (2016) FLC 93-745 in support of her argument for full disclosure. Justice Thornton rejected the wife’s submissions about the extent of disclosure required by the husband because she did not accept the interpretation of the wife’s counsel of Fewster & Drake.  Counsel for the wife in Higgins submitted that the court, in determining hardship under s 90K(1)(d), was required to embark on a comparison between the likely outcome of an application under s 79 and the circumstances in existence in the absence of such an application.

Justices Aldridge and Kent said in Fewster & Drake (at [67]):

“We turn now to the second aspect of this challenge. The concluding words of s 90K(1)(d) are ‘if the court does not set the agreement aside’. Logically and inevitably those words require the court to undertake some comparison between the position of the child, or the person with caring responsibility, if the agreement remains in place and the position of that child or person if the agreement is set aside. It is only by doing so that the court can place itself in a position to determine whether there will be hardship if the agreement is not set aside. The primary judge did not undertake such a comparison.”

The wife asserted in Higgins & Moruba that the hardship to her was:

• The very different outcome pursuant to s 72 and s 79 as compared with the financial agreement;
• The husband made representations to the wife and the Commonwealth of Australia that they proposed to share their financial resources once they married and the husband ought not be able to evade those representations;
• The extent of the husband’s wealth was not known and the hardship was the loss of opportunity for the Court to determine her application for a property adjustment.

Justice Thornton concluded (at [81], [82], [84], [85]) that:

“I accept the submission of counsel for the husband that neither the terms of the legislation nor the judgment in Fewster & Drake provide authority for the proposition that either a detailed examination of the financial circumstances of the husband or an assessment of the likely outcome of any potential s 79 application under the Act is required for the determination of an application to set aside a financial agreement on the basis of s 90K(1)(d) of the Act.

In the event that this interpretation is not correct, in my view the husband has made the concession that his wealth is in excess of $20 million which should be sufficient for the court to make some comparison….

Further in her Summary of Argument document filed 20 February 2017 the wife submitted that the only way to undertake the comparison of the positions required by the Full Court in Fewster & Drake was to establish the current legal and equitable interests of the parties, to establish a “pool” and to then attempt to demonstrate the comparison that underpins the claim for hardship.

The interpretation contended for by the wife would defeat the major purpose of Part VIIIA of the Act which is to enable parties to avoid extended litigation as to their s 79 entitlements under the Act by entering into financial agreements, unless and until such agreements are set aside. I accept the submission of counsel for the husband that the test under s 90K(1)(d) of the Act is concerned with whether a hardship will be suffered, and not whether the party with caring responsibility for the child will be in a worse position than that in which she would have been but for the existence of the financial agreement. The interpretation contended for by the wife has the effect of substituting such a test for the one which in fact appears in the statute.”

In Frederick & Frederick (2019) FLC 93-900 the Full Court accepted that some disclosure by the husband was necessary as to his current financial position so that there could be a comparison between the wife’s entitlements under the agreement and what they would be if the agreement was set aside.  The Full Court rejected the wife’s argument that the husband was required to call evidence as to the current values of his assets, but he was required to do what he had done, which was to disclose his assets and his view of their worth.  He had done this in a financial statement.

There is, however, no clear determination by the Full Court of the Family Court on disclosure and there may be circumstances where the case of the party seeking to set aside the agreement is so clearly flawed that the voluntary provision of disclosure by the respondent may assist in convincing the applicant not to issue proceedings under other grounds in s 90K(1) besides s 90K(1)(d).

It may also be important to consider whether or not disclosure may be required in another proceeding (e.g. enforcement proceedings) or in a child support dispute which may be able to be used by the applicant despite the Harman rule (Harman v Secretary of State for the Home Department [1983] 1 AC 280; Hearne v Street [2008] HCA 36; (2008) 735 CLR 125). See also Pedrana & Pedrana & Anor [2012] FamCA 348 and [2015] FamCA 134, where documents disclosed in financial proceedings in the Family Court were allowed to be disclosed to the Child Support Registrar. Strategic steps may need to be taken with respect to the other matter (eg settling it) so that the applicant does not obtain documents which might be used against the respondent in the financial agreement proceeding but which are not subject to the duty to disclose in the proceeding.

9. Restricting the financial ability of the applicant to instigate proceedings

Interlocutory applications in relation to limited and relevant disclosure can be made, but what about the applicant’s ability to seek litigation funding? Will the applicant have the funds to make an application in relation to the financial agreement? If the applicant has scarce resources, will they be prepared to make a risky application to the Court?

In Teh & Muir (2015) FLC 93-680; Abati & Cole [2014] FamCA 60 and Commissioner of Taxation & Hong [2016] FamCA 438 the courts were prepared to make orders to preserve certain assets pending the determination of issues concerning the validity of the agreement. Justices Finn and Strickland said (at [29]) in Teh & Muir:

“It has long been recognised that while the Family Court is exercising its power (which if not expressly provided for in the Act, must necessarily be implied) to determine whether or not it has jurisdiction in a particular case, it can be appropriate for it to preserve the status quo (in this case the disputed half share of the sale proceeds) by the grant of an interlocutory injunction (see R v Ross-Jones; Ex parte Green (1984) 156 CLR 185 at 202, and Yunghanns & Yunghanns and Ors (1999) FLC 92-836).”

In Chatterjee & Woodby-Chatterjee [2016] FamCA 486, an order for the sale of the former matrimonial home was made in circumstances where the wife conceded that she could not retain it. The sale was made on conditions which the husband’s father had an opportunity to consent to or object to, including the payment of $50,000 to the wife from the net proceeds of sale.

A later order was made in Chatterjee & Woodby-Chatterjee [2017] FamCA 537 for $70,000 under s 117(2) FLA for litigation funding “to ensure a level playing field”.

At the trial, reported in Chatterjee & Woodby Chatterjee and Anor [2018] FamCA 930, it was found that the wife’s entitlements were not sufficient for the second order to be enforced. The husband’s father had a cost order against the wife in the Court of Appeal of the Supreme Court of New South Wales, following a successful appeal against an order that was in the wife’s favour. By the time of the trial, the wife had debts which were greater than the balance of her entitlements under the financial agreement.

The outcome illustrates the risk of making partial property orders or litigation funding orders which may not be able to be claimed back (Zschokke & Zschokke (1996) FLC 92-693). It is likely that the 2 earlier Chatterjee cases were incorrectly decided.

Making an order to give a party access to funds, thereby depleting the pool, is very different from preserving the pool, but even if the applicant is entitled to those funds under the terms of the agreement, the applicant cannot seek to enforce their rights under the agreement and, at the same time, seek to have the agreement set aside or found not to be binding. If the applicant has sought to implement the agreement, this can be a bar to it being set aside.

10. Waiver of legal professional privilege

Whilst not a separate step to take, this is an important matter to consider. Can your client obtain an advantage if privilege is waived by the other party? Legal professional privilege protects communications between a lawyer and a client. Disclosure is not required if the dominant purpose of the advice is for use in existing or anticipated legal proceedings. The privilege is that of the client and the privilege can be expressly or impliedly waived.

The risk of inadvertently waiving legal professional privilege is high in applications to set aside financial agreements, particularly those made on the grounds that:

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

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

(c)     in respect of the making of a financial agreement — a party to the agreement engaged in conduct that was, in all the circumstances, unconscionable …”

Traditionally, there were two types of waiver: disclosure waiver and issue waiver. “Disclosure waiver” arises if a part of a privileged communication has been disclosed. “Issue waiver” is when the holder of the privilege has put the contents of a privileged communication in issue. The tests for each category are the same (Commissioner of Taxation v Rio Tinto Ltd [2006] 151 FCR 341).

Disclosure waiver arises when a party refers to the advice they received. Examples of financial agreement cases where disclosure waiver occurred include Bell & Bell [2009] FMCAfam 595 and Bilal & Omar (2015) FLC 93-636.

Issue waiver arises where the state of mind of the party when the financial agreement was executed has been put in issue, such as the party being under undue influence.

In either case, it may be useful for the party seeking to defend the agreement to call for the file of the legal practitioner acting for the other party when the agreement was entered into. If court proceedings are on foot, the full file including file notes, can be subpoenaed. If proceedings are not on foot, the legal practitioner will not have to hand over file notes.

11. Applying for summary dismissal

These applications are difficult and need to be cautiously undertaken. Section 45A(1) and (2) of the FLA allow the court to make a summary decree in favour of one party, in relation to the whole or part of a proceeding, if satisfied that a party has no reasonable prospect of successfully:

• prosecuting the proceedings or part of the proceedings, or
• defending the proceedings or part of the proceedings.

In determining whether a defence or proceeding has no reasonable prospect of success, proceedings need not be hopeless or bound to fail (s 45A(3)).

A court can, as under the previous s 118, “dismiss all or part of proceedings at any stage if it is frivolous, vexatious or an abuse of process” (s 45A(4)).

The Family Law Rules 2004 provide in r 10.12 that a party may apply for summary orders in relation to an application or a response where:

(a)   the court has no jurisdiction

(b)   the other party has no legal capacity to apply for the orders sought

(c)   it is frivolous, vexatious or an abuse of process, or

(d)   there is no reasonable likelihood of success.

An alternative to r 10.12 is r 10.13 which allows a party to apply for a decision on any issue, if the decision may:

“(a) dispose of all or part of the case;

(b) make a trial unnecessary;

(c) make a trial substantially shorter; or

(d) save substantial costs.”

See also r 13.07-13.10 of the Federal Circuit Court Rules 2001.

The principles governing an application for summary relief were stated by Kirby J in Linden v The Commonwealth (No 2) (1996) 80 ALJR 541 at 544–5 (references omitted) and quoted in Korsky & Bright [2007] FamCA 245:

“The approach to be taken by the court to the Commonwealth’s application for summary relief is not in doubt:

1. It is a serious matter to deprive a person of access to the courts of law for it is there that the rule of law is upheld, including against government and other powerful interests. This is why relief, whether under [the Rules] or in the inherent jurisdiction of the court, is rarely and sparingly provided.
2. To secure such relief, the party seeking it must show that it is clear, on the face of the opponent’s documents, that the opponent lacks a reasonable cause of action or is advancing a claim that is clearly frivolous or vexatious.
3. An opinion of the court that a case appears weak and such that it is unlikely to succeed is not, alone, sufficient to warrant summary termination. Even a weak case is entitled to the time of a court. Experience teaches that the concentration of attention, elaborated evidence and argument and extended time for reflection will sometimes turn an apparently unpromising cause into a successful judgment.
4. Summary relief of the kind provided for by [the Rules] for absence of a reasonable cause of action, is not a substitute for proceeding by way of demurrer. If there is a serious legal question to be determined, it should ordinarily be determined at a trial for the proof of facts may sometimes assist the judicial mind to understand and apply the law that is invoked and to do so in circumstances more conducive to deciding a real case involving actual litigants rather than one determined on imagined or assumed facts.
5. If, notwithstanding the defects of pleadings, it appears that a party may have a reasonable cause of action which it has failed to put in proper form, a court will ordinarily allow that party to reframe its pleading. A question has arisen as to whether [the Rule] applies to part only of a pleading. However, it is unnecessary in this case to consider that question because the Commonwealth’s attack was upon the entirety of Mr Lindon’s statement of claim.
6. The guiding principle is, as stated in [the Rules], doing what is just. If it is clear that proceedings within the concept of the pleading under scrutiny are doomed to fail, the court should dismiss the action to protect the defendant from being further troubled, to save the plaintiff from further costs and disappointment and to relieve the court of the burden of further wasted time which could be devoted to the determination of claims which have legal merit.”

12. Security for costs

Applications for security for costs are even less likely to be successful than applications for summary dismissal. Impecuniosity is a factor to be considered, but not the only factor. The court must find that it is “just” under s 117(2) to make an order. The court does not want to stifle litigation, but also wants to prevent abuses of process. The court needs to take into account the matters set out in s 117(2A):

“In considering what order (if any) should be made under subsection (2), the court shall have regard to:

(a)     the financial circumstances of each of the parties to the proceedings;

(b)     whether any party to the proceedings is in receipt of assistance by way of legal aid and, if so, the terms of the grant of that assistance to that party;

(c)     the conduct of the parties to the proceedings in relation to the proceedings including, without limiting the generality of the foregoing, the conduct of the parties in relation to pleadings, particulars, discovery, inspection, directions to answer questions, admissions of facts, production of documents and similar matters;

(d)     whether the proceedings were necessitated by the failure of a party to the proceedings to comply with previous orders of the court;

(e)     whether any party to the proceedings has been wholly unsuccessful in the proceedings;

(f)     whether either party to the proceedings has made an offer in writing to the other party to the proceedings to settle the proceedings and the terms of any such offer; and

(g)     such other matters as the court considers relevant.”

The matters to be considered were listed in Luadaka & Luadaka (1998) FLC 92-830 (at [59]):

“(1)  the circumstances of those behind the proceedings and whether it is reasonable for those persons to satisfy an order for security;

(2)   the bona fides and prospects of success of the proceedings;

(3)   whether the plaintiff is impecunious and whether the defendant’s conduct has caused or contributed to this impecuniosity.

(4)   whether the plaintiff is in effect a defendant because, for example, it has been forced to litigate to halt self-help measures by the defendant;

(5)   whether it will be oppressive to order security for costs or such an order will prevent the plaintiff from pursuing the proceedings;

(6)   whether the proceedings raise a matter of public importance;

(7)   whether there has been an admission, offer or payment into court;

(8)   whether there has been any delay in bringing the application for security which has occasioned prejudice;

(9)   the cost of enforcement;

(10) the costs of the proceedings.”

In Atkins & Atkins (Security for Costs) [2015] FamCAFC 66; (2015) FLC 93-646 and Bhatt & Acharya [2018] FamCAFC 230, as well as the matters in s 117(2A), the following matters were required to be considered under s 117(2A)(g):

“(a)  the financial circumstances of each of the parties to the proceedings;

(b)   whether any party to the proceedings is in receipt of assistance by way of legal aid and, if so, the terms of the grant of that assistance to that party;

(c)   the conduct of the parties to the proceedings in relation to the proceedings including, without limiting the generality of the foregoing, the conduct of the parties in relation to pleadings, particulars, discovery, inspection, directions to answer questions, admissions of facts, production of documents and similar matters;

(d)   whether the proceedings were necessitated by the failure of a party to the proceedings to comply with previous orders of the court;

(e)   whether any party to the proceedings has been wholly unsuccessful in the proceedings;

(f)    whether either party to the proceedings has made an offer in writing to the other party to the proceedings to settle the proceedings and the terms of any such offer; and

(g)   such other matters as the court considers relevant.”

See also Woodby-Chatterjee & Chatterjee (No 2) [2018] FamCAFC 265, noting that security for costs orders are more commonly made in appeals than in trial litigation.

13. Proceedings in other courts or otherwise protecting third party rights

Prior to the trial in Chatterjee & Woodby-Chatterjee and Anor [2018] FamCA 930, the husband’s father was successful in Supreme Court proceedings against the husband and the wife and had obtained a significant costs order against the wife. Those proceedings established that the wife’s entitlements under the financial agreement were modest.

In Abrum & Abrum [2013] FamCA 877 a financial agreement was saved under s 90G(1A) as if it was not held to be binding, because the husband’s parents acted to their significant detriment in reliance upon the parties entering into the financial agreement.

5.        Preparing watertight agreements – drafting strategies to protect and deliver certainty for your client

A financial agreement is a contract. To draft a contract, it is necessary to look at what the client wants to achieve. The following questions must be considered first:

• What is the goal?
• How is it to be done?
• Who is to do it?
• When is it to be done?
• How is it to be enforced if it is not done?

The agreement also needs to be enforceable as a contract, not as a set of orders. The clauses of the agreement should be drafted as a contract and not just copied from precedent orders. The style is different and if the terms of the agreement are drafted in the same form as orders they may not be enforceable as they may lack clarity and certainty. Precedent clauses can help with the first draft of an agreement but the draft agreement must be checked carefully and altered to fit the precise and unique facts of the particular case.

Matters to be covered

What clauses should be included in an agreement? As a starting point:

1. What property is excluded?

1.1     Define the excluded property;

1.2     Are there any circumstances where the financially weaker party will receive some of the otherwise quarantined property?

2. How will other (joint and separate) property be dealt with?

2.1     Who retains the house or will it be sold?

2.2     When will the other party vacate the home?

2.3     How will property be valued?

2.4     The arrangements for any sale;

2.5     How will the net proceeds of sale be distributed?

2.6     How will liabilities be dealt with (including tax)?

3. Will superannuation be split?

3.1     If so, how?

3.2     How will procedural fairness be given?

3.3     Who will retain any self-managed superannuation fund and clauses to give effect to this? What if parties don’t have one when the agreement is entered into but create one later?

3.4     The operative time for a payment split is the beginning of the 4^th business day after the day on which a copy of the agreement is served on the trustee accompanied by the other documents specified in s 90XI(1).

4. Spousal maintenance

4.1     Is the right to spousal maintenance ousted?

4.2     Will one party receive maintenance for a fixed period?

4.3     How will the requirements of s 90E be met?

4.4     Can the requirements of s 90F be met?

5. What contingencies have the parties considered?
6. Recitals – give sufficient background;
7. Schedules of the parties’ assets and liabilities;
8. Statements of Independent Legal Advice;
9. Separation declaration (if applicable).

Using FLA terminology

The terms used in the FLA should be used where possible. Examples of terms which a court has found difficult to interpret because they were ambiguous or did not reflect the wording of the FLA are:

• “acquired”, “assets”, “joint funds”, “from their own money”. Kostres (2009) FLC 93-420 discussed above.
• “matrimonial property”. Gibbs & Gibbs [2015] FamCA 630

The pros and cons of a complex agreement

A simple agreement is easier to draft, but it may be too simple to cover all possible contingencies. To avoid the risk of an agreement being set aside because of one of these contingencies, many agreements include a recital to confirm that the parties have considered those contingencies.

An example of a recital of drafting for contingencies is:

Before executing this Financial Agreement, each party has had regard to the possibility that one or both of them may be subject to a change of circumstances including any or all of:

1. The birth of a child or children or adoption of a child or children;
2. Serious illness or injury of one of the parties or a child;
3. Death of one of the parties;
4. A significant increase or decrease in the value of the property and financial resources set out in Schedules A, B and C;
5. The bankruptcy of one of the parties.

A formula which gives cascading entitlements with the effluxion of time, the number of children or some other factor, is more complex to draft and implement.

The reason for including a cascading formula is to more closely match the increased property entitlements of a party under s 79 (or s 90SM) in longer relationships where there will almost certainly have been greater contributions (parenting, homemaking, financial and non-financial) of the financially weaker party to at least partially offset the greater initial financial contribution of the financially stronger party, than in a short relationship. If the agreement does not adequately provide for the other party in the event of one of the contingencies, then there may be a greater risk of the agreement being set aside or, at the very least, an application being made with all the associated financial and emotional stress. It may be better to provide for the contingency, but more complex and lengthy agreements are more likely to have inconsistencies in their drafting.

Simpler agreements set out clearly the respective entitlements of the parties, with perhaps a payment or transfer of property calculated as a percentage of certain property or a defined lump sum. If a percentage, the property of which the party receives a percentage needs to be described.

Sometimes, agreements are drafted so as to oust the jurisdiction of the court to deal with property but allow maintenance claims to still be made. Of course, the weaker party must still establish a need for maintenance, but allowing the weaker party the right to apply for maintenance may mean that the agreement can be more simply drafted and is not as much at risk of being considered a bad bargain (and set aside if there are vitiating factors, such as undue influence), than if the right to apply for spousal maintenance is ousted.

Including a right to seek maintenance may help establish that the parties did consider possible contingencies, such as childbirth, care of children, injury and ill-health, and not merely state these possibilities in a recital may help uphold the agreement.

However, a financially weaker spouse with the primary care of the children who is in employment, may not be able to make a successful maintenance claim. This means that more consideration maybe should be given to ensuring that the weaker party is left with a greater share of the property than otherwise, so that there is less motivation to attack the agreement.

Another option is to include a sunset clause so that the agreement no longer operates if the parties, for example, have a child. The difficulty with these is that they have not been tested and non‑compliance with s 90J(1) may be a problem. Section 90J(1) states:

“(1) The parties to a financial agreement may terminate the agreement only by:

(a)   including a provision to that effect in another financial agreement as mentioned in subsection 90B(4), 90C(4) or 90D(4); or

(b)   making a written agreement (a termination agreement ) to that effect.”

A termination provision included in the original agreement can therefore be effective but advice must be given on the agreement as a termination agreement as well as, for example, a s 90B agreement. If advice is not given on the termination agreement under s 90J(2), the termination agreement part of the agreement will not be binding. To achieve a similar outcome, a financial agreement could also be drafted carefully with two parts:

1. The first part applies until a certain event occurs or does not occur;
2. After that time, the second part of the agreement applies. The parties’ rights under Pt VIII or Div 2 of Part VIIAB of the FLA could be restored, unaffected by the agreement. Alternatively the parties’ rights after that time are affected to a lesser extent than in the first part.

A requirement that the parties review an agreement if they have a child is almost certainly unenforceable if the intention is that the parties are forced to enter into a new agreement in different terms. It may encourage the parties to do it, but does not force them to do it.

The problem of false recitals

Recitals are statements at the beginning of a contract which set out preliminary matters, such as factual background and the reasons for the contract.

The false recitals which are most commonly problematic include:

1. Recitals which set out the financial positions of the parties or refer to schedules which do, may not accurately set out the true position. On the one hand, by parties providing full details of their financial positions, if there are any errors it may be easier for the other party to successfully apply to set aside under s 90K(1)(a) or 90UM(1)(a) because “the agreement was obtained by fraud” (including non-disclosure of a material matter). On the other hand, if the parties do not provide full details of their financial positions in the agreement, it may be more difficult to defend an application for the agreement to be set aside for non-disclosure of a material matter.
2. In Thorne v Kennedy, the agreement included an “acknowledgement” that the wife was able to support herself without an income tested pension, allowance or benefit, taking into account the terms and effect of the agreement when the agreement came into effect. This statement was designed to ensure that the agreement, in compliance with s 90F, ousted the jurisdiction of the court to make an order for spousal maintenance.

As the plurality in the High Court said, this statement was made (at [20]) despite the wife’s “extremely limited personal means”. The plurality made no findings on whether the s 90F declaration was effective, as submissions were not made with respect to it – either in the Full Court of the Family Court or in the High Court – but the plurality appeared to express doubt as to whether the wife was bound by her “acknowledgement”. The High Court drew the attention of the parties to the issue, but because of the way the case was presented it was significant only (at [20]) “as a matter of contextual construction”, which suggests that the incorrect statement may have assisted the plurality to reach the conclusions it made that there had been undue influence and unconscionable conduct.

3. If there are recitals which indicate that there has been a mutual exchange of disclosure when there has not been or state that there has been a mutual waiver of disclosure, particularly where there is unequal bargaining power, it may be easier for the court to find that there was undue influence or unconscionable conduct.

May 2019

© Copyright – Jacqueline Campbell of Forte Family Lawyers and Wolters Kluwer/CCH.  This paper uses some material written for publication in Wolters Kluwer/CCH Australian Family Law and Practice.  The material is used with the kind permission of Wolters Kluwer/CCH.

Jacky Campbell, November 2017

Thorne v Kennedy—has the High Court hung financial agreements out to dry?

There has been a strong reaction, almost panic-stricken, in the media and by lawyers to the first examination of financial agreements by the High Court. Is this reaction justified? Has the High Court hung financial agreements out to dry, or are they still a viable option?

In Thorne v Kennedy [2017] HCA 49; (2017) FLC 93-807 the High Court set aside two financial agreements, casting considerable doubt on the viability of financial agreements which are a bad bargain for one of the parties. Unanimously, the High Court set aside the two agreements for unconscionable conduct. The plurality also set them aside for undue influence, finding it unnecessary to decide whether there was duress. Helpfully, the High Court explained the distinctions between the three concepts, as the concepts are often confused and used interchangeably. The question is, in clarifying the law, did the High Court set such a high bar that it will be impossible for a financial agreement to withstand an application to set it aside?

The facts

The wife was aged 36 and the husband was 67 when they met on a bride website in mid-2006. The wife was living overseas, spoke Greek and very little English. She had no children and no assets of any substance, whilst the husband was an Australian property developer with assets worth at least $18 million. He was divorced from his first wife, and had three adult children.

During their courtship the husband promised the wife that he would look after her like “a queen”. In February 2007 the wife travelled to Australia with the husband and moved into his penthouse. The husband made it clear to the wife prior to her coming to Australia that he wanted to protect his wealth for his children and that, if they were to get married, she would have to sign a legal agreement to that effect. The wife, however, did not learn the terms of the first agreement until 10 days before the wedding. By that stage, the wife’s parents and sister had arrived in Australia from Eastern Europe for the wedding. The husband told the wife that if she failed to sign the first agreement, the wedding was off.

When presented with the draft first agreement, the wife’s only concern was with the testamentary provisions – not the separation provisions. Her solicitor advised the wife orally and in writing not to sign the first agreement, saying that it was all in the husband’s favour. After some minor changes to the testamentary provisions of the first agreement requested by the wife’s solicitors were agreed to by the husband, the wife received further advice on the amended first agreement. Her solicitor again advised her not to sign it. The wife understood her solicitor’s advice to be that it was the worst agreement that the solicitor had ever seen. Under the separation provisions, the wife was to receive a total payment of $50,000 plus CPI in the event of a separation after at least three years of marriage, which the wife’s solicitor described as “piteously small”. In the event of the husband’s death, the wife would receive an apartment worth up to $1.5M, a Mercedes and a continuing income. The wife nevertheless signed the first agreement 4 days before the wedding. The first agreement contained a recital that within 30 days the parties would sign another agreement in similar terms. In November the wife signed the second agreement, revoking the first agreement but otherwise in the same terms. The wife’s solicitor urged her not to sign the second agreement. During the meeting the wife received a telephone call from the husband asking her how much longer she would be. The wife’s solicitor had the impression that the wife was being pressured to sign the second agreement.

The husband signed a separation declaration after the couple had been cohabiting for about 4½ years. It was slightly less than 4 years after the first agreement was signed.

Litigation history

The wife commenced proceedings in the Federal Circuit Court, seeking orders under the Family Law Act 1975 (“FLA”) that both agreements be declared not to be binding and/or to be set aside, and orders for a property settlement and spousal maintenance. The husband died part way through the hearing and the husband’s legal personal representatives were substituted for him in the proceedings.

In March 2015 Demack J in Thorne & Kennedy [2015] FCCA 484 made orders that neither Agreement was binding and set them both aside. Demack J held (at [94]) that the wife had:

“signed the Agreements under duress borne of inequality of bargaining power where there was no outcome to her that was fair and reasonable.”

On 26 September 2016 the Full Court of the Family Court (Strickland, Aldridge and Cronin JJ) in Kennedy & Thorne (2016) FLC 90-737 allowed an appeal by the husband’s estate. The Full Court found that both agreements were binding on the parties, holding that there had not been duress, undue influence or unconscionable conduct by the husband.

On 10 March 2017 the High Court granted special leave to the wife to appeal from the decision of the Full Court of the Family Court. The special leave application is reported as Thorne v Kennedy [2017] HCA Trans 54. Further details of the special leave application are in an article by the writer at http://www.wolterskluwercentral.com.au/legal/family-law/high-court-rule-financial-agreements/

The grounds of appeal were that the Full Court erred in law in failing to find the financial agreements were not binding and they should be set aside on the ground of duress, undue influence or unconscionable conduct.

What did the High Court decide?

The judgment of the plurality was delivered on 8 November 2017 by Kiefel CJ, Bell, Gageler, Keane and Edelman JJ. They held that the findings and conclusion of the trial judge should not have been disturbed by the Full Court and both agreements were voidable due to both undue influence and unconscionable conduct.

The plurality said that the trial judge used duress interchangeably with undue influence, and considered that undue influence was (at [2]) “a better characterisation of her findings”. The plurality decided that it was not necessary to consider whether the agreement should be set aside for duress.

In two separate judgments, Nettle and Gordon JJ agreed that the agreements should be set aside for unconscionable conduct, but did not agree that they should be set aside for undue influence.

Marriage and equitable principles

Although initially the wife’s case was that the principles of common law and equity as described in s 90KA (and also applied in s 90K) might be affected by their statutory context and interpreted differently because of the marital relationship, she conceded (at [23]) “that the principles were not altered although the particular circumstances of the marital context would be taken into account”. The High Court plurality accepted that the same tests applied to marital relationships as to commercial relationships when assessing vitiating factors such as duress, undue influence and unconscionable conduct, although, of course, duress and undue influence generally, if not always, arise in non-commercial contexts.

Requirements of duress

The plurality commenced by considering the requirements of duress, although it held that it was not necessary to decide whether the agreement should be set aside for duress. The plurality described the requirements for duress (at [26]):

“Duress does not require that the person’s will be overborne. Nor does it require that the pressure be such as to deprive the person of any free agency or ability to decide. The person subjected to duress is usually able to assess alternatives and to make a choice. The person submits to the demand knowing ‘only too well’ what he or she is doing” [footnotes removed, but relying strongly on Crescendo Management Pty Ltd v Westpac Banking Corporation (1988) 19 NSWLR 40]­

The plurality noted (at [27]) the uncertainty as to whether duress should be based on any unlawful threat or conduct or, whether lawful threats or conduct might suffice. It said that the question was a “difficult” one, but did not shed any light on the answer to it.

The plurality’s view was that it was not necessary for the trial judge (and therefore the High Court) to determine whether there was common law duress, because the sense in which the trial judge described the pressure on the wife was to focus on the wife’s lack of free choice (in the sense used in the undue influence cases) rather than whether the husband was the source of all the relevant pressure, or whether the impropriety or illegitimacy of the husband’s lawful actions might suffice to constitute duress.

Requirements of undue influence

The High Court plurality referred (at [30]) to

“the difficulty of defining undue influence” and that “the boundaries, particularly between undue influence and duress, are blurred”. Undue influence occurred when a party was “deprived … of ‘free agency’” [footnotes removed].

In Johnson v Buttress (1936) 56 CLR 113 at 134; [1936] HCA 41, Dixon J described how undue influence could arise from the “deliberate contrivance” of another (which naturally includes pressure) giving rise to such influence over the mind of the other that the act of the other is not a “free act”. The plurality accepted this analysis, and said (at [32]):

“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.” [footnotes omitted]

The plurality noted (at [14]) that there were different ways to prove the existence of undue influence. One method of proof was by direct evidence of the circumstances of the particular transaction and that was the approach relied upon by the trial judge and the High Court. The plurality rejected the proposition that the wife was entitled to the benefit of a presumption of undue influence because of the relationship of fiancé and fiancée, as that presumption no longer existed.

Requirements of unconscionable conduct

The parties agreed that the applicable principles of unconscionable conduct in equity were recently restated by the High Court in Kakavas v Crown Melbourne Ltd (2013) 250 CLR 392; [2013] HCA 25. No submissions were made as to whether the statutory concept of unconscionable conduct in s 90K(1)(e) might differ from the equitable concept in s 90K(1)(b) and the High Court did not determine that issue.

A finding of unconscionable conduct requires (at [38]) the innocent party to be subject to a special disadvantage “which seriously affects the ability of the innocent party to make a judgment as to [the innocent party’s] own best interests”. The other party must also unconscientiously take advantage of that special disadvantage, and have known or ought to have known of the existence and effect of the special disadvantage.

The plurality quoted favourably from Amadio (1983) 151 CLR 447 at 461, where Mason J emphasised the difference between unconscionable conduct and undue influence:

“In the latter the will of the innocent party is not independent and voluntary because it is overborne. In the former the will of the innocent party, even if independent and voluntary, is the result of the disadvantageous position in which he is placed and of the other party unconscientiously taking advantage of that position’.”

The trial judge’s decision

The plurality found that the trial judge was at a considerable advantage in assessing the parties and their personalities, particularly where issues of undue influence and unconscionable conduct were involved. In Kakavas the High Court said that where a transaction is sought to be impugned for vitiating factors, such as duress, undue influence or unconscionable conduct, it is necessary for a trial judge to conduct a “close consideration of the facts.” On appeal, it is essential for the appellate court to scrutinise the trial judge’s findings in light of the advantages enjoyed by the trial judge.

The trial judge posed the hypothetical question of why the wife would sign an agreement when she understood the advice of her solicitor to be that the agreement was the worst that the solicitor had ever seen. The trial judge also asked, despite the advice of her solicitor, why the wife failed to conceive of the notion that the husband might end the marriage.

The trial judge described duress ([2015] FCCA 484 at [68]) as “a form of unconscionable conduct”. The plurality said that this did not mean that duress was subsumed within the doctrine of unconscionable transactions, but the trial judge used “unconscionable” in the sense described by Gaudron, McHugh, Gummow and Hayne JJ in Garcia v National Australia Bank Ltd [(1998) 194 CLR 395 (at [34])] as “to characterise the result rather than to identify the reasoning that leads to the application of that description”.

The trial judge concluded that the wife was powerless to make any decision other than to sign the first agreement, and referred to an inequality of bargaining power and a lack of any outcome for the wife that was “fair or reasonable”. However, the trial judge also explained that the wife’s situation was “much more than inequality of financial position”, setting out six matters which, in combination, led her to the conclusion that the wife had “no choice” or was powerless:

1. Her lack of financial equality with the husband;
2. Her lack of permanent status in Australia at the time;
3. Her reliance on the husband for all things;
4. Her emotional connectedness to their relationship and the prospect of motherhood;
5. Her emotional preparation for marriage; and
6. The “publicness” of her upcoming marriage.

These six matters were the basis for what the plurality described as the “vivid” description by the trial judge (quoted at [47]) of the wife’s circumstances:

“She was in Australia only in furtherance of their relationship. She had left behind her life and minimal possessions … She brought no assets of substance to the relationship. If the relationship ended, she would have nothing. No job, no visa, no home, no place, no community. The consequences of the relationship being at an end would have significant and serious consequences to Ms Thorne. She would not be entitled to remain in Australia and she had nothing to return to anywhere else in the world.

Every bargaining chip and every power was in Mr Kennedy’s hands. Either the document, as it was, was signed, or the relationship was at an end. The husband made that clear.”

As to the second agreement, the High Court plurality noted (at [48]) that trial judge held that it was “simply a continuation of the first – the marriage would be at an end before it was begun if it wasn’t signed”. In effect, the trial judge’s conclusion was that the same matters which vitiated the first agreement, with the exception of the time pressure caused by the impending wedding, also vitiated the second agreement. The factors had not otherwise dissipated.

The Full Court’s decision

The Full Court found that the agreements were fair and reasonable because, as summarised by the plurality (at [51]):

1. The husband had told the wife at the outset of their relationship, and she had accepted, that his wealth was intended for his children
2. 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 held that the wife could not have been subject to undue influence because she acquiesced in the husband’s desire to protect his assets for his children and because she had no concern about what she would receive on separation. The Full Court also held that the husband’s conduct was not unconscionable because he did not take advantage of the wife, referring to:

1. Its findings of the lack of any misrepresentation by the husband about his financial position;
2. The husband’s early statements to the wife that made clear that she would not receive any part of his wealth on separation;
3. The wife’s staunch belief that the husband would never leave her and her lack of concern about her financial position while the husband was alive; and
4. The husband’s acceptance of handwritten amendments to the agreements that were made by the wife’s solicitor.

The High Court plurality, noting (at [54]) the advantages enjoyed by the trial judge in evaluating the evidence, said that with one exception, none of the findings of fact by the trial judge were overturned by the Full Court. That exception was the Full Court’s rejection of the trial judge’s finding that there was no outcome available to the wife that was fair or reasonable. The High Court found that the Full Court erred in rejecting this finding. It was open to the trial judge to conclude that the husband, as the wife knew, was not prepared to amend the agreement other than in minor respects. Further, the High Court plurality said (at [55]) that the description of the agreements by the trial judge as not being “fair or reasonable” was not merely open to her, it was “an understatement”. The unchallenged evidence of the wife’s solicitor was that the terms of the agreements were “entirely inappropriate” and wholly inadequate.

As the terms of the agreement were so unfavourable to the wife – a bad bargain – the plurality considered those terms to be relevant to a finding of undue influence. It said (at [56]) that the trial judge:

“was correct to consider the unfair and unreasonable terms of the pre-nuptial agreement and the post-nuptial agreement as matters relevant to her consideration of whether the agreements were vitiated. Of course, the nature of agreements of this type means that their terms will usually be more favourable, and sometimes much more favourable, for one party. However, despite the usual financial imbalance in agreements of that nature, it can be an indicium of undue influence if a pre-nuptial or post-nuptial agreement is signed despite being known to be grossly unreasonable even for agreements of this nature.”

The plurality did not agree with the Full Court that the trial judge’s conclusion was based only upon an inequality of bargaining power. The trial judge carefully set out the 6 specific factors (stated earlier in this paper) which, together with the lack of a fair or reasonable outcome, led her to the conclusion that the wife had no choice but to enter into the two agreements.

In circumstances where the Full Court accepted almost all of the finding of fact, and had erred in not accepting there was no outcome available to the wife which was fair and reasonable, the High Court plurality said that the Full Court ought to have found that the wife was subject to undue influence, albeit

mis-described by the trial judge as duress.

The plurality’s conclusion

The plurality set out factors which it identified as being relevant to whether a financial agreement should be set aside for undue influence (at [60]):

1. Whether the agreement was offered on a basis that it was not subject to negotiation;
2. The emotional circumstances in which the agreement was entered including any explicit or implicit threat to end a marriage or to end an engagement;
3. Whether there was any time for careful reflection;
4. The nature of the parties’ relationship;
5. The relative financial positions of the parties; and
6. The independent advice that was received and whether there was time to reflect on that advice.

These factors were not only important to the determination in this case, but clear guidance as to the factors which should be looked at in future applications to set aside a financial agreement for undue influence.

In relation to unconscionable conduct, the High Court plurality relied on Amadio and said (at [64-65]) that the adjective “special” in the requirement for “special disadvantage” is “used to emphasise that the disadvantage is not a mere difference in the bargaining power but requires an inability for a person to make a judgment as to his or her own best interests”.

The trial judge found that the wife’s powerlessness and lack of choice but to enter into the agreements pointed inevitably to the conclusion that she was at a special disadvantage. The husband was aware of the wife’s special disadvantage and it was, in part, created by him:

1. He created the urgency with which the pre-nuptial agreement was required to be signed and the haste surrounding the post-nuptial agreement and the advice upon it.
2. She had no reason to anticipate an intention on his part to insist upon terms of marriage that were as unreasonable as those contained in the agreements, even though she knew in advance that there was to be some type of document.
3. The wife and her family members had been brought to Australia for the wedding by the husband and his ultimatum was not accompanied by any offer to assist them to return home.

The High Court plurality said these matters increased the pressure which contributed to the substantial subordination of the wife’s free will in relation to the agreements. The husband took advantage of the wife’s vulnerability to obtain agreements which, on the uncontested assessment of the wife’s solicitor, were entirely inappropriate and wholly inadequate.

Minority judgments

There were two separate minority judgments, being of Justices Nettle and Gordon. Both agreed that the 2 agreements should be set aside for unconscionability, but not for undue influence.

Justice Nettle felt he could not depart from the decision of the Court of Appeal of the Supreme Court of New South Wales in Australia & New Zealand Banking Group v Karam (2005) 64 NSWLR 149, which decided that the concept of illegitimate pressure should be restricted to the exertion of pressure by “threatened or actual unlawful conduct”. He said that had “largely been followed without demur”.

Justice Nettle said (at [71]) that there was much to be said for the view that, the test of illegitimate pressure should be whether the pressure goes beyond what is reasonably necessary for the protection of legitimate interests. However, the equitable doctrine of unconscionable conduct did not have the same restrictions as undue influence and is not restricted to unlawful means.

Although Nettle J believed that the concept of illegitimate pressure might be more appropriate for this case, it was also capable of being seen as unconscionable conduct, for reasons similar to those expressed by the plurality. Like the plurality, Nettle J’s view (at [76]) was that the circumstances had so affected the wife’s state of mind that she was incapable of make a judgement in her own interests. There was no other rational explanation for the wife’s decision not to insist upon the substantive changes which her solicitor recommended, and instead to acquiesce to the husband’s “extraordinary demands”.

The second agreement was dependent for its efficacy upon the first agreement, and so it fell with the earlier agreement, but, if that were not so (at [77]) the wife was “in a position of special disadvantage which rendered her even less capable of making a decision in her own best interests to refuse to sign the second agreement than she had been capable at the time of the first agreement of insisting upon amendments in accordance with [her solicitor’s] recommendations”. On this analysis, the second agreement was more at risk of being set aside than the first agreement.

Justice Nettle held that it was against equity and good conscience for the husband or his successors to be permitted to enforce either agreement.

Justice Gordon said in relation to unconscionability, (at [81]) that although the wife’s “independent, informed and voluntary will was not impaired, she was unable, in the circumstances, to make a rational judgement to protect her own interests”. Those circumstances were evident to and substantially created by the husband, and it was unconscionable for the husband to procure or accept the wife’s assent to the agreements.

Justice Gordon held that undue influence did not apply because (at [80]) the wife’s “capacity to make an independent judgment was not affected”. She “was able to comprehend what she was doing when she signed the agreements, and that she knew and recognised the effect and importance of the advice she was given”. Moreover, she wanted the marriage to proceed and to prosper. She knew and understood that it would proceed only if she accepted his terms. Once she decided to go ahead with the marriage, it was right to say, as the trial judge said, that she had “no choice” except to enter into the agreements. No other terms were available. But her capacity to make an independent, informed and voluntary judgment about whether to marry on those terms was unaffected and she chose to proceed. Her will was not overborne.

Justice Gordon set out the requirements to establish unconscionable conduct (at [113]):

“A special disadvantage may also be discerned from the relationship between parties to a transaction; for instance, where there is ‘a strong emotional dependence or attachment’ … Whichever matters are relevant to a given case, it is not sufficient that they give rise to inequality of bargaining power: a special disadvantage is one that “seriously affects” the weaker party’s ability to safeguard their interests.”

She found that the wife was under a special disadvantage and that the agreements were “grossly improvident” (Bridgewater v Leahy (1998) 194 CLR 457 at 493). It was relevant that the wife’s entitlements in the event of separation were (at [121]) “extraordinarily and disproportionately small in comparison to what the wife would have been entitled to if she had not entered into the agreements”. Unlike the other judges, who looked at the general fairness of the agreements, Gordon J, expressly compared the wife’s entitlements under the agreements to her entitlements under the FLA, if she had not entered into the agreements.

Although the wife was expecting an agreement about the husband’s wealth, he had brought her to Australia promising to look after her like “a queen” and it was only 10 days before the wedding that she received detailed information about the husband’s finances and became aware of the specific contents of the first agreement.

Justice Gordon said (at [123]) that the fact that the wife received independent legal advice about the two agreements and rejected her solicitor’s recommendation on each occasion did not mean that there was not unconscionable conduct. The fact that she was willing to sign both agreements despite being advised that they were “terrible” served to underscore the extent of the special disadvantage under which she laboured, and to reinforce the conclusion that it was unconscientious for the husband to procure or accept her assent.

Section 90F

The agreements included an “acknowledgement” that the wife was able to support herself without an income tested pension, allowance or benefit, taking into account the terms and effect of the agreement when the agreement came into effect. This statement was designed to ensure that the agreement, in compliance with s 90F, ousted the jurisdiction of the court to make an order for spousal maintenance.

As the plurality said, this statement was made (at [20]) despite the wife’s “extremely limited personal means”. The plurality made no findings on whether the s 90F declaration was effective as submissions were not made with respect to it either in the Full Court of the Family Court or in the High Court, but the plurality appeared to express doubt as to whether the wife was bound by her “acknowledgment”. The High Court drew the attention of the parties to the issue, but because of the way the case was presented it was significant only (at [20]) “as a matter of contextual construction”, which suggests that the incorrect statement may have assisted the plurality to reach the conclusions it made.

What next?

The High Court unanimously agreed that a financial agreement which was a bad bargain for a party who had been given legal advice not to enter into it, might be evidence of a vitiating factor such as duress, undue influence and unconscionable conduct. In the process, it clarified aspects of the law relating to the financial agreements, but also created new uncertainties.

Areas where Thorne v Kennedy gives some clarity for the future include:

1. The High Court listed six factors (which were not intended to be exclusive) which will have prominence in assessing where there has been undue influence in the particular context of pre-nuptial and post-nuptial agreements. They are repeated here because of their importance:
   1. Whether the agreement was offered on a basis that it was not subject to negotiation;
   2. The emotional circumstances in which the agreement was entered including any explicit or implicit threat to end a marriage or to end an engagement;
   3. Whether there was any time for careful reflection;
   4. The nature of the parties’ relationship;
   5. The relative financial positions of the parties; and
   6. The independent advice that was received and whether there was time to reflect on that advice.
2. Unfair and unreasonable terms of a financial agreement are relevant to a consideration of whether there has been undue influence or unconscionable conduct.
3. It is safer if the agreement provides for a fair outcome, by reference to s 79 or otherwise, and is not a “bad bargain”.
4. Entering into an agreement after marriage in the same terms as one entered into before the marriage will not overcome issues of undue influence or unconscionable conduct associated with the pre-nuptial agreement.
5. There is no longer any doubt as to whether undue influence can arise where a party has received independent legal advice.
6. Solicitors are sensible to be wary of “ink on the wedding dress” or “ink on the tuxedo” type agreements. If there are those concerns, the better approach is probably not to have a pre-nuptial agreement, but to simply have a post-nuptial agreement. Of course, the client may not want to marry without an agreement, because of the risk that the other party may not sign one afterwards. In Thorne v Kennedy the pre-nuptial agreement required both parties to enter into a post-nuptial agreement in the same terms as the pre-nuptial agreement, which was almost certainly counter-productive to finding that she entered into the second agreement voluntarily.
7. The principles of common law and equity are interpreted in the same way in a marital relationship as in other contexts.
8. The relationship of fiancé and fiancée is no longer a category of relationship where the presumption of undue influence applies.

Whilst the High Court gave clarity on some issues, many others were left unresolved. In reality, there are more uncertainties than there were before. These include:

1. How will the 6 factors be applied to other cases? – Dilemmas will undoubtedly arise when applying them to other facts. Does every factor need to be relevant? How long is needed for “careful reflection”? What if there are limited negotiations? What if the advice received by the weaker party was not as emphatic as it was in Thorne v Kennedy?
2. Although the plurality was clear that the circumstances constituted undue influence, there were two dissenting judgments.
3. Duress – The High Court did not address whether the agreements could have been set aside for duress.
4. Lawful act duress – There is limited Australian authority on “lawful act duress” and conflicting authority in England as to whether pressure must be “illegitimate” to constitute duress. The law in this area has not been clarified.
5. Test for “bad bargain” – The plurality described the agreements as “unfair and unreasonable”, and Nettle J described the husband’s demands as “extraordinary”. Only Gordon J expressly tested the terms of the agreements against the wife’s entitlements under the FLA without the agreements. Is Gordon J correct? Or are financial agreements in the context of vitiating factors tested against another standard, such as whether the terms are “unfair and unreasonable” or simply a “bad bargain”? How bad does a bad bargain have to be?
6. Effect on s 90K(1)(a) – Will “a bad bargain” mean that a financial agreement is more likely to be set aside for fraud, remembering that the court has a discretion as to whether to set aside an agreement, even if it finds that there was fraud?
7. Effect on s 90K(1)(d) – Will the test for hardship in relation to the care of children in Fewster & Drake (2016) FLC 93-745; [2016] FamCAFC 124 be ameliorated and the courts adopt a test along the lines of the test in Pascot & Pascot [2011] FamCAFC 945?
8. Meaning and effect of s 90KA – The High Court did not consider the meaning and effect of s 90KA, which is an issue the Family Law Courts have struggled with.
9. Unconscionability – Whether there is a distinction between unconscionability making the agreement void, voidable or unenforceable under s 90K(1)(b) and statutory unconscionability under s 90K(1)(e) remains unresolved.
10. Third parties – The case was only concerned with the presence of a vitiating factor between parties to an agreement. The plurality noted that duress, undue influence or unconscionable conduct by a third party raises different issues.
11. Section 90F – What is the effect of a statement in an agreement that a party is able to support themselves without an income-tested pension, allowance or benefit when that statement is untrue? This issue was raised by the High Court plurality which seemed to express doubt as to the effectiveness of such statements, but the issue was not determined.
12. False recitals – If s 90F statements are not effective when they are clearly untrue, what about statements that the parties had the ability to inspect financial disclosure of the other party or engage accountants or valuers but chose not to do so, when in fact they had no real choice? If there is unequal bargaining power and the parties state that they have waived their rights to seek disclosure, will this help to establish that there has been undue influence or unconscionable conduct?
13. Section 79A – How do the principles of undue influence and unconscionable conduct apply when a party is seeking to set aside a property settlement order under s 79A? Whilst s 79A(1)(a) expressly refers to duress (which appears to be difficult to establish), does “any other circumstance” include undue influence and unconscionable conduct as applied by the High Court to financial agreements? The High Court said that despite legal advice there could still be undue influence. If the “agreement” has been made into orders of the court, does this intervening step reduce the likelihood of establishing undue influence?
14. Dection 90G(1A) and “bad bargains” – A majority of the Full Court of the Family Court in Hoult & Hoult (2013) FLC 93-546; [2013] FamCAFC 214 said that the terms of the bargain were irrelevant when considering whether a financial agreement which does not meet the s 90G requirements should be “saved” under s 90G(1A) because it is “unjust and inequitable” if the agreement is not binding on the parties. Some judges, such as Murphy J (the trial judge in Hoult), and Thackray J (who supported the orders of the majority in Hoult but for different reasons) disagreed. Is it now open, and indeed proper, for the Family Law Courts to re-consider whether a “bad bargain” should influence the exercise of the s 90G(1B) discretion as to whether it is “unjust and inequitable if the agreement were not binding on the spouse parties to the agreement”. Considerable weight was attributed by the High Court to the unfairness and unreasonableness of an agreement when considering whether there were vitiating factors under s 90K. Why should the s 90G(1A) discretion not take into account the fairness and reasonableness of the agreement? Why can’t the court consider contractual concepts, such as whether it is a “bad bargain” or whether the agreement is “unfair and unreasonable” in considering whether it is “unjust and inequitable” for this type of contract not to be binding?

Conclusion

The impact of Thorne v Kennedy reaches beyond cases where a party is seeking to set aside a financial agreement for a vitiating factor such as duress, undue influence or unconscionable conduct. Whilst its most obvious effect will be on lawyers (and their clients) negotiating pre-nuptial agreements where the parties have unequal bargaining power, Thorne v Kennedy is a salutary warning to all lawyers to be careful when negotiating and advising on all financial agreements, and possibly property settlement orders under s 79 and 90UM. It is also a useful reminder we are dealing with contracts. Financial agreements are a form of contract but they are still contracts, and subject to contract law. There is nothing special about them to take them out of the realms of contract law. Despite the introduction of s 90G(1A)–(1C), which gives the court a discretion to save agreements which do not comply with the s 90G(1) requirements, the safest way to ensure a financial agreement is binding is to meet those requirements and for the terms of the agreement to result in a fair outcome for the less wealthy party.

© Copyright – Jacqueline Campbell of Forte Family Lawyers and Wolters Kluwer/CCH. This paper uses some material written for publication in Wolters Kluwer/CCH Australian Family Law and Practice. The material is used with the kind permission of Wolters Kluwer/CCH.

Jacky Campbell, February 2019

Tomaras– is the Family Law Act an escape hatch to avoid tax?

The Australian Taxation Office recently appealed to the High Court of Australia on the question of whether there was power under the Family Law Act 1975 (FLA) for the husband to be substituted for the wife in relation to a tax debt owed by the wife of over $250,000 plus interest.

In Commissioner of Taxation for the Commonwealth of Australia v Tomaras & Ors (2018) 93-874, 5 members of the High Court, in 3 separate judgments, unanimously upheld the decision of the Full Court of the Family Court that tax debts are able to be dealt with under s 90AE(1)-(2) FLA. The Commissioner of Taxation was seeking to rely on Crown immunity to support its argument that there was no power for tax debts to be transferred between spouses under the FLA. However, neither the High Court nor the Full Court of the Family Court ruled on whether the power should be exercised in the particular circumstances of the case.

My earlier articles consider the earlier cases. The Full Court decision is discussed further in my article “Verbiage or substance? High Court to examine Family Court’s ability to assign tax debts”. The application for special leave to appeal to the High Court is discussed in “Escaping tax debts? Is this the brave new world of Pt VIIIA Family Law Act?”

What does the legislation say?

The wife was seeking orders under Pt VIIIAA, FLA which empowers the family law courts to make orders and injunctions which bind third parties if certain prerequisites are met. In particular, the wife relied on s 90AE(1)(b), which allows the court to direct a creditor to substitute one debtor for another. Section 90AE(1) provides:

“In proceedings under s 79, the court may make any of the following orders … (b) an order directed to a creditor of one party to a marriage to substitute the other party, or both parties, to the marriage for that party in relation to a debt owed to the creditor.”

Section 90AE(2) specifically allows the court to make any such order that:

(a) directs a third party to do a thing in relation to the property of a party to the marriage; or

(b) alters the rights, liabilities or property interests of a third party in relation to the marriage.”

Section 90AE(3) sets out the requirements for making an order under s 90AE(1) and (2):

“The court may only make an order under subsection (1) or (2) if:

(a)   the making of the order is reasonably necessary, or reasonably appropriate and adapted, to effect a division of property between the parties to the marriage; and

(b)   if the order concerns a debt of a party to the marriage – it is not foreseeable at the time that the order is made that to make the order would result in the debt not being paid in full; and

(c)   the third party has been accorded procedural fairness in relation to the making of the order; and

(d)   the court is satisfied that, in all the circumstances, it is just and equitable to make the order; and

(e)   the court is satisfied that the order takes into account the matters mentioned in subsection (4).”

The matters which the court is required to take into account under s 90AE(3) are listed in s 90AE(4):

“(a) the taxation effect (if any) of the order on the parties to the marriage;

(b)   the taxation effect (if any) of the order on the third party;

(c)   the social security effect (if any) of the order on the parties to the marriage;

(d)   the third party’s administrative costs in relation to the order;

(e)   if the order concerns a debt of a party to the marriage – the capacity of a party to the marriage to repay the debt after the order is made;

(f)    the economic, legal or other capacity of the third party to comply with the order;

(g)   if, as a result of the third party being accorded procedural fairness in relation to the making of the order, the third party raises any other matters – those matters;

(h)   any other matter that the court considers relevant.”

What was the issue before the courts?

The Commissioner of Taxation appealed from a question of law stated (also known as a case stated) by the Federal Circuit Court to the Full Court of the Family Court. The question was (at [31]):

“concerned with the interaction between Pts VIII and VIIIAA and, in particular, whether a court in proceedings under s 79 in Pt VIII has power under s 90AE(1) in Pt VIIIAA to make an order directed to … the Commissioner, to substitute the husband for the wife in relation to a debt owed to the Commonwealth which arises under a taxation law.”

The wife argued that binding orders under s 90AE could be made against the Commissioner. The Commissioner disagreed.

In Tomaras & To­maras and Official Trustee in Bankruptcy and Commissioner of Taxation (2017) FLC 93-806, the Full Court held that one spouse could be substituted for another spouse as the debtor responsible for the debt, even though it was a taxation debt and therefore owed to the Crown. The Commissioner appealed.

­What did the High Court say about the ability for s 90AE orders to bind the Crown?

The Commissioner argued that Crown immunity was engaged and s 90AE did not apply to taxation debts on the basis of the presumption of statutory construction that general words in a statute do not bind the Crown.

The High Court decided in Bropho v Western Australia (1990) 171 CLR 1; [1990] HCA 24, that the presumption may be displaced without the use of express words or words of necessary intendment.

In the High Court, Justice Gordon considered the views of the Full Court of the Family Court, and in relation to the rebuttal of the presumption, said (at [52]-[53]):

“The relevant provisions of the Family Law Act do not expressly state that they bind the Crown. The presumption that general words of statutory provisions will not bind the Crown operates as no more than a general principle of statutory construction; or an aid to statutory construction. In certain circumstances, the presumption may represent little more than the starting point of the ascertainment of the relevant legislative intent. The ultimate question must be whether the presumption has, in all the circumstances, been rebutted and, if it has, the extent to which it was the legislative intent that the relevant statutory provisions should bind the Crown. The ‘circumstances include the terms of the statute, its subject matter, the nature of the mischief to be redressed, the general purpose and effect of the statute, and the nature of the activities of the Executive Government which would be affected if the Crown is bound’. That list is by no means exhaustive.

… The task is to construe the statute in context, adopting a flexible approach to construction which takes into account the nature of the statutory provisions in question and the activities of government to which they might apply ….”   [footnotes removed]

In support of her conclusion that Crown immunity did not apply, Gordon J referred to two areas where the drafters of Pt VIIIA had specifically addressed the effects of the provisions on the executive functions of government:

1. Section 90AE imposes a duty on the court to be satisfied that any order takes into account the taxation effect (if any) of the order on the parties to the marriage and on the third party as well as the social security effect (if any) of the order on the parties to the marriage;
2. Part VIIIAA had a deferred commencement to ensure that any affected third parties, such as banks or financial services bodies, were given sufficient time to make any necessary changes and to ensure that any necessary consequential amendments, such as amendments to taxation or social security legislation, were made before the provisions commenced.

Like Gordon J, Kiefel CJ and Keane J rejected the distinction that the Commissioner sought to make between tax debts and other debts, saying (at [3]):

“Nothing in Pt VIII of the Act suggests an intention to differentiate between Commonwealth, State and Territory revenue authorities or an intention to differentiate between revenue authorities and other creditors.”

Some statutes differentiate between ordinary creditors and revenue authorities, but the FLA does not. Instead, as Kiefel CJ and Keane J said (at [8]):

“Any concern for the protection of the revenue – Commonwealth, State or Territory – is met by the terms of s 90AE(3)(b). If this condition is not satisfied, the power to make an order under s 90AE(1)(b) is not enlivened. The observance of this condition by the court is apt to ensure that the interests of the revenue authorities, and other creditors for that matter, are not adversely affected by the making of an order under s 90AE(1)(b). The scope of this power should not be distorted by attributing to the Parliament an unfounded apprehension that the courts cannot be trusted to ensure that the statutory conditions upon which the power may be exercised are satisfied.”

Justice Gageler held (at [19]) that the presumption was displaced by the appearance of an affirmative legislative intention to confer jurisdiction on a court to alter, by an order under s 90AE(1) or (2), the interest of the Commonwealth in a debt owed to it by a party to a marriage:

“That affirmative intention appears sufficiently from the text and structure of Pt VIIIAA when read in context with s 79 in Pt VIII of the Act.”

Justice Gageler noted that the Commissioner’s argument had been refined before the High Court so that it was not so much about power as about jurisdiction. The Commissioner presumably took this approach to try to avoid the High Court taking the plain meaning approach to s 90AE which was ultimately adopted by all members of the High Court. Justice Gageler set this argument out (at [15]):

“The Commissioner argued that the Federal Circuit Court lacks power to make such an order under s 90AE(1)or (2) because the jurisdiction conferred on the Federal Circuit Court by s 39(5AA) with respect to matters arising under the Act in respect of matrimonial causes constituted by ‘proceedings between the parties to a marriage with respect to the property of the parties to the marriage’ is not extended by s 90AD(1) for the purpose of Pt VIIIAA of the Act to encompass proceedings between the parties to a marriage regarding the taxation debts owed by one or both of those parties to the Commonwealth. The Commissioner argued that the jurisdiction of the Federal Circuit Court is not so extended because a taxation debt owed to the Commonwealth is excluded from the instruction in s 90AD(1) that, for the purpose of Pt VIIIAA, ‘a debt owed by a party to a marriage is to be treated as property’ for the purpose of a matrimonial cause as defined. The Commissioner relied for that exclusion on the common law presumption that a statute does not ‘bind the Crown’.”

Justice Gageler rejected this argument, holding that “a debt owed by a party to a marriage in s 90AD does not exclude a taxation debt owed to the Commonwealth”.

Justice Edelman also agreed, holding (at [118]):

“The alleged presumption that Pt VIIIAA does not bind the Commissioner in relation to tax debts owed to the Crown has, at best, weak force. Against that weak force, the plain meaning, in context, of “a creditor of the parties” in Pt VIIIAA of the Family Law Act can include the Commonwealth in respect of a tax debt owed to it.”

All members of the High Court confirmed that the term “creditor” in s 90AE(1) has the same meaning as in s 79 and is not narrower.

The case stated process

Chief Justice Kiefel, and Keane and Gordon JJ were critical of the process taken by the parties to state a question of law. According to Kiefel CJ and Keane J (at [13]):

“it would have been more efficient, in terms of the administration of justice, if the wife’s application for substitution had been allowed to proceed to a determination on the merits”.

The question stated “was unlikely ever to be of other than academic interest”.

Justice Gordon said (at [94]) that the procedure should only be used in “exceptional circumstances” as it was “more often than not productive of difficulty, delay and artificiality, and should be adopted cautiously”. She said “the stated case procedure was inappropriate, and the answer given incomplete” and (at [96]):

“Hearing and determining the property settlement proceedings would have been cheaper and quicker.”

Justice Gageler disagreed. He considered that the process taken was appropriate, saying (at [16]):

“That the question is one of general significance for the administration of taxation laws and that it has been raised in other pending cases are additional considerations which support the appropriateness of adopting a procedure to ensure its early and authoritative resolution.”

Justice Edelman expressed no view on the procedure taken.

Did the High Court change the law?

It is difficult to see what the wife was seeking to achieve in Tomaras. The husband was bankrupt, so unless the husband was likely to have a surplus after his bankruptcy ended, or there was a chance of an annulment, it appeared unlikely, on the facts stated in the Federal Circuit Court, Full Court of the Family Court and the High Court, that a court would order that the taxation debt be borne solely by the husband. If such an order was made, then contrary to s 90AE(3)(b) and (4)(e), the debt was not likely to be paid.

Justice Gordon explained (at [32]) that, although “under Pt VIIIAA, the court has jurisdiction over debts owed to the Commonwealth and the court has the power under s 90AE to order the Commissioner to substitute the husband for the wife in relation to a taxation debt, “there will seldom, if ever, be occasion to exercise that power”. As a matter of practice, as she pointed out (at [37]), s 90AE will rarely be used in relation to tax debts. She said further (at [87]):

“The fact that the husband in this appeal was bankrupt is reason enough not to make the order sought by the wife under s 90AE. But there are other facts, matters and circumstances which compel the same conclusion in this appeal: the inability of the husband to exercise the Pt IVC rights of objection and review (both because the time allowed to the wife for objections has long expired, and because of the difficulties identified above); the fact that the debt owed to the Commonwealth, in relation to which the Commissioner has obtained default judgment, is long overdue; and the fact that the size of that Commonwealth debt continues to increase, not just on a daily basis, but at a higher rate, because of the accruing GIC. That list is not and cannot be exhaustive. However, those facts and matters, or even some of them, compel the conclusion that a court could not be satisfied of the matters prescribed in s 90AE(3) and, therefore, the court would not be empowered to make a substitution order under s 90AE(1) in Pt VIIIAA.”

Justice Gordon tested her conclusion by reference to Pt VIII FLA, which empowers a court to make an order under s 80(1)(f) FLA directing a party to a marriage to simply pay a debt owed by the other party, rather than make an order substituting them as a debtor. This could be a direction to pay a tax debt owed to the Commonwealth. If the husband had cash or another immediately realisable asset or assets to meet that debt, an order could be made under s 80(1)(f) directing the husband to make a payment direct to the Commissioner of Taxation for the benefit of the wife. If that form of order could not be made (because the husband lacked means to meet the debt), then, contrary to the requirements of s 90AE(3), it would be foreseeable that if an order were made under s 90AE(1), it would result in the debt not being paid in full and, in all the circumstances, it would not be just and equitable to make the order. So, the fact that the husband could not satisfy an order under s 80(1)(f) strongly suggested, even required, the conclusion that two requirements of s 90AE(3) – that it must not be foreseeable that if the order were made, it would result in the debt not being paid in full, and that it must be just and equitable to make the order – would not be satisfied. She concluded (at [90]) that there was “limited” scope to deal with a taxation debt in a s 90AE(1) order.

Chief Justice Kiefel and Keane J said (at [13]) that:

“Given the difficulty confronting the wife’s application for substitution by reason of the condition in s 90AE(3)(b), the question stated for the opinion of the Full Court was unlikely ever to be of other than academic interest.”

Justice Gageler expressed no opinion.

Conclusion

The proceeding was described by two judges in the High Court as an “academic exercise”. This is a succinct summary of the effect of the High Court’s judgment. Whilst the High Court unanimously confirmed that orders could be made under s 90AE in relation to taxation debts, a majority of the High Court also considered that this would occur rarely because of the difficulty parties faced in meeting the statutory requirements. Although the High Court was not required to decide the issue, 4 of the 5 judges said that a substitution order was unlikely to be made in the particular circumstances of the case before it, as a substitution order would mean that the tax debt would not be made.

© Copyright – Jacqueline Campbell of Forte Family Lawyers and Wolters Kluwer/CCH.  This paper uses some material written for publication in Wolters Kluwer/CCH Australian Family Law and Practice.  The material is used with the kind permission of Wolters Kluwer/CCH.

Jacky Campbell, October 2018

Australian Law Reform Commission discussion paper

The Australian Law Reform Commission Discussion Paper on the Review of the Family Law System was released on 2 October 2018. The Discussion Paper is over 300 pages, asks 33 questions and makes 124 proposals for changes to the family law system. Many other proposals and suggestions are embedded in the Discussion Paper and are not part of the specific proposals. This article is selective and does not aim to give a complete summary of all the proposals.

The ALRC asks for submissions in response to the Discussion Paper by 13 November 2018. Submissions should be emailed to familylaw@alrc.gov.au. The Discussion Paper can be obtained from the ALRC website www.alrc.gov.au.

Terms of Reference

On 27 September 2017, the then Attorney-General George Brandis announced a review of the Family Law Act 1975 (FLA) and stated that it was “the first comprehensive review of the FLA since its commencement in 1976. He announced 15 Terms of Reference, including:

• The appropriate, early and cost effective resolution of all family law disputes;
• The protection of the best interests of children and their safety;
• Mechanisms for reviewing and appealing decisions;
• The underlying substantive rules and general principles in relation to parenting and property.

Other Terms of Reference cover such matters as family violence (mentioned three times), the adversarial court system, the integration of the family law system with other Commonwealth state and territory systems, rules of procedure and improving the clarity and accessibility of the law. There is a catch all Term of Reference of “any other matters related to these Terms of Reference”.

Interestingly, there is no express reference to child support – which is a fundamental part of family law and continues to impact on families and children for many years after the parents have resolved their property disputes and the Discussion Paper does not deal with it. There is also no express mention of the structure of the Family Law Courts which has been long recognised as problematic. The proposed restructure of the Family Court and the Federal Circuit Court is aimed at “increasing efficiencies and reducing delays” (para 1 of the Explanatory Memorandum to the Federal Circuit and Family Court of Australia Bill 2018) which addresses the first term of reference.

The proposed restructure is also relevant to specific Terms of Reference such as the appealing of decisions and whether the adversarial court system is the best way to support the safety of families and resolve matters in the best interests of children.

The ALRC in its Issues Paper released in March 2018 recognised these 2 deficiencies and also matters of State and Territory responsibility and the child protection system. It said (at para 5):

However, as these issues are so closely related to and frequently interact with the family law system, concerns about the intersections and cooperation between these systems are matters that the ALRC will consider in the course of this Inquiry”     

Unfortunately it did not consider or make proposals about the proposed court restructure or child support at all.

Simpler and clearer legislation

The Discussion Paper proposes that the FLA and its related the Rules and Regulations be comprehensively re-drafted with the aim of simplifying them and making them easier for the families who need to use it to read. More specific recommendations include:

1. Using ordinary English. (Part of Proposal 3-1)
2. Restructuring the FLA, particularly the parenting provisions. The more important provisions for clients should be first, similar issues grouped together and the FLA renumbered in a way which allows for future amendments. (Part of Proposal 3-1)
3. Removing parts of the FLA such as those relating to the Australian Institute of Family Studies and parentage to separate legislation. The objective is to make the FLA shorter and more accessible for clients and provides the opportunity to re-draft the parentage provisions in a way which is consistent with state and territory laws and gives greater recognition of parentage in addition to non-nuclear family forms and children born under surrogacy arrangements that cannot be the subject of a parentage order under State or Territory surrogacy legislation. (Part of Proposal 3-1)
4. Changing terms such as “parental responsibility” to “decision making responsibility”, “affidavit” to “witness a statement” and “subpoena” to “order to produce information”. (Proposals 3-6, paras 3.19 and 3.20)
5. Making better use of the Rules, Regulations, information materials and other documents by removing parts of the FLA, such as the obligations on professionals and other system participants to explain certain matters to shorten the FLA and provide greater flexibility. (Part of Proposal 3-1, paras 3.9, 3.11)
6. Reviewing all forms to improve usability including –

6.1      A single set of forms for all courts exercising FLA jurisdiction;

6.2      Using smart forms which pre-populate information from previously completed forms;

6.3      Using more check-boxes;

6.4      Retaining paper forms for those individuals without access to technology. (Proposal 3-2)

The proposals to restructure the FLA and re-number it are sensible, although the changeover will be painful for legal professionals and others, particularly when referring to judgments delivered before the change. One example of the complexity of the numbering is that there are approximately 120 sections commencing with s 90 and of course numerous subsections of these, beginning with s 90 and ending with s 90MZH. The section 90s cover a broad range of financial matters, stamp duty, orders and injunctions binding third parties, financial agreements, de facto relationships and superannuation interests. A significant proportion of the FLA is squashed into s 90. There are also over 25 section 66s covering parenting and child maintenance.

Whilst the readability of the FLA for clients is an admirable and sensible objective, placing parts of the legislative regime in a greater number of legislative instruments than already exist and forcing clients, legal professionals and others to refer more frequently to other legislative instruments, arguably makes the law less accessible.

Re-writing the parentage provisions in consultation with the States and Territories is an excellent idea – to ensure consistency of the definition of a parent throughout Australia, fill in gaps created by changes in society and technology, and create one comprehensive piece of legislation which applies for all purposes throughout Australia. To achieve this will, though, require a high degree of co-operation between the States, Territories and the Commonwealth, probably a referral of powers by the States and Territories and consideration as to whether and how the States and Territories can still retain jurisdiction with respect to surrogacy, registration of births and artificial reproduction procedures. It will be an ambitious and challenging undertaking if it proceeds.

Parenting arrangements

The ALRC noted that the current law imposed a complex pathway for decision-making in parenting matters when determining what arrangements will best promote a child’s best interests. The ALRC’s proposals include:

1. Review of the best interests principle in s 60CA FLA that the child’s best interests must be the paramount consideration. Instead, it is proposed that the paramount consideration be “safety and best interests”. (Proposal 3-3)
2. The objects and principles of Part VII in s 60B be amended. For example, the existing s 60B(a) and (b) currently read –

“(a) Ensuring that children have the benefit of both of their parents having a meaningful involvement in their lives, to the maximum extent consistent with the best interests of the child; and

(b)  Protecting children from physical or psychological harm from being subjected to, or exposed to, abuse, neglect or family violence.”

The proposed equivalent provisions are –

“·    arrangements for children should be designed to advance the child’s safety and best interests;

·           arrangements for children should not expose children or their carers to abuse or family violence or otherwise impair their safety;

·           children should be supported to maintain relationships with parents and other people who are significant to their lives where maintaining a relationship does not expose them to abuse, family violence or harmful levels of ongoing conflict.” (Proposal 3-4)

3. Replacing s 60B (which sets out the objects and principles of Part VII (Children) and has inconsistencies with s 60CC) with a new set of principles that largely focus on safety and family violence. (Proposal 3-4)
4. A shorter version of s 60CC with 6 factors rather than 15, which will still have as the final factor “anything else that is relevant to the particular circumstance of the child”. (Proposal 3-5)
5. Codify Rice & Asplund (1979) FLC 90-725 so that the FLA is clearer as to the circumstances when the court may discharge, vary or revive parenting orders under s 65(2). Clients are unlikely to be aware of the limitations and constant re-litigation about parenting arrangements is unlikely to be in the best interests of the child. The new section would state that in considering whether to allow a new application, consideration should be given as to whether:

• there has been a change of circumstances that, in the opinion of the court, is significant; and
• it is safe and in the best interests of the child for the order to be considered. (Proposal 3-8)

The proposal to reform the paramount interest principle could have unintended consequences. Family violence must already be considered in determining the arrangements which are in the best interests of a child. There are two primary considerations (s 60CC(2)) as well as additional considerations (s 60CC(3)) which are:

“(a) The benefits to the child of having a meaningful relationship with both the child’s parents; and

(b)  The need to protect the child from physical or psychological harm, from being subjected to, or exposed to, abuse, neglect or family violence.”

Family violence is also considered expressly or implicitly in some of the additional considerations (e.g. s 66C(3)(f), (i), (j), (k) and (l)).

The ALRC (at para 3.42) posits that the proposal “may not significantly affect the reasoning that should be applied in deciding litigated disputes”. The intention is to send a “strong message” to families of “the centrality of safety to a child’s best interests”. The unintended consequences which may occur include:

• Courts may interpret the legislative changes as intending to effect change in meaning and outcomes. Why else change s 60CC when family violence is already given considerable importance?
• The importance of a child having a meaningful relationship with both parents is likely to be interpreted as less important than it was before the change. There are, of course, families where the degree or nature of family violence means that a “meaningful relationship” between a parent and child is impossible. However, there are many cases where a “meaningful relationship” is possible and indeed desirable.
• Prioritising family violence over a meaningful relationship with a child may produce new generations of children who develop mental health and other problems because they lack the sense of belonging and identity which arises from knowing both parents, albeit flawed parents.
• Without any research statistics about how many clients actually read the FLA or what understanding clients have of the existing structure of s 60CC, the proposed change may not be necessary and may not have the intended effect.

The shorter version of s 60CC will avoid the necessity for parties (and judges) to feel obliged to address all of the existing s 60CC factors, thereby reducing legal costs. The ALRC discussed a simpler pathway for determining parenting disputes (paragraphs 3.36-3.37) but did not make a specific recommendation to do so. Professor Chisholm’s proposals which were published in “re-writing Part VII of the Family Law Act: A Modest Proposal” (2015) 24(3) Australian Family Lawyer 17 is footnoted, but not discussed in detail.

Property division

The ALRC recommended that the property provisions be simplified and clarified, and that there be better responses to family violence.

The ALRC also recommended that further research on property and financial matters after separation including property adjustment after separation, spousal maintenance and the economic wellbeing of former partners and their children after separation was required. This would be an update of research done by the Australian Institute of Family Studies (AIFS), such as the 1986 “Settling up” Report and the AIFS 2016 Longitudinal Study of Separated Families Wave 3. The latter study showed on average that mothers received 57% of property pools. There was significant variation among couples but the most important factors affecting the share of property received were:

• The size of the asset pool, with larger asset pools associated with both mothers and fathers reporting that they received a lower proportion of the asset pool (with the pattern being stronger for mothers);
• Who initiated the separation, and who left the house, with the person who initiated the separation receiving a smaller share of the property;
• A history of family violence, with experiencing family violence being associated with receiving a lower share of property division;
• Care/time arrangements, where parents who had majority care of a child receiving a
• Higher share of the property pool.

The ALRC’s proposals include:

1. Amend the FLA to more clearly articulate the process used by the courts for determining the division of property. (Proposal 3-10)
2. Require courts to take into account the effect of family violence on a party’s contributions and on the future needs of a party. (Proposal 3-11)
3. Undertake further research discussed above (Proposal 3-12) to inform further policy development in the area (para 3.98) including whether there should be a shift from a discretionary system to a prescriptive system in property settlements. (para 3.106)
4. Work with the financial sector to develop protocols for dividing debt on relationship breakdown to avoid hardship for vulnerable parties including for victims of family violence. (Proposal 3-13)
5. Work with the finance sector to make it easier for parties to draft their own superannuation splitting orders. (Proposal 3-17)

The ALRC considered research was required on outcomes for parties with respect to spousal maintenance, property and financial matters and the economic wellbeing of families after separation. Again, child support was not mentioned, but presumably this needs to be included. If there is insufficient research to make substantive proposals for an overhaul of the property and maintenance provisions of the FLA at this time, it seems sensible to defer any tinkering with the FLA until this research has been done.

University of Melbourne academics Belinda Fehlberg and Lisa Sarmas, in their thought provoking submission to the ALRC, supported retention of the discretionary framework, but proposed that different factors be considered:

• the housing requirements of dependent children;
• the material and economic security of the parties;
• whether adjustments should be made as compensation for relationship-based loss; and
• equal division of any surplus.   (para 3.104)

Further research would enable these and other options to be considered in more depth.

Making it easier for parties to argue that an alteration of property interests take into account past family violence than occurs currently under the principle in Kennon & Kennon (1997) FLC 92-757 may have some merit, but may increase litigation rather than reduce it, which is contrary to the objectives of the Review.

The proposal to work with the financial sector to develop standard superannuation splitting orders is well overdue. This will not only make it easier for unrepresented parties to have superannuation splitting orders, but will also make legal costs cheaper for represented parties. Each fund has its own preferred wording but there are usually no substantive differences. At least in relation to accumulation funds, which are the majority of superannuation funds, the differences in preferred orders relate more to differences in legal advice given to the funds and personal preferences rather than any real difference in the needs or practical operation of the funds.

Financial agreements

The ALRC considered that there was significant anecdotal evidence to conclude that financial agreements did not produce the level of certainty that was originally envisaged when they were introduced. There was growing concern within the legal profession about professional liability associated with drafting financial agreements if they were eventually set aside, and the difficulties in predicting the circumstances that may lead to a financial agreement being set aside. There were serious questions about whether the financial agreement provisions of the FLA, particularly in relation to prenuptial agreements, were meeting their original policy objectives, and why amendments to the FLA to allow them to do so were possible without unacceptable unintended consequences. The ALRC said that there seemed to be a reasonable case that prenuptial agreements should be removed from the Act.

The ALRC discussion paper asked in relation to financial agreements which, if any, of the following approaches should be adopted to reform the financial agreement provisions in the FLA:

(a)        Amendments to increase certainty about when financial agreements are binding;

(b)        Amendments to broaden the scope for setting aside an agreement where it is unjust to enforce the agreement, for example, because there has been family violence, or a change of circumstances that was unforeseen when the agreement was entered into;

(c)        Replacing existing provisions about financial agreements with an ability to make court-approved agreements; or

(d)        Removing the ability to make binding prenuptial agreements from the FLA and preserving the operation of any existing valid agreements. (Question 3-3)

Clearly, financial agreements are problematic and reform should be considered. It is probably correct to say that the original policy objectives of financial agreements are not being met. Abolishing financial agreements altogether would, though, be a major change. It is unfortunate that the ALRC, while seeking answers to the questions it posed about the future of financial agreements, did not devote more than 3 pages to the topic and give more detail about the submissions it received.

Spousal maintenance

The ALRC considered submissions which suggested that spousal maintenance provisions were underutilised in circumstances where there was clear evidence that family breakdown leads to financial hardship from which women take longer to recover than men.

The ALRC proposed:

1. A dedicated spousal maintenance version of s 75(2) including a requirement that the court consider the impact of any family violence on the ability of the applicant to adequately support themselves. (Proposal 3-18)
2. A requirement that the impact of any family violence on the ability of the applicant for spousal maintenance to adequately support themselves be a consideration in s 75(2). (Proposal 3-19)

In Question 3-4 the ALRC asked what options should be pursued to improve the accessibility of maintenance to individuals in need of income support. Consideration could be given to, for example:

• Greater use of registrars to deal with urgent applications;
• Administrative assessment.

Redrafting the spousal maintenance provisions to more clearly set out for readers the process for assessing spousal maintenance and remove the cross-reference between property orders and spousal maintenance is proposed at paragraph 3.168, but this is not a definite proposal. This seems to be a sensible suggestion, although it would make the FLA longer, not shorter, which is inconsistent with Proposal 3-1.

The Discussion Paper did not deal with child support. The ALRC made recommendations about spousal maintenance but it managed to do this without making reference to the changes in the child support formula which have reduced the amount payable, and how these changes have impacted on the financial circumstances of primary caregivers and the capacity of primary income earners to pay spousal maintenance.

Getting advice and support

To address the complex needs of many families and the fragmentation of services, the ALRC proposed:

1. Community-based family hubs should be operated by the federal government in conjunction with State and Territory governments to provide separating families and their children with a visible entry point for accessing a range of legal and support services. (Proposal 4-1)
2. The hubs should include on-site out-posted workers from a range of relevant services including:

• Specialist family violence services;
• Legal assistance services (such as community legal centres);
• Family dispute resolution services;
• Therapeutic services (such as family counselling and specialised services for children);
• Financial counselling services;
• Housing assistance services;
• Health services (such as mental health services and alcohol and other drug services);
• Gambling help services;
• Children’s contact services; and
• Parenting support programs or parenting education services (including a program for fathers). (Proposal 4-3)

3. Expansion of the family advocacy and support service (FASS) in each State and Territory to include information and referral office is providing triage, a family violence specialist legal service and support service and an additional legal service and support service to assist clients who are alleged to have used family violence and clients who are not affected by family violence but have other complex needs. (Proposal 4-5)

The above proposals are arguably idealistic. They may be “best practice”, but they require significant expenditure by the Federal Government and State and Territory governments. Such expenditure is likely to be difficult to achieve in the current climate.

Dispute resolution

Building on the success of family dispute resolution (FDR) in parenting which is reflected in the reduction in court filings in children’s matters by 25%, the ALRC proposed:

1. Compulsory FDR for property and financial matters prior to instituting proceedings except in a limited range of exceptions. The proposed exceptions are:

• where there is an imbalance of power, including as a result of family violence;
• where there are reasonable grounds to believe non-disclosure may be occurring;
• where one party has attempted to delay or frustrate the resolution of the matter; and
• where there are allegations of fraud.   (Proposal 5-3)

2. Adding a further matter when considering suitability for FDR. Regulation 25 Family Dispute Resolution Regulations 2008 currently requires a consideration of:

(a)     history of family violence (if any) among the parties;

(b)     the likely safety of the parties;

(c)     the equality of bargaining power among the parties;

(d)     the risk that a child may suffer abuse;

(e)     the emotional, psychological and physical health of the parties;

(f)      any other matter that the family dispute resolution practitioner considers relevant.

The ALRC proposes that there be an additional consideration – namely the extent to which there is an imbalance in knowledge of the parties’ financial arrangements. This reflects concerns that one party may benefit from an FDR process as a result of superior knowledge of relevant financial arrangements. (Proposal 5-2, paras 5.26-5.27)

3. A requirement that parties lodge a genuine steps statement at the time of filing an application for property and financial matters, and that if a court finds that a party has not made a genuine effort to resolve a matter in good faith, the court take this into account in determining how the costs of litigation are apportioned. (Proposal 5-4)
4. The provisions for non-disclosure in the FLA be amended to set out clearly that a failure to intentionally provide full, frank and timely disclosure may result in:

• consequences, including punishment for contempt of court;
• the non-disclosure being taken into account in determining how costs will be apportioned;
• the stay or dismissal of the party’s case.

5. The development of guidelines for the delivery of legally assisted dispute resolution (LADR) for parenting and financial matters. (Proposal 5-10)

The proposals above are mostly sensible and practical, and the costs involved for the Federal Government are not significant, so they may actually happen.

The introduction of compulsory FDR for property and financial matters is, however, difficult to reconcile with protecting the interests of victims of family violence. The ALRC acknowledges this difficulty and proposes a broader list of exceptions than apply in parenting matters to address possible adverse consequences. In practice though, anecdotally in parenting matters victims of family violence are often intimidated and pressured by their partners into using the FDR procedure before issuing parenting proceedings, even if they are within an exception. The prospects of this occurring in financial matters has the potential to be greater.

The problems are exacerbated by the difficulty of reconciling compulsory FDR with the genuine steps statement. How they fit together is not adequately explained in the Discussion Paper.

Reshaping the adjudication landscape

The ALRC recommended efforts to provide timely and cost-effective adjudication pathways and processes that are adapted to address safety concerns and problematic parenting arrangements. The ALRC’s proposals include:

1. The Family Court should have a team-based triage process to ensure that matters are directed to appropriate alternative dispute resolution processes and specialist pathways within the court as needed and ensuring initial and ongoing risk and needs assessment and case management. (Proposals 6-1 and 6-2)
2. Specialist court pathways should include:

• A simplified small property claims process;
• A specialist family violence list; and
• The Indigenous List. (Proposal 6-3)

3. Factors to consider in determining whether the simplified court procedure should apply to a particular matter, include:

• the relative financial circumstances of the parties;
• the parties’ relative levels of knowledge of their financial circumstances;
• whether either party is in need to urgent access to financial resources to meet the date to day needs of themselves and their children;
• the size and complexity of the asset pool; and
• whether there are reasonable grounds to believe there is history of family violence involving the parties, or risk of family violence.

The court should give weight to each of these factors as it sees fit. (Proposal 6-5)

4. A post-order parenting support service be developed by the federal government to assist parties to parenting orders to implement the orders and manage their co-parenting relationship by providing services including:

• Education about child development and conflict management;
• Dispute resolution; and
• Decision making in relation to the implementation of parenting orders. (Proposal 6-9)

5. Redesigning all family court premises including circuit locations and state and territory court buildings that are used for family law matters to be safe for attendees including ensuring the availability and suitability of waiting areas and rooms, private interview rooms and multiple entrances and exits. (Proposal 6-12)
6. The ALRC, responding to concerns about the Parenting Management Hearings Panel (PMH Panel), legislation for which was introduced to Parliament in December 2017, asked for suggestions as to changes to the proposed model (Questions 6-3 and 6-4). The PMH Panel will provide a multi-disciplinary alternative to court proceedings for less complex matters where parties will not be legally represented.

The ALRC asked what criteria should be used to establish eligibility for the family violence list (Question 6-1). The ALRC noted that family violence was a feature of the majority of matters before the family courts, the ALRC suggested that the list focus on “high risk” cases. Relevant factors in determining “high risk” cases might include:

• the level of urgency and risk;
• involvement of the family in other jurisdictions in relation to civil or criminal family violence matters;
• involvement with child protection agencies;
• one or both parties being self-represented;
• one or both parties being from Aboriginal or Torres Strait Islander backgrounds, culturally or linguistically diverse backgrounds or have a disability. (para 6.32)

A simplified small property claims list is a practical proposal. As the ALRC identified, the implementation of this will need to look at, for example:

• How to deal with small property pools with complex legal issues.
• Large property pools with simple legal issues.
• Differing property values across Australia.
• How to provide for these changes in the simplification of the FLA.
• Increased role for Registrars.
•  Streamlined case management. (paras 6.17-6.20)

The Discussion Paper seems to be largely directed to the conduct of trials in small property claims (e.g. discretion in relation to the rules of evidence and case outlines) so much more work needs to be done on the practicalities of the procedure, particularly for those matters that don’t reach trial.

The major problem with Proposals 6-1 and 6-2 arises from the high percentage of cases in the family courts which involve allegations of family violence. The ALRC acknowledges this, but suggests that a triage process will be able to sort out which cases should be in the Family Violence List. In many cases where family violence is alleged, the allegations are denied. Whether or not there was family violence and the degree of it may only be resolved at trial or, if the case settles before trial, it may never be resolved.

Proposals 6-1 and 6-2 also suggest that initial and ongoing triage does not currently occur. This is incorrect. It does occur, particularly in the Family Court and, to the extent possible within a docket list system, it occurs in the Federal Circuit Court system. Greater triage requires greater resources, and directing resources to ongoing assessment requires even greater resources than initial triage. The Family Law Courts have, for many years, successfully held “blitzes” and the recent Conferences conducted in the Family Court with Registrars and Family Consultants resulted in the settlement of many parenting cases.

The ALRC’s proposals mostly require additional funding from the Federal Government to the Family Law Courts (and for State and Territory Governments to make physical upgrades to courts where family violence applications are heard) which, in the current environment, appears unlikely to be achieved. The stated objective of the courts’ restructure Bills is to create efficiencies and resolve more cases. The Federal Government has not indicated a desire to allocate more funds and other resources to the family law system, in fact to the contrary.

Children in the family law system

The ALRC recommended improvements in the children’s right to be heard, whilst prioritising their safety. The proposals include:

1. The FLA should provide that in proceedings concerning a child, an affected child must be given an opportunity (in so far as practicable) to express their views. However, children should not be required to express any views. (Proposal 7-7)
2. Children involved in family law proceedings should be supported by a children’s advocate who is a social science professional with training and expertise in child development and working with children. The role of the children’s advocate should be to explain to the child their options for making their views heard, support the child to understand their options and express their views, ensure that child’s views are communicated to the decision maker and keep the child informed of the progress of a matter and to explain any outcomes and decisions made in a developmentally appropriate way. (Proposal 7-8)
3. The separate legal representative for a child would still have a role. This role would be to gather evidence that is relevant to an assessment of a child’s safety and best interests and assist in managing litigation including acting as an honest broker in litigation. (Proposal 7-10)
4. Guidelines be developed to assist judicial officers where children seek to meet with them or otherwise participate in proceedings. (Proposal 7-12)
5. There be a Children & Young People’s Advisory Board for the family law system which would provide advice about children’s experiences of the family law system to inform policy and practice development in the system. (Proposal 7-13)

The question was asked whether or not a separate legal representative should be appointed in addition to a children’s advocate (Question 7-1) and how they would be appointed, managed and coordinated. For example, should a new body be created to undertake this task? (Question 7-2)

Funding for Legal Aid bodies to provide separate legal representation for children is already tight. The ALRC is proposing that all children involved in family law proceedings be supported by children’s advocates as well as some children having separate legal representatives. Again, funding for this proposal seems unlikely.

The idea that judges speak directly to children seems unlikely to be embraced by judges themselves, who prefer to rely on the reports of family consultants who are experienced and trained in speaking with children. There may be problems if the child says something to a judge but wants to be kept confidential. There are also general evidentiary and due process problems. The ALRC recognises these problems but believes they can be overcome. The practices of other jurisdictions in presenting the views of children to courts are discussed by the ALRC, but the reason for the rejection of these other options in favour of a child being able to, at the child’s election, speak to the judge when the child expresses a desire to do so (Paragraph 7.98) is not fully explained.

Reducing harm

The ALRC recognised that many families who engage with the family law system have complex needs, including many who have needs associated with family violence and the safety of children. The ALRC’s proposals include:

1. The definition of “family violence” in the FLA be amended to:

• Include emotional and psychological abuse and technology facilitated abuse;
• Ensure it is clear that the definition of abuse encompasses direct or indirect exposure to family violence;
• Include misuse of legal and other systems and processes in the list of examples of acts that can constitute family violence in s 4AB(2) by including a new subsection referring to the “use of systems or processes to cause harm, distress or financial loss”. (Proposals 8-1 and 8-3)

2. Courts be given the power to exclude evidence of “protected confidences”, that is, communications made by a person in confidence to another person acting in a professional capacity who has an express or implied duty of confidence. Subpoenas in relation to evidence of “protected confidences” would not be able to be issued without the leave of the court. The court should exclude evidence of protected confidences where it is satisfied that it is likely that harm would or might be caused, directly or indirectly, to the protected confider, and the nature and extent of the harm outweighs the desirability of the evidence being given. Harm would be defined to include actual physical bodily harm, financial loss, stress or shock, damage to reputation or emotional or psychological harm (such as shame, humiliation and fear). (Proposal 8-6)
3. The Attorney-General’s Department should convene a working group comprised of the Family Courts, the Family Law Section of the Law Council of Australia, the Royal Australian & New Zealand College of Psychiatrists, the Australian Psychological Society, the Royal Australian College of General Practitioners, Family Relationship Services Australia, National Legal Aid, Women’s Legal Services Australia and specialist family violence services peak bodies and providers to develop guidelines in relation to the use of sensitive records in family law proceedings. (Proposal 8-7)

The “protected confidences” proposal is probably one of the most controversial proposals in the Discussion Paper. The common law and the Evidence Act 1995 (Cth) provide only limited grounds for privilege in relation to documents and other evidence. The ALRC’s proposal is modelled on s 126B Evidence Act 1995 (NSW), but this is primarily used in criminal proceedings to protect the notes of professionals who the victim has consulted from being produced in criminal proceedings. The risks and benefits of such a provision in proceedings relating to the welfare of children is not as clear cut. In a criminal proceeding the notes of a victim’s counsellor are arguably of little importance unless the counsellor has given a report and the defendant seeks to challenge the extent of the impact of the crime on the victim. That is very different from the wide ranging nature of notes of professionals in family law proceedings which may reveal discrepancies relevant to the best interests of children in historical accounts and facts asserted by one party and challenge the conclusions reached by a counsellor who may be a “cheerleader” for one of the parties, not having had the opportunity to hear the other party’s version of events and assess the other party.

Whilst at Question 8-4, the ALRC asked what, if any, changes should be made to the court’s powers to apportion costs under s 117 FLA, the only proposals by the ALRC are to make clearer the court’s powers to make costs orders where there has been intentional non-disclosure and to take into account a failure to make a genuine effort to resolve a matter in good faith prior to the institution of proceedings. The former power already exists in s 117(2A)(c) which requires the court to “have regard to … the conduct of the parties to the proceedings” so it is not a radical change. The latter would be a greater change but is common in other courts, such as in the Federal Court. It is a pre-litigation procedure and therefore does not address the common practice of parties failing to take genuine steps to resolve a dispute once proceedings have commenced and the parties are in possession of greater knowledge of the overall case including the other parties’ financial circumstances and the strengths and weaknesses of each other’s cases. There was, some years ago, a requirement that after a conciliation conference each party exchange offers of settlement. Perhaps that should be re-introduced?

Additional legislative issues

The ALRC recognised that some parties need assistance with decision-making. Its proposals include:

1. The federal government should work with state and territory governments to facilitate the appointment of statutory authorities as litigation representatives for parties with disabilities in family law proceedings. (Proposal 9-5)
2. The family law system should have specialist professionals and services to support people with disability to engage with the family law system. (Proposal 9-7)

The ALRC proposes that litigation representatives have a different role than current case guardians and litigation guardians (Proposals 9-3 and 9-4) and specifically that they:

“1.     support the person represented to express their will and preferences in making decisions;

2.       where it is not possible to determine the will and preferences of the person, determine what the person would likely want based on all the information available;

3.       where 1. and 2. are not possible, consider the person’s human rights relevant to the situation; and

4.       act in a manner promoting the personal, social, financial and cultural wellbeing of the person represented.”

The ALRC pointed out at (para 9.67) the benefits of appointing State and Territory authorities to the role include that:

• they do not have the potential conflict of interest issues that others, such as family members, may have;
• they have appropriate skill sets for the role; and
• they should be able to be appointed without delay.

The lack of ready availability of people able and willing to act as case guardians or litigation guardians is a significant barrier for access to justice by parties who lack the capacity to conduct their own litigation. The proposal to work with State the Territory governments to facilitate the appointment of litigation representatives is essential to address this gap.

In part, the implementation of this will be assisted by a provision in the Civil Law and Justice Legislation Amendment Act 2018 (Cth) (referred to as a Bill in the Discussion Paper, but it has now been passed), which inserts a provision into the FLA to prohibit courts from making an order for costs against a guardian unless the court is satisfied that an act or omission of the guardian is unreasonable or has unreasonably delayed the proceedings.

A skilled and supported workforce

The ALRC proposed the development of a workforce capability plan for the family law system, including:

1. Core competencies for the family law system workforce should be identified and training and accreditation identified for the different professional groups.   (Proposal 10-2)
2. Core competencies for family law system professionals should include:

• an understanding of family violence;
• an understanding of child abuse, including child sexual abuse and neglect;
• an understanding of trauma-informed practice, including an understand of the impacts of trauma on adults and children;
• an ability to identify and respond to risk, including the risk of suicide;
• an understanding of the impact on children of exposure to ongoing conflict;
• cultural competency, in relation to Aboriginal and Torres Strait Islander people, people from culturally and linguistically diverse communities and LGBTIQ people;
• disability awareness; and
•  an understanding of the family violence and child protection systems and their intersections with the family law system. (Proposal 10-3)

3. State and territory law societies should amend their continuing professional development requirements to require all legal practitioners undertaking family law work to complete at least one unit of family violence training annually. (Proposal 10-6)
4. It is critical that all future appointments of federal judicial officers exercising family law jurisdiction should include consideration of the person’s knowledge, experience and aptitude in relation to family violence. (Proposal 10-8)
5. The new Family Law Commission (proposal 12-1) should develop a national accreditation system with minimum standards for private family report writers. (Proposal 10-9)
6. In appropriate matters involving the care, welfare and development of a child, Judges should consider appointing an assessor with expert knowledge in relation to the child’s particular needs to assist in the hearing and determination of the matter. (Proposal 10-12)

The proposal that when appointing federal judicial officers exercising family law jurisdiction consideration be given to their knowledge, experience an aptitude in relation to family violence is at odds with the current Federal Circuit Court Act 1999 and the proposed Family Court and Federal Circuit Court Bill 2018 which do not include a requirement for family law expertise, let alone family violence expertise, for Federal Circuit Court judges.

The ALRC noted that, although judicial training is offered by the National Judicial College of Australia and the Family Court of Australia, judicial officers cannot be compelled to attend or participate in training following their appointment to the bench, because of the principle of judicial independence (para 10.60). Their expertise and experience before appointment is therefore vital.

The ALRC recommended that the FLA be reworded to focus on competencies rather than personality (para 10.62), but is silent about judges appointed under the Federal Circuit Court Act although Proposal 10-8 suggests that all judges exercising FLA jurisdiction should have this expertise.

Information sharing

Timely exchange of information between entities within the family law system and between the family law, family violence and child protection systems to promote the wellbeing and safety of families and children through early identification of risk and better co-ordination of interventions. Specifically, the ALRC’s proposals include:

1.         State and territory child protection, family violence and other relevant legislation should be amended to remove provisions preventing state and territory agencies from disclosing relevant information to courts, bodies and agencies in the family law system in appropriate circumstances and include provisions that explicitly authorise them to do so. (Proposal 11-1)

2.         State and territory governments should consider providing access for Family Courts and appropriate bodies and agencies in the family law system to relevant inter-jurisdictional and intra-jurisdictional child protection and family violence information sharing platforms. (Proposal 11-5)

3.         Section 121 FLA be redrafted to:

• make the obligations it imposes easier to understand;
• clarify that government agencies, family law services, service providers for children and family violence providers are not part of the “public”. (Proposal 12-11)

The ALRC asks the question whether social media or other internet-based media should be referred to explicitly in s 121. (Question 12-1)

States and Territories currently differ in their attitudes to information sharing. New South Wales allows information to be exchanged between Child Protection and Family Violence Courts with the prescribed bodies, and Federal and Family Law Courts are prescribed bodies for the purpose of this legislation (para 11.20). By contrast, Victoria imposes penalties for the unlawful sharing of Children’s Court clinic reports (para 11.23).

The difficult question of privacy, if publication is allowed to a larger number of organisations under s 121, is not sufficiently addressed in the Discussion Paper.

Question 11-1 raised the question of which databases might be shared or sought about persons involved in family law proceedings, but more work needs to be done in weighing up the privacy of individuals and the extent to which information should be shared and how it is shared.

System oversight and reform evaluation

To promote confidence in the family law system, the ALRC proposes:

1. The federal government should establish a new independent statutory body, the Family Law Commission, to oversee the family law system. (Proposal 12-1)
2. A system of accreditation of family law system professionals with the oversight of the Family Law Commissioner. (Proposal 12-2).

Proposal 12-2 is intended to apply to legal practitioners. How this would interact with the regulation of legal practitioners by the various States and Territories and particularly for young practitioners who are not eligible to seek accreditation as a family law specialist, is not known. The ALRC says at para 12.24:

“It is not anticipated that these new accreditation requirements would simply duplicate the regulatory role that another professional body may already have for a particular professional. Rather, by structuring the accreditation requirements around the core competencies identified specifically for family law service providers in the workforce capability plan … it is expected that a significant number of the attributes and behaviours to be regulated by the Family Law Commission would be quite distinct from those regulated by other professional bodies.”

The ALRC asks whether there should be a judicial commission established to cover at least Commonwealth judicial officers exercising FLA jurisdiction and, if so, what the functions of the Commission should be. The intention is to enable a different process for complaints, other than complaints to the heads of jurisdiction, with greater transparency and independence, so as to improve public confidence in judicial officers exercising family law jurisdiction. There would be constitutional constraints, but the ALRC considers it timely to consider establishing one (Question 12-2).

In the current climate where there have been attacks on the family law judiciary by the Attorney-General and heads of jurisdiction, the question needs to be asked whether establishing a judicial commission solely for the family law judiciary would be seen as a further attack on the competence of those judges. If a judicial commission is to be established, it should arguably cover other federal judges as well.

What did the ALRC miss?

The Discussion Paper was not the “comprehensive review” promised by the Federal Government in its Terms of Reference. The Discussion Paper is over 350 pages long and deals with issues relating to family violence at length, making many proposals to improve the court’s processes for victims of family violence. The need for a comprehensive review of family violence in the family law system was clearly necessary, but the ALRC’s task was broader than this. Disappointingly, the ALRC has missed an opportunity which may not arise again for many years, to undertake a comprehensive review of the whole of the family law system. The proposed court restructure was not one of its Terms of Reference and the discussion paper does not deal with it head on but touches on issues related to the structure of the courts in passing.

Important areas of family law which were not dealt with comprehensively or at all, but need attention include:

• Child support which has become an overly complex scheme both in legislative terms and procedures for altering assessments.

• The rights of trustees in bankruptcy vs the rights of creditors (particularly where there is a bankruptcy) to intervene in FLA proceedings, e.g. Grainger & Bloomfield (2015) FLC 93-677. For example, the definition of “creditor” in s 75(2)(ha) appears not to encompass the trustee in bankruptcy.

• Aligning the property and maintenance provisions which relate to married couples more closely to those that relate to de facto couples. They are similar, but not precisely the same.

• Does the definition of a de facto relationship need review?

• Which court procedures work best? For example, there is no comparison of the experience of parties whose first court date is a case assessment conference in the Family Court or a listing in open court with other cases in either of the Family Law Courts.

• Divorce procedures and requirements.

• The involvement of third parties.
• Adult child maintenance, which like spousal maintenance, is probably under-utilised, and would benefit from a similar revamping of procedures as is proposed for spousal maintenance.

Conclusion

The ALRC Discussion Paper raises many practical proposals and asks some useful questions. The fact that it is not the “comprehensive review” promised, is disappointing. The complete omission of child support and the failure to expressly address the structure of the Family Law Courts are major gaps. Despite these deficiencies, the Discussion Paper is an important document which everyone who interacts with the family law system should read and consider making submissions by 13 November 2018 which can be taking into account in the Final Report which is due to be delivered to the Attorney-General on 31 March 2019.

© Copyright – Jacqueline Campbell of Forte Family Lawyers and Wolters Kluwer/CCH. This paper uses some material written for publication in Wolters Kluwer/CCH Australian Family Law and Practice. The material is used with the kind permission of Wolters Kluwer/CCH.

Jacky Campbell, October 2018

Hot Cases in family law – 2018

The most important cases in 2018 have been diverse. This paper looks at some of these. Financial agreements continue to raise new legal issues, and defining a de facto relationship continues to be far more problematic than one would expect. An unusual case involved the ability of an adult child to access the court file of his parents. In two cases, the Full Court explored the issue of who is a parent.

1. Who is a parent?

The issue of who is a parent under the Family Law Act 1975 (Cth) (“FLA”) involves the interaction of State and Territory law (with respect to the registration of births, the regulation of artificial conception and domestic surrogacy) and the parentage presumptions in the FLA.

The Full Court of the Family Court has recently considered the issue in two cases:

• Shaw & Lamb (2018) FLC 93-826
• Parsons and Anor & Masson (2018) FLC 93-846.

Shaw & Lamb (2018) FLC 93-826

The proceedings involved a domestic altruistic surrogacy arrangement in Queensland, where the birth mother, the surrogate, had refused to consent under the surrogacy legislation to the intended parents being registered as the parents of the child. The appellant was the birth mother of the child. She appealed from Order 7(b), which provided:

“The parties do all acts and things, including singing [sic] any necessary documents, to cause the child’s birth registration details to be amended to ensure that:

… (b) [the male respondent] is entered as the father of the child on the child’s birth certificate.”

It was not in issue before the trial judge that the respondents (the intended parents) would have equal shared parental responsibility and the child would live with them. The appellant sought time with the child. The trial judge ordered that the appellant “have time with the child as may be determined by the [respondents] at their sole discretion”. The appellant did not appeal that order.

The Full Court approved the trial judge’s recognition that he was bound by the Full Court’s decision in Bernieres & Dhopal (2017) FLC 93-793. This decision was handed down while the trial judge’s decision was reserved. Although the trial judge expressed doubts about Bernieres, he followed it.

The two aspects of the trial judge’s decision in which he followed Bernieres, which were not challenged in the appeal were:

1. The plain intention of s 60HB FLA was to leave it to each of the States and Territories to regulate the status of children born under surrogacy arrangements;
2. As no “parentage order” had been made under the Surrogacy Act 2010 (Qld), the question of who was a “parent” was to be determined by reference to the Status of Children Act 1978 (Qld).

The trial judge also found that the combined effect of s 177 Surrogacy Act (Qld) and s 23(4) Status of Children Act (Qld) meant that the father was a parent of the child and that, consistent with Bernieres, the FLA recognised that status. The appeal challenged this finding.

The trial judge did not make a finding that the preconditions necessary for the application of s 23 Status of Children Act were met. Section 23(4) sets out the presumption as to the status of the adults involved where donor sperm is used under Queensland law. It provides:

“Also, the man who produced the semen has no rights or liabilities in relation to any child born as a result of the pregnancy happening because of the use of the semen unless, at any time, he becomes the husband of the child’s mother.”

The preconditions for s 23 are set out in s 20, which provides:

This subdivision applies if —

(a)     a married woman undergoes a fertilisation procedure other than with her husband’s consent; or

(b)     a woman who is not married and does not have a de facto partner or civil partner undergoes a fertilisation procedure; or

(c)     a woman who has a de facto partner undergoes a fertilisation procedure other than with her partner’s consent; or

(d)     a woman who has a civil partner undergoes a fertilisation procedure other than with her partner’s consent.”

The Full Court found there was no agreement between the parties that the trial judge was entitled to proceed on the assumptions necessary to found the application of s 23. There weren’t evidence or submissions to enable the trial judge to address the applicable presumptions, and the trial judge’s reasons did not address the necessary preconditions. The Full Court therefore found (at [47]) that:

“His Honour failed to consider and make findings as to a matter central to a question of law which required determination”.

Although the specific errors were not pleaded in the grounds for appeal, the trial judge was required to consider the assumptions in s 23 as it was a central question of law which required determination. As a result of his failure to do so, the Full Court found that the trial judge’s reasons were inadequate.

The Full Court, conscious of the fact that a rehearing would involve the persistence of conflict and further costs, said (at [62]) suggested that it was likely that even if the correct pathway had been followed, the trial judge’s finding under s 23(4) would probably have been the same:

“We will say no more than this. If it be established that s 16 of the Status Act does not apply and if, in lieu, it be established that one of the preconditions within s 20 does not apply, we are, as informed currently by the arguments before us, by no means convinced that his Honour erred in his interpretation of s 23(4). Very careful consideration might be given to the statutory provisions and to his Honour’s reasons.”

Parsons and Anor & Masson (2018) FLC 93-846

The first and second appellants (the biological and birth mother of B and C, and her partner) wanted to relocate to New Zealand with the children B and C, aged 10 and 9 years. The respondent wanted the children to remain in Australia and wished to continue spending regular time with them.

The appellants cohabited before they were married in New Zealand in 2015, prior to same-sex couples being able to marry in Australia. The first appellant was the biological and birth mother of both B and C, who were both conceived by artificial insemination. The girls lived with the appellants, but had spent time with the respondent, who was B’s biological father and was registered on her birth certificate. Both B and C called him “Daddy”.

The identity of C’s biological father was unknown, but s 60H Family Law Act 1975 (Cth) (“FLA”) deemed the second appellant to be her other “parent”. She was shown as this on C’s birth certificate.

The trial judge found that the respondent was “a legal parent of B”, gave him extensive time with both girls and restrained the appellants from moving with the girls to New Zealand. The appellants were given equal shared parental responsibility of the girls on the basis that they must consult with the respondent before making any long term decisions.

The appellants challenged most of the orders, including the respondent’s input into parental responsibility. The respondent and the Independent Children’s Lawyer opposed the appeal.

There were three main issues in the appeal:

1. The finding that the respondent was a “parent” of B within the meaning of the FLA. The appellants submitted that the trial judge, who was sitting in New South Wales, erred in failing to recognise that s 79 of the Judiciary Act 1903 (Cth) (“JA”) required her to apply the Status of Children Act 1996 (NSW) (“the State Act”). The effect of the State Act was that the respondent was conclusively presumed not to be B’s father.
2. The trial judge’s method of ascertaining the best interests of the children. The appellants said this was flawed, not only as a result of the erroneous finding that the respondent was B’s “parent”, but also because the trial judge effectively treated him as if he was also C’s “parent”.
3. The finding that the appellants were not in a de facto relationship when B was conceived. That finding precluded a finding that the second appellant was legally B’s “parent”, and paved the way for the ultimate finding that the respondent was B’s “parent”. The Full Court was not persuaded that there was merit in this argument.

The statutory provisions

Three statutory provisions were expressly considered:

1. Section 79(1) of the JA provides that State or Territory laws mandatorily govern, where applicable. It states:

“The laws of each State or Territory … shall, except as otherwise provided by the Constitution or the laws of the Commonwealth, be binding on all Courts exercising federal jurisdiction in that State or Territory in all cases to which they are applicable.”

2. Section 14 of the State Act, which the appellants said was “picked up” by virtue of s 79(1) of the JA, lays down a series of presumptions of parentage of children born as a result of artificial conception procedures. Of particular relevance were s 14(2) and 14(4):

“(2) If a woman (whether married or unmarried) becomes pregnant by means of a fertilisation procedure using any sperm obtained from a man who is not her husband, that man is presumed not to be the father of any child born as a result of the pregnancy.

(4)  Any presumption arising under subsections (1)–(3) is irrebuttable.”

Section 60H of the FLA also deals with the status of children born as a result of artificial conception procedures. It states:

(1)     If:

(a)     a child is born to a woman as a result of the carrying out of an artificial conception procedure while the woman was married to, or a de facto partner of, another person (the other intended parent); and

(b)     either:

(i)      the woman and the other intended parent consented to the carrying out of the procedure, and any other person who provided genetic material used in the procedure consented to the use of the material in an artificial conception procedure; or

(ii)      under a prescribed law of the Commonwealth or of a State or Territory, the child is a child of the woman and of the other intended parent,

then,  whether or not the child is biologically a child of the woman and of the other intended parent, for the purposes of this Act:

(c)     the child is the child of the woman and of the other intended parent; and

(d)     if a person other than the woman and the other intended parent provided genetic material—the child is not the child of that person.

(2)     If:

(a)     a child is born to a woman as a result of the carrying out of an artificial conception procedure; and

(b)     under a prescribed law of the Commonwealth or of a State or Territory, the child is a child of the woman,

then, whether or not the child is biologically a child of the woman, the child is her child for the purposes of this Act.

(3)     If:

(a)     a child is born to a woman as a result of the carrying out of an artificial conception procedure; and

(b)     under a prescribed law of the Commonwealth or of a State or Territory, the child is a child of a man,

then, whether or not the child is biologically a child of the man, the child is his child for the purposes of this Act.

The Full Court noted, in relation to the above (at [14]) that:

(a)   The State Act was prescribed for the purposes of s 60H(1)(b)(ii) – Regulation 12C of the Family Law Regulations 1984 (Cth) (“the Regulations”);

(b)   Section 14 of the State Act was prescribed for the purposes of s 60H(2)(b) – Regulation 12CA of the Regulations;

(c)   No law had been prescribed for the purposes of s 60H(3).

Section 109 Constitution was not expressly referred to, but was referenced by the Full Court:

“When a law of a State is inconsistent with a law of the Commonwealth, the latter shall prevail, and the former shall, to the extent of the inconsistency, be invalid.”

The trial judge’s reasons

The trial judge accepted that both the second appellant and the respondent had standing to apply for parenting orders, regardless of whether they were “parents”. They were persons “concerned” under s 65C FLA. However, it was still necessary for other purposes to make a finding as to who were the legal “parents” of both girls.

The trial judge disagreed with the approach taken in Re Patrick (2002) FLC 93-096 and agreed with the approach taken in Re Mark (2003) FLC 93-173 and Groth & Banks [2013] FamCA 430. Her reasoning was repeated (at [17]) by the Full Court, and in summary was:

• For the respondent to be a legal parent, the evidence must at least support findings that he provided his genetic material for the express purpose of fathering a child he expected to parent, and was unaware of the de facto relationship which was asserted to have been in existence between the appellants at the time of conception.
• In Re Patrick, Guest J held that the biological father of a child conceived in an artificial insemination procedure by a male known donor to a same sex female couple was only regarded as a parent if there was a specific State or Territory law which expressly conferred that status on a “sperm donor” for the purposes of the FLA. As there was no law in Victoria making him a parent, he found that the sperm donor was not a parent.
• She agreed with Re Mark [2003] FamCA 822. A gay male couple entered into an overseas surrogacy agreement with a surrogate who carried the pregnancy. One of the men, Mr X, provided his sperm. An anonymous donor egg was used. Justice Brown found that the ordinary meaning of the word “parent” encompassed a person in Mr X’s position, saying:

“Mr X provided his genetic material with the express intention of fathering (begetting) a child he would parent. He is not a sperm donor, (known or anonymous), as that term is commonly understood. The fact that the ovum was fertilised by a medical procedure, as opposed to fertilisation in utero through sexual intercourse, is irrelevant to either his parental role or the genetic make-up of Mark.”

• She agreed that the intention and belief of a party to an artificial insemination process is a factor to be taken into account, but where there is a challenge to a biological parent being a legal parent, biology is a part of the answer.
• If the evidence supported a finding that the respondent (at [95]) “took part in the artificial insemination process believing that he was fathering a child whom he would help to parent, by financial support and physical care, then absent other legally disqualifying factors, he is a parent in the ordinary meaning of the word”.
• She agreed with Cronin J in Groth & Banks, that s 60H of the FLA should be interpreted as expanding rather than restricting the categories of people who can be parents. This proposition was consistent with the absence of an exhaustive definition of the term “parent” in s 4 of the FLA. The trial judge, however, mis-stated the facts of Groth & Banks (at [97]) as being “a man and a woman who had separated as a couple agreed to undergo IVF and raise the child as separated parents”. This was not correct. The parties, who had many years before been a couple, agreed to undergo IVF, with the male assisting the female to have a child as a known sperm-donor, but not as a parent or father. He changed his mind sometime after the child was born and wanted to be known to the child as a father and as a parent. In Groth & Banks the mother relied on the relevant state legislation (of Victoria) which contained an irrebuttable presumption of law that if a woman becomes pregnant as a result of an IVF procedure and a child is born, the man who produced the semen used in the procedure is not the father of the child. Justice Cronin referred to “the fact that a child has two parents who are his or her biological progenitors permeates the language of the Act”, and concluded that “biology is the determining factor unless specifically excluded by law”. If the mother had been in a de facto relationship with a woman or a man, s 60H(1) would have excluded the sperm-donor from being a father or parent. It was only because she was single that Cronin J was able to conclude that he was the father.

The trial judge in Parsons & Masson concluded that the appellants were not partners in a de facto relationship when B was conceived in December 2006, and the respondent believed that he would take on parental responsibilities as a parent and he provided his sperm for that purpose. She concluded that the respondent was the biological father and legal parent of B.

Who legally is B’s “parent”?

Justice Thackray (with whom Murphy and Aldridge JJ agreed) noted that the line of authority followed by the trial judge effectively postulated that the relevant law is to be found in the FLA. The appellants submitted, in effect, that this was a constitutional heresy given there was a State law with obvious application to the circumstances. Justice Thackray agreed with the appellants. As the case was heard in the federal jurisdiction, it was mandatory for s 79 JA to be applied.

Justice Thackray quoted (at [22]) the plurality of the High Court, which said when considering the operation of s 79 JA in Rizeq v Western Australia [2017] HCA 23; (2017) 91 ALJR 707 (at [56]):

“The simple constitutional truth is that State laws form part of the single composite body of federal and nonfederal law that is applicable to cases determined in the exercise of federal jurisdiction in the same way, and for the same reason, as they form part of the same single composite body of law that is applicable to cases determined in the exercise of State jurisdiction – because they are laws.”

Justice Thackray quoted Kiefel CJ in the same case, who said (at [7]) that it was well accepted that in federal jurisdiction State and federal courts can apply both Commonwealth and State laws, which together with the common law of Australia, comprise a “single though composite body of law”.

Justice Thackray explained (at [24]) that s 79 JA operated to fill a gap. However, the gap was not in s 60H, but rather one “created by virtue of the fact that state legislatures lack competence to regulate what a court does in the exercise of federal jurisdiction”. He quoted (at [25]) the plurality in Rizeq which said at [63] that s 79 JA:

“fills that gap by picking up the text of a State law governing the exercise of State jurisdiction and applying that text as a Commonwealth law to govern the manner of exercise of federal jurisdiction.”

Justice Thackray accepted the appellants’ argument that the only issue that required consideration was whether the parenthetical exception in s 79 JA was invoked – i.e. was there something in the Constitution or in some law of the Commonwealth, which made s 79 JA ineffective in picking up the State law which would have required the trial judge to find that the respondent was not a parent of B?

Does the FLA otherwise provide?

Justice Thackray asked (at [29]) whether there was something in the FLA that had the effect that the State Act could not apply. Did the ambit of the FLA so reduce the ambit of the State Act that the provisions of the former were irreconcilable with those of the latter, with the result that, to use the wording of s 79 JA, the FLA “otherwise provides”?

He found nothing in s 60H FLA which “otherwise provides” in relation to the “picking up” of s 14 of the State Act, since 60H “leaves room” for the operation of all of that provision. Put another way, there was nothing irreconcilable between the provisions of s 14 of the State Act and s 60H FLA, or indeed any other part of the FLA.

The mere fact that s 60H FLA provided for laws to be prescribed for certain purposes did not create inconsistency between the FLA and laws like the State Act (referring to s 109 Constitution). Inconsistency could only arise, according to Thackray J (at [31]), if the State law provided that:

“(a)     a married or de facto couple who satisfied the terms of s 60H(1)(a) and (b)(i) must be treated as not being the parents of a child born as a result of an artificial conception procedure; or

(b)     that the person who provided the genetic material but was not the “other intended parent” must be regarded as being a parent of the child (and that law had not been prescribed as a law to which s 60H(2) or s 60H(3) applied).”

There were no State laws so providing, and therefore no inconsistency in what Thackray J had previously described as “a coherent national legal framework” (Farnell & Anor and Chanbua [2016] FCWA 17; (2016) FLC 93-700 at [301]). In particular, there was no State law providing for a man to be treated as being the father of a child born as a result of an artificial conception procedure who would not be treated as such by s 60H(1) or s 60HB FLA.

Justice Thackray noted (at [34]) that the presumption in s 14 was irrebuttable. As the respondent was not married to the first appellant, or in a de facto relationship with her, it followed that the respondent was presumed not to be the father of B, and ought not be treated as being B’s parent for the purposes of the FLA.

It followed that all three bases upon which the trial judge found that the respondent was B’s “parent” could not be supported by reference to the text of the FLA alone:

1. While as a matter of ordinary English usage the word “parent” is satisfied by identifying the male whose gametes were used for a child to be conceived, biology alone is not determinative in deciding who is a “parent” for the purposes of the FLA, since a biological connection is not required – e.g. adoption, surrogacy and artificial conception procedures involving consenting partners.
2. There was nothing in the FLA to suggest that the expectation of a man that he will “parent” a child born using his genetic material is relevant in determining whether he is a “parent” for the purposes of the FLA.
3. There was nothing in the FLA to suggest that the state of knowledge of the putative father about the nature of the mother’s relationship with another person is of any relevance to his status in relation to the child. If the child is born to a woman who is married to, or in a de facto relationship with, another person, and the provisions of s 60H(1) are otherwise satisfied, then regardless of his state of knowledge, the male who provided the genetic material is not the father of the child, since the child is deemed not to be his.

The respondent sought to support the trial judge’s finding by arguing, consistent with Groth & Banks, that s 60H FLA should be understood as enlarging, rather than limiting, the category of persons who are entitled to the status of “parent”. The logical extension of this argument was that a child could have more than two “parents”, “which would lead to awkward consequences” in applying the FLA. The appellants refuted any suggestion that the FLA allows children to have more than two parents. They pointed out that provisions such as ss 60B and 60CC were framed on the clear assumption that a child can have only two parents. This was said to follow from the use of the word “both” when referring to “parents”.

Justice Thackray accepted the appellants’ interpretation. It was consistent not only with all dictionary definitions of “both”, but also with those sections of the FLA where reference is made to “both parties to the marriage”. There was, therefore, merit in Ground 1.

Justice Thackray noted that he pointed out in Farnell (“the baby Gammy case”) there was a serious divergence of judicial opinion in the area. This problem arose from the fact that the FLA did not make express provision for the status of all children born as a result of an artificial conception procedure or surrogacy arrangement. He did not say so expressly, but the State and Territory laws also cover those areas, and, relevantly, the registration of births.

Justice Thackray said (at [59]) that in Bernieres & Dhopal:

“it was made clear that the fact a man is the biological father “does not translate into him being a parent for the purposes of the [federal] Act” (at [65]). However, the Full Court recorded that it had not heard argument as to whether the provisions of s 60H impliedly exclude a sperm donor from recognition as a “parent”. The Court was therefore unable “to express any informed view about the same” (at [59]). No reference was made to the effect of s 79 of the Judiciary Act.”

He referred to the most recent decision of the Family Court dealing with artificial conception, Shaw & Lamb (2018) FLC 93-826, but noted that it concerned surrogacy and also concerned proceedings in Queensland where the legislation was different to the equivalent law in New South Wales. The few remarks which were potentially relevant were obiter, and the Full Court acknowledged (at [60]) that any opinion it expressed was “hypothetical”. Justice Thackray concluded that there was no binding authority preventing adoption of the appellants’ argument.

What about the past authorities?

Justice Thackray concluded Re Mark was no longer good law, in part because the Status of Children Act 1974 (Vic) had been amended.

Justice Cronin turned his mind to s 79 JA in Groth v Banks [2013] FamCA 430, but did not deal with it correctly, saying (at [35] and quoted at [75] of the Full Court):

“Section 79 of the Judiciary Act makes clear that the laws of Victoria are binding on this court if it is exercising federal jurisdiction unless those laws are otherwise provided by the law of the Commonwealth. The Status of Children Act [Vic] is not binding here, because Part VII of the Act has provided an applicable and sufficient law as to parentage as required by ss 79 and 80 of the Judiciary Act.”

Justice Thackray disagreed, saying (at [76]):

“It is not the function of a court to decide whether a Commonwealth law is ‘sufficient’ where there is a State law which prima facie has direct application. It is also not a case of looking for a “gap” in the federal legislation in the sense advanced by the respondent, but rather acknowledging that the State law must be applied unless the federal law ‘otherwise provides’.

Justice Thackray concluded (at [78]), in relation to s 109 of the Australian Constitution which provided that in the event of inconsistency of two validly enacted laws, the Commonwealth law prevails –

“in matters such as the present no issue of inconsistency between Commonwealth and State law arises. The task is to consider the operation of two laws which have the same source – and the question then becomes one of statutory interpretation.”

In B v J (1996) FLC 92-716, Fogarty J accepted (at 83,620) the possibility that the law should be interpreted such that “the term ‘parent’ in Commonwealth legislation is to be given the meaning ascribed to it in State and Territory legislation”.

Justice Guest reached his conclusion in Re Patrick without referring to s 79 JA, by saying at [291]:

“The effect of s 60H(3) of the [federal] Act is that where under a prescribed law of a State or Territory the child is a child of a man, the child is also to be regarded as his child under the Family Law Act. Thus a child is to be regarded as the child of the biological father and the biological father a ‘parent’ only if there is a specific State or Territory law which expressly confers that status on a semen donor for the purposes of the Family Law Act…”

Justice Thackray explained this approach (at [82]):

“In other words, if State legislation lays down a presumption that the members of a class of men are not to be regarded as fathers of a specific class of children, then a court is obliged to apply that presumption unless it is repugnant to the FLA. This is so, not because of the operation of any provision in the FLA, but rather by operation of the JA. Subject to this understanding, Re Patrick should now be regarded as correctly stating the law.”

Is it important to determine who the parents are?

Justice Thackray emphasised (at [90]) the importance of determining, as a preliminary question, which of the parties answers the description “parent”. The court’s power is conditional upon this determination, given the terms of both 61DA (which applies in every case) and s 65DAA (which applies whenever an order for equal shared parental responsibility is to be made). Although he agreed (at [91]) that there is no jurisdictional necessity for an order granting parental responsibility to be made prior to a court making some other form of parenting order, it is necessary to determine whether the presumption in favour of equal shared parental responsibility applies – and in order to do so it is necessary to determine who are the child’s parents.

2. Access of a Child to Court File

It is usually assumed that access to a court file will not normally be allowed by non-parties. There are limited exceptions, such as for research (r 24.13(1)(d) Family Law Rules 2004) or by the Australian Taxation Office (Commissioner of Taxation & Darling (2014) FLC 93-583). The Full Court of the Family Court recently considered a request by an adult child of the parties to a marriage to access his parents’ file.

Carter & Carter (2018) FLC 93-828

An adult child appealed against a refusal by the trial judge to grant him access to his parents’ Family Court file. At the time of the hearing before the trial judge, the appellant was aged 53. He was the second-oldest of four children. The appellant’s parents separated in 1976. Initially, he lived with his siblings and his mother. In 1979, at aged 15, he moved to live with his father. At age 17, he lived as a boarder with another family. The primary reason he sought access to the court file was (at [17]):

“He wishes to better understand, hopefully from reading the court file, why those arrangements were made and why he was separated from his siblings.”

He explained further (at [20]):

“I’ve had treatment for mental illness and that access to the file may help in my treatment and recovery. Both my parents have declined to grant me access to the file. They appear to have reversed that today ….”

Rule 20.13 Family Law Rules 2004 sets out the matters to be considered when determining whether to grant access to a court file. Relevantly, it provides:

“(1)    The following persons may search the court record relating to a case, and inspect and copy a document forming part of the court record: …

(c)   with the permission of the court, a person with a proper interest:

(i)    in the case; or

(ii)   in information obtainable from the court record in the case; …

(3)     In considering whether to give permission under this rule, the court must consider the following matters:

(a)   the purpose for which access is sought;

(b)   whether the access sought is reasonable for that purpose;

(c)   the need for security of court personnel, parties, children and witnesses;

(d)   any limits or conditions that should be imposed on access to, or use of, the court record.”

The trial judge found that the appellant had a proper interest in the proceedings to make the application (r 24.13(1)), but refused access to the file (at [23]) because she was concerned as to what benefit he might obtain from inspecting the file and because her Honour thought that it was unlikely that an inspection of the file would provide him with the answers he seeks. She was not persuaded “that the pursuit of such information is reasonable”.

The trial judge expressed her concerns about the impact upon the appellant’s mental health if he was permitted access to the file, and expressed concern for his well-being. She was also concerned about the impact on the appellant’s parents and siblings if access was granted and that, to allow access, would encroach upon the privacy to which his family members were entitled. She inspected the court file and told the appellant (at [27]):

“I’m not sure that the file is going to give you the answers to the questions. I’m very cautious. I’ve looked at the file and I can say to you I don’t think you’re going to get the answers to the questions you seek because it’s a very thin file. It’s a very thin file because it appears that matters between your parents, particularly with respect to the care arrangements were largely resolved at a very early stage. And the file tells us very little more about the decisions that they may or may not have taken in the aftermath of the court proceedings.”

The trial judge only allowed the appellant to inspect the parenting orders made by consent in 1977, and no other parts of the file.

In summary, the appellant was successful on appeal as:

• Prima facie the stated purpose was reasonable; and
• Whether or not the appellant would derive a benefit from access to the file was not a relevant consideration.

Justice Ainslie-Wallace said (at [39]):

“The correct application of the rule should have been once proper interest is established the question whether access is reasonable, not whether the appellant will benefit from that access.”

Justice Ainslie-Wallace was critical of the trial judge’s finding that, having inspected the file, the file “may” contain information personal and private to the appellant’s siblings without making a clear ruling, particularly when the appellant’s parents did not indicate that they held such concerns. The consent of the appellant’s parents to his application was highly relevant and any concerns about the security of the appellant’s siblings would presumably have been raised by them.

Justice Ainslie-Wallace confirmed that r 24.13 directed consideration to security, not privacy, and that these were entirely different matters. She concluded (at [44]) that:

“having regard to questions of privacy, I am of the view that her Honour erred by taking into account irrelevant issues. So too, her Honour’s concern for the fractured family relationship is not a matter that falls for consideration in her determination and is a matter irrelevant to the conclusion of the issues before her.”

Rather than denying access to the file, the trial judge could have placed restrictions on that access, such as prohibiting the photocopying of documents on the file. She did not do this.

The Full Court allowed the appellant access to the file, but only to inspect it and not to photocopy it. The Full Court refused the appellant’s request for an order that the reasons not be published and that the previous reasons published (of the trial judge) be removed from the Family Court website and Austlii. The Full Court noted that the reasons for the judgment of the trial judge had already been published and it was important that (at [56]):

“the first instance reasons do not stand alone and these reasons can provide guidance on the issue of access to court files in future matters.”

Furthermore, the anonymisation process under s 121 FLA which ensured that parties could not be identified made publication of certain particulars an offence.

3. Is there a de facto relationship?

The application of the definition of a de facto relationship continues to be problematic. These two cases don’t advance the discussion greatly, but give further clarification.

Crick & Bennett (2018) FLC 93-832

Mr Crick appealed from a declaration under s 90RD Family Law Act 1975 (FLA) that a de facto relationship existed between the parties from late 2001 to June 2014. During that period Mr Crick lived in Ms Bennett’s home and they had a child together in 2003, but the sexual relationship ceased in either 2004 or 2005 and the parties slept in separate bedrooms from around that time.

After a year or two of residing in Ms Bennett’s home, Mr Crick started transferring weekly sums to Ms Bennett – after the child was seven months old. These payments were later increased. Ms Bennett paid all the bills, bought all the groceries and was the primary homemaker and primary caregiver for the parties’ child. The parties acquired no joint property and operated no joint bank account.

Mr Crick submitted that the parties were in a de facto relationship for only two years. The Full Court set out the relevant legislative provision, s 4AA FLA:

“Meaning of de facto relationship

(1)   A person is in a de facto relationship with another person if:

(a)   the persons are not legally married to each other; and

(b)   the persons are not related by family (see subsection (6)); and

(c)   having regard to all the circumstances of their relationship, they have a relationship as a couple living together on a genuine domestic basis.

Paragraph (c) has effect subject to subsection (5).

Working out if persons have a relationship as a couple

(2)  Those circumstances may include any or all of the following:

(a)   the duration of the relationship;

(b)   the nature and extent of their common residence;

(c)   whether a sexual relationship exists;

(d)   the degree of financial dependence or interdependence, and any arrangements for financial support, between them;

(e)   the ownership, use and acquisition of their property;

(f)   the degree of mutual commitment to a shared life;

(g)   whether the relationship is or was registered under a prescribed law of a State or Territory as a prescribed kind of relationship;

(h)   the care and support of children;

(i)    the reputation and public aspects of the relationship.

(3)   No particular finding in relation to any circumstance is to be regarded as necessary in deciding whether the persons have a de facto relationship.

(4)   A court determining whether a de facto relationship exists is entitled to have regard to such matters, and to attach such weight to any matter, as may seem appropriate to the court in the circumstances of the case.

(5)   For the purposes of this Act:

(a)   a de facto relationship can exist between 2 persons of different sexes and between 2 persons of the same sex; and

(b)   a de facto relationship can exist even if one of the persons is legally married to someone else or in another de facto relationship.

When 2 persons are related by family

(6)   For the purposes of subsection (1), 2 persons are related by family if:

(a)   one is the child (including an adopted child) of the other; or

(b)   one is another descendant of the other (even if the relationship between them is traced through an adoptive parent); or

(c)   they have a parent in common (who may be an adoptive parent of either or both of them).

For this purpose, disregard whether an adoption is declared void or has ceased to have effect.”

The Full Court noted that the trial judge faced difficulties in applying the legislation to the facts, because of two factors (at [8]-[9]):

1. The cursory and conclusive nature of the evidence which was adduced by both parties. One example was the lack of evidence as to the nature of the payments made by the appellant to the respondent commencing after the child was born of $300 per week and then $500 per week. The respondent described this as a contribution “towards living expenses” whereas the appellant described it as “board”. Another example was the respondent’s evidence that the parties went out to particular events where they “presented as a couple”. The appellant simply denied that they did so. The evidence did not add to those bald descriptions and denials by giving any indication of what actually occurred at these events. It was difficult to understand what was meant by the phrase “presented as a couple”. If it meant that the parties arrived at a function or event together and left together, then the phrase added little to the evidence that was already before the Court. If it was intended to suggest something else, then it was not clear to the Full Court what that might be.
2. [A further difficulty followed from the above. The trial judge found “that the parties demonstrated they were a couple when they attended together” or that “the parties frequently presented as a couple” (at [46] and [47]). The parties presented their cases this way, but their submissions did not reflect the wording of FLA. Section 4AA FLA is phrased in terms of the parties being “a couple” or having a “commitment to a shared life”. The Full Court was critical of the phrase used by the trial judge of “presented as a couple” and did not know what was meant by it.

The Full Court was also critical of the trial judge for not having referred to the Full Court judgment of Sinclair & Whittaker (2013) FLC 93-551, which emphasised the importance of using the words “couple living together on a domestic basis”. It quoted Sinclair at [13], discussing the decision of Murphy J in Jonah & White (2012) FLC 93-522 (at [93]-[94]):

“… When dismissing the appeal from his Honour’s decision the Full Court did not disagree with his Honour’s statements of principle but did not apply anything other than the statutory test (Jonah & White…). At 86,682 their Honours said:

‘It is immediately apparent that the touchstone for the determination of whether a de facto relationship exists is the finding that the parties to it are a “couple living together on a genuine domestic basis”.’

Comments made in the course of discussing facts are not to be elevated to the status of the provisions of the statute or substituted for the statutory test. This is because, taken on their own, they either add nothing to the statutory test or, if they do, they are adding an impermissible gloss. Thus it is not appropriate to consider the facts other than in the light of the statutory test.”

During cross-examination, both parties conceded that parts of their affidavits were not entirely correct. The Full Court said that this was not surprising, given the length of time which had elapsed, but it meant that the trial judge had little on which to base any determination as to the parties’ credit. By contrast, the wife’s sister’s evidence was accepted by the trial judge. The parties and the child regularly attended her home for barbeques, particularly during the summer, and attending for family Christmases, and they always presented as if they were “together”.

The Full Court concluded (at [70]):

“However, two things are apparent. Reference to the evidentiary context in which her Honour found from time to time that the parties “presented as a couple” (or a similar expression) makes it tolerably clear that the expression was intended to refer to the conduct to which the evidence referred in an unfortunate rolled-up expression. Secondly, as can be seen from the primary judge’s reasons at [58], her Honour was aware of the legislative test. We incline to the view that her reasons, when read as a whole in conjunction with the evidence, demonstrate that she did not inform herself by reference to an incorrect test but she understood and applied the legislative test.”

The Full Court dismissed the appeal.

Nord & Van (2018) FLC 93-833

Mr Nord appealed from a s 90RD declaration that the parties were in a de facto relationship between February 2009 and March 2014. He contended that the parties were never in a de facto relationship, but only had an affair. Ms Van contended that the parties were in a committed de facto relationship.

The Full Court, with the leading judgment delivered by Justice Kent (with whom Murphy J and Alstergren DCJ agreed), confirmed that the Full Court in Dahl & Hamblin (2011) FLC 93-480 was correct and leave to appeal was not required to appeal from a s 90RD declaration. Justice Kent said (at [12]):

“In my judgment once a s 90RD declaration is made it has the effect of finally determining rights of parties as regards the existence of a de facto relationship for the purposes of Part VIIIAB of the Act such that the order or judgment can be regarded as final in the sense described in the authorities…”

At trial, there was a “vast divergence” between the versions of events put by each party, which meant that the trial judge had to determine the credibility of each party in order to determine the facts. He preferred the evidence of Ms Van and her daughter to the evidence of Mr Nord and his wife, Ms D. The trial judge found (at [16]) that Ms Van was “remarkably precise, clear, consistent and plausible throughout”. By contrast, the evidence of Mr Nord was (at [17]) “in places implausible, internally inconsistent and, at certain points, simply contradictory”. On appeal, part of Mr Nord’s case challenged the adverse credit findings made by the trial judge concerning Mr Nord and his wife.

The Full Court referred to the significant authorities which emphasised the disadvantageous position of appellate judges compared to a trial judge when findings of fact rely upon the assessment made of credibility of witnesses. The appellant’s counsel conceded this.

The trial judge found that a de facto relationship existed between the parties for the period claimed by Ms Van, based on the following factors:

• The length of the parties’ relationship being from February 2009 to March 2014;
• Mr Nord’s lengthy stays with Ms Van particularly during periods in which his wife, Ms D, was travelling;
• Ms Van’s financial dependence on Mr Nord, including via Mr Nord’s purchase of an “investment property” in his sole name in which he allowed Ms Van to live with the parties’ child and Ms Van’s other children rent-free for more than three years;
• Mr Nord’s regular attendance at Ms Van’s home to spend time with the parties’ child and Ms Van’s other children;
• The parties’ ongoing sexual relationship; and
• The birth and care of the parties’ child.

Mr Nord unsuccessfully disputed the costs order against him. One of his arguments was (at [47]) that even though he was wholly unsuccessful in the s 90RD declaration proceedings, he may be successful in the subsequent s 90SM proceedings such that either no alteration should be made to the parties’ property interests, or that he only be required to pay Ms Van a small sum. He contended that the trial judge erred in determining the issue of costs and that it ought to have been determined at the final hearing. This argument was rejected. Mr Nord was, as the trial judge observed, wholly unsuccessful with respect to the issue which occupied the three days of the trial. It was well open to the trial judge to order costs.

4. Financial Agreements

The debate over the implications and application of Thorne v Kennedy (2017) FLC 93-807 has continued in 2018. As yet, there has not been a flurry of judgments under the Family Law Act 1975 (FLA) referring to Thorne v Kennedy. Instead, most of the cases referring to Thorne v Kennedy have been non-family law cases. As of 20 October 2018, the only case reported in Austlii dealing with financial agreements and relying on Thorne & Kennedy was a decision of the Federal Circuit Court in Frederick & Frederick [2018] FCCA 1694 in which the facts were similar in some respects to those in Thorne v Kennedy but the judge decided the agreement should not be set aside. This decision has been appealed to the Full Court of the Family Court. This paper also discusses Jess & Garvey (2018) FLC 93-827, which looks at the application of Anshun estoppel to applications with respect to financial agreements.

Jess & Garvey (2018) FLC 93-827

The Full Court considered whether Anshun estoppel applied where the wife had not raised causes of action at an early stage in proceedings issued by the husband to enforce a s 90B financial agreement. The agreement was signed and the parties married in 2006.

After the parties’ separation in 2015, there was correspondence between the parties’ solicitors regarding the financial agreement. The wife’s solicitors reserved the wife’s position with respect to the financial agreement.

On 11 March 2016, the husband filed an Application in a Case seeking that the financial agreement be enforced as if it were an order of the court and specifically sought orders as to how the agreement should be enforced.

The husband’s solicitors wrote to the wife’s solicitors, and this was considered to be important by the Full Court (at [95]):

“In the event that your client contends that the agreement is one other than one binding upon the parties, this is not a matter that your client has sought to put in issue to date, notwithstanding prior requests seeking to ascertain your client’s position. If your client contends, would you advise by reply both as to the same and provide particulars as to the legal and/or financial basis for any such contention.”

On 12 April 2016, the wife filed a Response to the husband’s Application in a Case, seeking that the husband’s application be dismissed or, in the alternative, if the court determined to enforce the agreement, that it be enforced in a particular manner as set out in the wife’s Response.

At the hearing of the parties’ respective applications on 27 May 2016, the wife’s position was that there was no agreement, because the purported agreement was void for uncertainty. No other grounds were raised by the wife as to why the agreement should not be enforced. This aspect of her Response was dismissed.

Five months later, on 1 November 2016, the wife filed an Amended Initiating Application seeking:

“That pursuant to s 90K of the Family Law Act (Cth), or alternatively pursuant to s 90KA, the Court order that the Financial Agreement entered into between the parties on 3 August 2006 be set aside or alternatively a declaration be made that the said Financial Agreement is not valid, enforceable or effective.”

In the alternative, she sought that the agreement be enforced in a particular manner.

The wife was ordered to provide particulars of the grounds on which she sought that the agreement be set aside or declared to be not valid, enforceable or effective. The trial judge summarised these particulars (at [105] of the Full Court):

“a.   Pursuant to s 90K(1)(d) there has been a material change in circumstances since the agreement was entered into and as a result the children or the respondent will suffer hardship if the agreement is not set aside;

b.   Pursuant to s 90K(1)(b) or (e) the agreement should be set aside as a result of unconscionability at the time of entering into the agreement;

c.   Pursuant to s 90K(1)(a) the agreement should be set aside as a result of the non-disclosure of a material matter amounting to fraud;

d.   There is no agreement generally at law because it was abandoned;

e.   There is no agreement generally at law because it was a sham.”

The husband filed a Further Amended Response, seeking that the wife’s Amended Initiating Application be summarily dismissed. The trial judge dismissed the wife’s application to set aside the agreement or declare it to be not valid, enforceable or effective.

The trial judge (at [108]) applied the principle articulated in Henderson v Henderson [1843] EngR 917; (1843) 67 ER 313 at 319, and approved by the High Court in Port of Melbourne Authority v Anshun Pty Ltd [1981] HCA 45 (at [22]); (1981) 147 CLR 589 at 598, that:

“where a given matter becomes the subject of litigation in, and of adjudication by, a Court of competent jurisdiction, the Court requires the parties to that litigation to bring forward their whole case, and will not (except under special circumstances) permit the same parties to open the same subject of litigation in respect of matter which might have been brought forward as part of the subject in contest, but which was not brought forward, only because they have, from negligence, inadvertence, or even accident, omitted part of their case. The plea of res judicata applies, except in special cases, not only to points upon which the Court was actually required by the parties to form an opinion and pronounce a judgment, but to every point which properly belonged to the subject of litigation, and which the parties, exercising reasonable diligence, might have brought forward at the time.”

She also cited (at [109]) the following passage from the judgment of Murphy J (of the High Court) in Anshun (at 605):

“In this instance, the issue now sought to be raised was plainly open to be agitated in the previous litigation. The judgment in that case is inconsistent with the judgment now sought by the plaintiff. To preserve the orderly administration of justice the earlier judgment should be treated as conclusive on the question of indemnity. There is no discretion to allow the raising of that issue against the unwilling defendant; the attempt to do so is properly characterized as an abuse of process.”

The trial judge dealt with the argument that the Anshun principle is not available where the earlier action is interlocutory and the orders do not finalise the proceedings. The Full Court interpreted the trial judge (at [112]) “as saying that the fact that all aspects of the proceedings have not been finalised does not preclude the application of the Anshun type estoppel”.

Her Honour found “much force” in the husband’s argument that it was “too late for the [wife] to raise fresh grounds upon which to attack the financial agreement” (at [43]) and said, at [71]:

“The [wife], despite ‘notice, invitation and opportunity’, elected to limit her [previous] challenge to the financial agreement to one of uncertainty. The [husband] invited the [wife] as early as August 2015 to indicate her position in relation to the financial agreement. Her position, both in her filed Response to the Application in a Case and articulated by her Queen’s Counsel at the hearing on 27 May 2016 made her position abundantly clear, namely, if she lost on her argument as to uncertainty the next step would be how the agreement should be enforced and the [wife] had set out the order she would seek in that event.”

Her Honour further found that there were no special or exceptional circumstances which would cause the application of the Anshun principle to be unjust (at [74]).

The wife had two arguments on appeal:

1. There were different causes of action before the court on 27 May 2016 and 17 July 2017. The cause of action before the court in May 2016 was (at [117]) “whether the essential terms of the agreement were so lacking or uncertain that there was in fact no agreement”. However, the cause of action before the court in July 2017 was “a claim to set aside the financial agreement pursuant to s 90K (and/or s 90KA) of the Act for reasons that had nothing to do with any claim of uncertainty”. Entirely different questions were raised, and the resolution of the earlier proceedings could not prevent the pursuit of the later proceedings.
2. The earlier action was interlocutory and the Anshun principle did not apply in those circumstances.

The Full Court found (at [121]) that the manner in which the wife framed her case in May 2016 was that there was no impediment to the agreement being enforced as a “financial agreement” under the FLA. In fact, she advanced the very opposite position; she argued that it should be enforced, if it was not void for uncertainty.

The Full Court agreed with the trial judge (at [122]) “that the wife had ‘notice, invitation and opportunity’ to argue her case that the agreement should not be enforced”. She had the opportunity in the 2016 proceedings to advance her arguments in denial of the husband’s particularised assertions as to how the agreement should be enforced. The Full Court held (at [123]):

“Thus it was not open to the wife to subsequently pursue a claim to set aside the agreement for reasons that could, and should have been put before the court previously, in the context of determining the issue of enforceability.”

The issue before the court in May 2016 (at [125]) was whether the agreement should be enforced, and the wife had been put on notice by the husband that she should bring forward all arguments that went to that issue, and plainly that would include any claim to set aside the agreement pursuant to s 90K (and/or s 90KA). The court had also ordered that the wife respond to the application for enforcement, and the wife clearly had the opportunity to present all her arguments as to why the agreement should not be enforced. Nevertheless, she chose to limit her challenge to a claim that the agreement was void for uncertainty, and she went further and set out how the agreement should be enforced if it was not void for uncertainty. Moreover, shortly after filing her Response the wife filed an Initiating Application predicated upon the financial agreement being enforceable and seeking an adjustment of any property of the parties not caught by the financial agreement.

The Full Court (at [127]) held that the claims pursuant to s 90K and/or s 90KA were –

“so connected with the subject matter of the first proceeding as to have made it unreasonable in the context of that first proceeding for the claim not to have been made or the issue not to have been raised in that proceeding”.

The relevance of an earlier order being “interlocutory” as opposed to “final” is to differentiate between when an issue had been finally determined between the parties and when it has not. In this case, the Full Court held (at [134]) that the issue of the enforceability of the agreement was finally determined.

An application for special leave to appeal to the High Court was refused in Jess & Garvey [2018] HCASL 202 on the ground that the appeal did not “enjoy sufficient prospects of success”.

The lessons from Jess & Garvey are:

1. A party may be estopped from raising other grounds upon which an agreement should not be enforced, where one ground has already been raised and dismissed;
2. The party seeking enforcement of an agreement should, at an early stage, invite the other party to raise all possible arguments. This forces the other party to set out their case, locks them in, and once these arguments are determined means that it is likely that different arguments cannot be raised later;
3. The party seeking to enforce the agreement may be advantaged by an early application to enforce the agreement before the other party has properly formulated the causes of action which are likely to be successful, bearing in mind the risks of a costs order will deter the raising of all vaguely possible arguments.

Frederick & Frederick [2018] FCCA 1694

The case of Frederick is under appeal, and the appeal is likely to be heard early in 2019. It is dealt with here, as the facts are somewhat similar to those in Thorne v Kennedy (2017) FLC 93-807, so any decision of the Full Court of the Family Court is likely to assist legal practitioners and clients understand how the Family Law Courts will interpret the High Court’s decision in Thorne v Kennedy and the breadth of vitiating factors such as undue influence and unconscionable conduct. The Full Court may be asked how to apply s 90K(1)(d) and how estimates of values of property protected by a financial agreement should be regarded in the absence of valuations or other independent evidence of value.

The parties in Frederick entered into a financial agreement on 5 February 2007. It is not clear from the judgment on what date the parties married in 2007, but the writer understands it was 9 February 2007 – four days after the agreement was signed by the wife. The husband asserted that the parties separated in July 2007. The wife asserted that the date of separation was 22 July 2013.

The husband’s application for divorce was contested by the wife, and at the time of the hearing of the parties’ respective applications regarding the financial agreement, a divorce order had not been made and there had been no determination as to the date of separation.

The husband sought to enforce the financial agreement and the wife sought that it be determined not to be binding or, if it was binding, that it be set aside pursuant to s 90K(1)(b), (d) or (e), or the general law.

The terms of the agreement quarantined the husband’s property at the time of the agreement but did not quarantine increases in the value of the husband’s property after the date it was signed. It was the wife’s case, although this was not expressly stated by the trial judge, that the husband’s estimates of the values of his property in the agreement were too high, which had the effect that there was nothing, or very little, for the wife to claim if the financial agreement was enforced. It appears from the judgment that there was evidence that values were lower at some point between 2007 and 2018, and then increased again in 2018 to values similar to the values stated by the husband in 2007.

The parties met in an overseas country in 2003, which the writer understands to be the Philippines. The husband travelled regularly to visit the wife in the Philippines and leased an apartment in which the parties lived when he travelled there. The parties’ first child was born in 2005 and was 12 years old at the date of the trial.

The wife and the parties’ first child arrived in Australia in 2006. The wife’s bridging visa expired on 14 April 2007, which was about two months after the agreement was signed and the parties married. The parties had a second child in 2007, who was 10 years old at the date of trial. The wife was pregnant at the time she signed the agreement.

The wife sought to impugn the agreement on three grounds:

1. A failure to comply with the s 90G FLA requirements meant that the agreement was not binding;
2. Since the making of the agreement, a material change in circumstances had arisen relating to the care, welfare and development of the parties’ older child, and, as a result of the change, the wife, who had caring responsibility for the child, being a party to the agreement, would suffer hardship if the court did not set the agreement aside (s 90K(1)(d)). The material change was constituted by the disabilities suffered by the child, and the level of care she required.
3. The financial agreement was vitiated by undue influence by the husband, such that the financial agreement was “void, voidable or unenforceable” (s 90K(1)(b)) or the husband engaged in conduct in respect of making the agreement which was in the circumstances unconscionable (s 90K(1)(e)).

The trial judge preferred the evidence of the husband, who generally answered questions directly. By contrast, the trial judge found that the wife was an unsatisfactory witness, saying (at 41):

“For example, I observed that the wife often made long pauses before answering difficult questions, and she often failed to give responsive answers. Her evidence was characterised by exaggeration and reconstruction. In particular, her evidence about the circumstances in which the financial agreement was signed was unconvincing and implausible in important respects.”

The agreement had handwritten amendments made by the wife’s solicitor, which were agreed to by the husband after some initial resistance. One of these amendments was to exclude from the property protected by the agreement “any increase in asset or the matrimonial home or replacement asset or assets purchased from the sale or refinance of that property”. A second amendment meant that the wife was not required to vacate any residence owned by the husband prior to the date of the agreement upon the husband giving the wife 30 days’ written notice.

The parties gave different versions of the circumstances under which the agreement was signed. There was no dispute though that the wife’s visa was due to expire and that the husband had told the wife that he would not have married her without a binding financial agreement.

The wife’s version of events surrounding the signing of the financial agreement was summarised by the trial judge (at [59]):

a.   As at 2007, the wife had a limited command of English;

b.   She was pregnant with the parties’ second child Y;

c.   She was not provided with a copy of the financial agreement before or after 5 February 2007;

d.   She suffered extreme morning sickness during the pregnancy and, on the morning of 5 February 2007, she had barely slept the night before;

e.   The husband told her to “get ready” because he was taking her “somewhere”, to which the wife replied “can’t you see I am sick with your baby I don’t want to go anywhere.” According to the wife, the husband said “I don’t care. You have to come with me” and he dragged her out of the house;

f.   She was so ill on 5 February 2007 she was crying and felt very sick in the car on the way to Mr Soulos’ office. She had not been able to eat;

g.   When they arrived at Mr Soulos’ office the wife said to the husband, “I am so sick and can’t even get out of the car.” She was in shock;

h.   She was stressed and scared because she thought she was going to lose her husband and X;

I.   She was being pushed to sign something she had never seen, had never had the opportunity to read or take to someone who could translate it for her or take to a solicitor of her choice;

j.   She was in obvious distress and crying;

k.   Mr Soulos asked the wife if she had read the document, to which she replied “Yes” because, even though she had not read the document, she just wanted to get home;

l.   Mr Soulos dealt with her in a brief and perfunctory manner, and did not explain what he was doing;

m.   Mr Soulos made changes to the document which he did not explain and which the wife did not want; and

n.   After the appointment with Mr Soulos the husband was angry about the changes made to the document, but he agreed to them.

The evidence was unclear as to whether the wife saw the financial agreement prior to the conference with her solicitor, Mr Soulos. However, the trial judge found on the wife’s evidence that Mr Soulos would have reasonably understood that the wife had not only read the financial agreement but was sufficiently proficient in English to be able to read it.

The husband gave evidence that he drove the wife to Mr Soulos’ offices and left her there for two hours. He said he took the parties’ child to the park, and when he picked up the wife, she didn’t appear upset. The wife denied the appointment was of two hours’ duration and said that the parties’ daughter X had a very short attention span and would not have stayed at the park for two hours. She said that she did not understand a lot of what Mr Soulos said, as he “used big words”. She was not advised by Mr Soulos that the agreement was unfair and that she should not sign it. She said:

“All I know is that if I did not sign Mr Frederick would not marry me and I would be sent back home with [X] and I never want to be separated from [X]. I love her very much.”

The trial judge found that Mr Soulos was a credible witness. He had been in practice as a solicitor for about 30 years at the time the agreement had been executed. Mr Soulos had no recollection of the wife or meeting her in conference. However, he denied providing advice to a client who was in shock, crying, with whom he was unable to communicate, or for whom something was obviously wrong. He denied making any changes without instructions. In cross-examination he maintained his denials, explaining that “there was no way” he would have forgotten “a woman coming in to sign a document crying and not wanting to sign it”. The trial judge found (at [71]) that “it was not surprising that Mr Soulos would not remember the wife, given he met her only once, over ten years before, unless there was something extreme or unusual about her presentation”.

Mr Soulos’ file had been destroyed, but he had retrieved copies of three letters from the digital file. In one of the letters Mr Soulos confirmed that he had explained the terms and conditions of the agreement to the wife, and they discussed the amendments to the agreement. The letters did not confirm that the advice had been given as required by s 90G(1), a matter not specifically noted by the trial judge.

The trial judge rejected the wife’s evidence, noting (at [80]):

“In order to accept her version, it would be necessary to find that Mr Soulos, who had been in practice for 30 years at the time, having never met the wife before, but faced with her as a client manifestly crying and distressed, ill and unable to speak English properly, gave her either no, or at best cursory advice, unilaterally formulated amendments without explaining them to her, then sent out correspondence containing false factual assertions about what transpired at their conference. There is no obvious reason why Mr Soulos would conduct himself professionally in such an irresponsible fashion.”

The trial judge could not understand why the wife had told Mr Soulos she had read the financial agreement, because she just wanted to get home. He explained his reasons (at [82]):

“This was even though, according to the wife, she was crying, shocked and disoriented on 5 February 2007, because the husband was suddenly and unexpectedly demanding, at the eleventh hour before the wedding, she sign a financial agreement, which she had never seen. If this was true, the wife’s response to Mr Soulos, saying she had read the financial agreement, was remarkable. Apart from a desire to “get home”, no reason was given by the wife as to why she could not have explained her situation to Mr Soulos, if it was true, but instead actively mislead him. This reinforces the impression that her version of events is not convincing.”

It is possible that the wife did not explain the situation to Mr Soulos because she was subject to undue influence or unconscionable conduct, just as the wife in Thorne v Kennedy signed an agreement which her lawyer told her she should not sign because it was the worst she had ever seen. This scenario was not considered by the trial judge.

At the time the agreement was signed, the wife rejected a proposal by the husband that, rather than the changes proposed by her solicitor to the agreement, that he buy her an apartment in the Philippines. The wife said she responded:

“I just want to be with you and the children. I don’t want an apartment.”

The wife’s evidence was that she preferred her solicitor’s amendments to the husband’s offer of the Philippines apartment. The trial judge found that this showed that she knew and understood the amendments, and that they protected her. However, and this was not expressly considered by the trial judge in this part of the judgment, the wife was also clear that she wanted to live in Australia with her children and feared that in the event of a separation she could be forced to return to the Philippines, leaving her child or children in Australia.

The trial judge rejected the wife’s evidence that in 2007 her command of English was insufficient for her to read and understand the financial agreement.

Although the trial judge accepted that the husband said to the wife words to the effect “if you don’t sign a BFA, I won’t be able to marry you”, he found (at [89]) that it was “more likely than not that the wife knew the husband wanted a financial agreement and accepted this as a reasonable proposal”.

The trial judge preferred the husband’s evidence concerning the preparation and execution of the financial agreement and that the husband had told the wife he wanted a financial agreement to protect his assets before 5 February 2007. The trial judge did not make a finding as to when the wife became aware that the husband considered an agreement to be necessary and what the terms of it would be, but (at [90]) concluded:

“I do not accept that the husband made a sudden and unexpected demand for the signing of the financial agreement at the eleventh hour before the wedding.”

The trial judge rejected other aspects of the wife’s evidence, including that she was obviously ill or tired and that she presented to Mr Soulos crying or obviously distressed.

The trial judge found that the s 90G(1) requirements were satisfied, being the requirements which were in operation between the 2003 and the 2009 FLA amendments, as identified in Wallace & Stelzer (2013) FLC 93-566.

The wife’s case in relation to s 90K(1)(d) relied on the severe disabilities of the child X – who had been diagnosed with atypical autism, mild functional/adaptive impairment, and PICA (which is an eating disorder). After the agreement was signed, X was diagnosed as having a range of serious developmental delays and disabilities. She developed unsafe behaviours, sleep disturbances, challenging behaviours, and a period of chronic diarrhoea. At age 7 she was not toilet trained and was still non-verbal. The husband agreed in cross-examination that X’s care was expensive and that she would require a high level of care for the rest of her life.

The trial judge relied on Fewster & Drake (2016) FLC 93-745, and was satisfied (at [129]) that “the diagnosis of X’s disabilities, the presentation of challenging behaviours and the costs of care were material changes of circumstance ‘since the making of the agreement’ and that these were changes ‘relating to the care, welfare and development of a child of the marriage'”. He held (at [130]) that:

“the birth of a second child in combination with a severely disabled older child constitute a material change of circumstances in this matter”.

The wife argued that if the financial agreement was not set aside, she would suffer hardship. The trial judge found this second part of s 90K(1)(d) to be the more difficult question. In order to undertake some comparison between the position of the wife, if the financial agreement remained in place, and her position if it was set aside, the trial judge said he required evidence of not only the current value of the property that would fall into the available pool if the financial agreement was set aside, but also, as the husband submitted, there must be some evidence of the current value of the property or “financial resources” excluded from the operation of the financial agreement.

There was no valuation evidence or other evidence of value of any property as at the date of the hearing, apart from some estimates of the value of Property A given by the husband. These estimates ranged from $2,200,000 to $2,300,000 over the period between 2007 and 2017. There was evidence that in 2014, for the purposes of proceedings in another court, the husband valued Property A at $1,800,000. On that basis Property A first fell then rose in value over a decade. The husband gave a value of $2,200,000 for Property A in the financial agreement. The husband attributed the same value to the property in his Financial Statement filed 10 years later on 11 January 2017. In cross examination, the husband estimated $2,300,000 as the value. If this evidence were to be accepted, it would also entail accepting that the value of Property A had either not changed in over a decade, or had risen by $100,000 only. The wife relied on this evidence to submit that she could expect to share at most in a capital gain of $100,000.

Schedule 1 of the financial agreement specified that the company called Business A owned two properties with a total net value of $1,937,409. In his financial statement filed in 2017, the husband estimated the value of these shares to be $1,809,457 which was less than the value in the Schedule.

There was no evidence of the current value of any of the property. The trial judge found that it was not possible to form a view about whether their value had increased or not since the date of execution of the financial agreement.

The husband’s evidence of value of Property A could be seen as supportive of the wife’s argument of hardship if the financial agreement was not set aside. The wife submitted that the trial judge should accept the husband’s evidence of value, but the trial judge rejected that submission on the basis that the husband’s estimate was little better than conjecture (which argument presumably applied to the initial estimates of values in the financial agreement). There was no evidentiary basis upon which to form a view about the possible movement, or stability, in the value of any assets, including Property A. The wife adduced no evidence herself of the value of any assets, despite bearing the onus of establishing hardship. The trial judge concluded (at [144]):

“Consequently, the court is unable to undertake any meaningful comparison between the different positions, if the financial agreement was, or was not, set aside”.

The trial judge found that there were also deficiencies in the wife’s evidence as to:

• Her statement that she suffered hardship because she cared for the two children “on an almost full-time basis with no financial support from the husband” so she had to work part-time. There was no evidence of child support departure assessments or orders;
• She made no claim for spousal maintenance;
• Whether the wife was unable to support herself without an income-tested pension, allowance or benefit when the financial agreement came into effect (s 90F).

The claim under s 90K(1)(d) failed.

In relation to the wife’s claim that the agreement should set aside for undue influence under s 90K(1)(b), the trial judge accepted that there were some factual similarities with Thorne v Kennedy. He set these out (at [156]):

“I accept that there was limited time for careful reflection, the husband stood in a much stronger financial position to the wife and she relied upon him for financial support. Although the evidence is not clear, I also accept that there was a risk that the wife may have been compelled to return home to the (country omitted) once her visa ran out on 14 April 2007, unless she married the husband. I accept that the terms of the financial agreement are very favourable to the husband.”

However, the trial judge also found that there were critical differences (at [157]):

“The evidence in the present matter does not establish that the financial agreement was offered on the basis that is [sic] was not the subject of negotiation. The wife gives no evidence to that effect. It is true that such a conclusion could be inferred from the husband’s statement that he would not marry the wife unless she signed the financial agreement. However, in other respects the facts do not support this conclusion. I have found that the parties discussed the need for a financial agreement prior to 5 February 2007. The wife argued she was not in a position to negotiate improved terms. However, improved terms were in fact negotiated, against resistance by the husband. Despite her evidence to the contrary, I have made findings above that the wife did know of the amendments made by Mr Soulos and accepted them. Her evidence is clear that the husband reacted badly to the amendments, but took advice and accepted them. The wife argued that the amendments “could not be said to be favourable or satisfactory”. Even that submission is questionable. Although the terms of the financial agreement clearly favoured the husband, the changed terms were favourable and an improvement. On her own evidence, as discussed above, the wife perceived the amendments to be more favourable to her than a payment of $300-350,000 or an apartment in the (country omitted).”

In relation to the wife’s emotional circumstances, the trial judge rejected the wife’s evidence and found that the wife was not agitated but was prepared to accept the agreement.

The wife argued that the terms of the financial agreement “are and were grossly unacceptable” and that this was a factor indicating undue influence. The trial judge distinguished the facts from those in Thorne v Kennedy:

1. The wife gave no evidence of the advice she received. Her evidence was that she received no advice and, even if she had, would not have been capable of understanding it. Her evidence was rejected;
2. Mr Soulos had no recollection of the advice he gave. However, the trial judge was satisfied by a combination of Recital G, the annexed certificates, and the evidence of, and the letters sent by Mr Soulos, that the wife received independent legal advice about the effect of the agreement and the advantages and disadvantages to her of making the financial agreement;
3. The wife knew that the advantages to her included a share of the increase in value of the husband’s assets listed in Schedule 1. The wife believed the amendments protected her, otherwise “I probably would have taken his offer of money”.
4. There was not legal advice to similar effect as the advice in Thorne v Kennedy. It could not be concluded that the wife signed the agreement despite advice not to do so;
5. The plurality in Thorne v Kennedy did not suggest that grossly unreasonable terms could, in themselves and without more, support a finding of undue influence. The scope for significant imbalance between the parties in terms of financial agreements was well recognised;
6. The trial judge could not conclude that there would not have been an ongoing relationship if the financial agreement was not signed. It is difficult to discern from the judgment what evidence there was of this, as the evidence appeared to be to the contrary. The trial judge may have assumed that the de facto relationship may have continued even if the parties did not marry. He did not refer to the visa issue at this point of the judgment. He did note though, that without a financial agreement the wife had rights to apply under Pt VIIIAB of the FLA;
7. The wedding was a small one in a registry office, with no relatives in attendance. It lacked the element of “publicness” in Thorne v Kennedy;

The trial judge concluded (at [172]), rejecting the claim of undue influence:

“I am not satisfied that in all the circumstances the fact that the wife signed the financial agreement is an indicium that her circumstances so seriously affected her state of mind “as to have rendered her incapable of making a judgment in her own best interests.” Rather the findings I have made lead to the conclusion that the wife formed a view that the financial agreement, as amended, gave her some protection, not that it was “grossly unreasonable”. I am satisfied that the wife was not powerless and remained a sufficiently free agent to act in her own interests.”

He similarly rejected the claim of unconscionable conduct (at [179] and [181]):

“In the present matter, I have found that the wife’s command of English was sufficient to understand any advice given to her, and the explanation of the terms of the financial agreement. I have concluded already that the wife in the present matter was not subject to undue influence, or unable to make a judgment in her own best interests. She formed the view that the financial agreement gave her some protection. She may have been able to return home or receive money from the husband. Whatever limitations there were upon her options, they were not eliminated or as severely confined as in Thorne. This leads to the conclusion that she was not subject to a special disadvantage for those reasons …

In the present matter the evidence about the emotional connectedness between the parties is difficult to evaluate, in light of the view I have formed about the reliability of the wife’s evidence. Her evidence suggested the parties were in love at the time of marriage, and they already had a child. The husband’s evidence was not inconsistent with this. I am satisfied there was a close emotional connection … I am not satisfied the connection was of such a nature as to render the wife sufficiently vulnerable to create a special disadvantage.”

He also concluded that in relation to the husband’s behaviour (at [184]) that the:

“discussion between the parties concerning a financial agreement prior to, together with the events on, 5 February 2007, preclude a finding that the husband extorted a benefit from the wife. Nor did he passively accept a benefit in unconscionable circumstances.”

Conclusion

There are some important reminders of the law which can be drawn from these judgments, including:

• Section 109 Constitution refers to inconsistency and does not necessarily make the whole of a State or Territory law invalid.
• Section 79 Judiciary Act operates so that State, Territory, Federal and common law comprise a “single though composite body of law”.
• An adult child may be given access to their parents’ Family Court file. It is necessary to look at r 20.13 Family Law Rules and apply it, rather than extraneous considerations.
• Use the wording of the FLA – e.g. s 4AA refers to “couple living together on a genuine domestic basis”, not other descriptions of couples.
• Anshun estoppel can apply to set aside financial agreements. Some practical repercussions of this are set out earlier in this paper.
• The effects of Thorne v Kennedy are still being considered. The circumstances in which undue influence and unconscionable conduct may be found to have occurred are not settled.

© Copyright – Jacqueline Campbell of Forte Family Lawyers and Wolters Kluwer/CCH.  This paper uses some material written for publication in Wolters Kluwer/CCH Australian Family Law and Practice.  The material is used with the kind permission of Wolters Kluwer/CCH

Jacky Campbell, March 2018

Gloomfield – why subject matter is so important in financial agreements

The subject matter of a financial agreement is important. The parties and their lawyers overlooked this fundamental and preliminary point in the long-running Bloomfield & Grainger litigation which commenced in 2014 and ended in 2018.

There were many hearings at which no issue was taken as to whether or not the litigation was about a financial agreement. In Bloomfield & Grainger [2018] FamCA 36, Justice Hogan finally determined that the agreement in question was not a financial agreement, because it did not deal with the subject matter of s 90C Family Law Act 1975, although it purported to be an agreement under s 90C.

Background

The litigation started in the Federal Circuit Court. The main issue in dispute throughout was the standing of a creditor to apply to set aside the financial agreement. The Full Court delivered judgment in Grainger & Bloomfield and Anor (2015) FLC 93-677 and found that a creditor retains standing, after a party becomes bankrupt, to apply to set a financial agreement aside under s 90K(1)(aa) or to apply for orders under s 90K(3), but cannot rely on other grounds under s 90K(1). A creditor cannot, however, apply to set aside a property settlement order, being barred by s 79(10A) and s 90SM(11). This case is discussed in more detail here

The High Court dismissed an application by the husband for special leave to appeal in Grainger & Bloomfield and Anor [2016] HCA Trans 61.

There were further hearings in the Family Court before the husband filed an Application in a Case in November 2017 seeking a declaration that the agreement was not a financial agreement as defined by s 90C Family Law Act.

What was the subject matter of the agreement?

The parties’ intention was to transfer the wife’s interest in the property to the husband prior to the wife’s imminent bankruptcy. In summary the agreement provided:

1. The wife was to transfer, after execution of the agreement, her legal and beneficial interests in the T Street property to the husband to be held for the maintenance of the children during the marriage.
2. In the event of a separation the husband would assume all liability under the mortgage.
3. A recital and a substantive clause were the only paragraphs to use the words “breakdown of the marriage”. These paragraphs stated that neither party was precluded from further exercising any right available to them under the Family Law Act in relation to how any or all of the “property of the marriage” is dealt with “in the event of the breakdown of the marriage”, in circumstances where the property or the needs of the parties’ children have materially changed.

After executing the agreement the transfer of the property was effected and the husband relied on the financial agreement to obtain an exemption from stamp duty. Notably, the agreement did not provide for how the T Street property would be dealt with in the event of a breakdown of the marriage, but only how it would be dealt with immediately upon the execution of the agreement.

What does s 90C require?

Section 90C requires that a financial agreement cover certain “matters”. Specifically, s 90C(1)(a) provides that the parties to a marriage can make a written agreement with respect to any of the matters mentioned in s 90c(2). Sections 90C(2) and (3) state:

“(2)   The matters referred to in paragraph (1)(a) are the following:

(a)  how, in the event of the breakdown of the marriage, all or any of the property or financial resources of either or both of the spouse parties at the time when the agreement is made, or at a later time and during the marriage, is to be dealt with;

(b)   the maintenance of either of the spouse parties:

(i)  during the marriage; or

(ii)  after divorce; or

(iii)  both during the marriage and after divorce.

(3)   A financial agreement … may also contain:

(a) matters incidental or ancillary to those mentioned in s-s(2); and

(b) other matters.”

So, whilst a financial agreement under s 90C may deal with incidental or ancillary or other matters, it must deal with one or both of the matters in s 90C(2).

Why was the agreement not a financial agreement?

Justice Hogan delivered judgment on 31 January 2018 and held that the agreement was not a financial agreement as defined by s 90C of the Family Law Act because it did not deal with either:

1. How, in the event of the breakdown of the marriage between the parties, their property or financial resources (or the property of each of them and their respective financial resources) are to be dealt with; or
2. The maintenance of either party.

The effect of this finding was that the transfer of the wife’s legal and beneficial interests in the property was not done pursuant to a financial agreement. The agreement did not need to be set aside to attack the transaction. A remedy under the relation back provisions of the Bankruptcy Act 1966 could have been sought by the trustee in bankruptcy without the agreement being set aside first. It was not clear from the various judgments whether the trustee was prepared to do this. Although a party to the family law proceedings, the trustee appeared not to take an active part and was prepared to accept the court’s determinations at various times without being heard.

What next?

The trustee in bankruptcy may not have the same thirst, or funding, for litigation as the creditor had in the family law proceedings. It remains to be seen whether the trustee will pursue the husband under the Bankruptcy Act.

The husband and the trustee in bankruptcy are likely to apply for costs orders against the creditor, as the judge gave any party 14 days to make an application for costs.

The only comfort the creditor received was that she was given 14 days to seek leave to obtain an order that the reasons for judgment be provided to the Office of State Revenue (Qld), to investigate whether or not the exemption from stamp duty was obtained fraudulently.

For lawyers, the case is a useful reminder of the importance of checking the wording of the Family Law Act. Sections 90B and 90C are worded differently from s 90D and their effect is different. The equivalent sections for de facto couples in Pt VIIIAB of the Act (s 90UB, 90UC and 90UD) are different again. When drafting a financial agreement, look at the wording of the relevant section. If the agreement does not cover one of the “matters” which must be dealt with in a financial agreement made under that section, it will not be a financial agreement.

© Copyright – Jacqueline Campbell of Forte Family Lawyers and Wolters Kluwer/CCH. This paper uses some material written for publication in Wolters Kluwer/CCH Australian Family Law and Practice. The material is used with the kind permission of Wolters Kluwer/CCH.

Jacky Campbell, October 2018

But wait – there are more amendments to the Family Law Act in 2018

The two Bills restructuring the Family Law Courts have been delayed by Parliament for further consideration in 2019. This gave family lawyers hope that 2018 would be a quiet legislative year. But, we were mistaken. Instead, the floodgates have opened. First we had the Family Law Amendment (Family Violence and Other Measures) Act 2018, [see ->Family Violence – changes to the Family Law Act]. Then, the Civil Law & Justice Legislation Amendment Act 2018 (“Amendment Act”) received Royal Assent on 25 October 2018. The Amendment Act introduces changes to the Family Law Act 1975 (FLA) with respect to a wide range of matters, including bankruptcy, when de facto property settlement proceedings can be issued, costs orders against case guardians, disclosure of the fact of an offer to a judge, widening the scope of the conduct where overseas child abduction will be considered to be a criminal offence, making arrests, the Rules Advisory Committee, and renumbering Part VIIIB FLA.

Limitation of proceedings

The amendments to s 44 FLA in the Amendment Act address two main problems:

1. Section 44(2) was interpreted in Hedley & Hedley (2009) FLC 93-413 to extend the limitation period for the issue of property settlement proceedings when parenting proceedings have been issued and the property settlement application is included in a Response to an Initiating Application seeking parenting orders. This method of extending the usual limitation period for issuing property settlement or maintenance proceedings of 12 months after a divorce order was final was artificial and in contradiction to the intent of s 44(3). Section 44(2) has now been repealed.
2. Section 44(5), which applies to de facto couples, unlike the equivalent provision for married couples (s 44(3B)), did not provide the automatic right for the institution of property settlement proceedings if a financial agreement was found to be not binding or set aside. There was also no provision for parties to consent to the institution of proceedings out of time as for married couples (s 44(3)). Section 44(5) has been amended so that property settlement proceedings can be issued within 12 months after a financial agreement between the parties to a de facto relationship is set aside, or found to be invalid, or at any time if both parties consent. The fact that the rights of de facto parties were so different to those of married couples in these respects was, presumably, an oversight when the FLA was amended to allow de facto parties to have their property rights dealt with under the FLA.

These changes commenced on 26 October 2018.

Costs orders and offers of settlement

Section 117 has been amended to make the following changes:

1. Prior to the Amendment Act, the fact that an offer has been made and the terms of any offer made by a party to settle proceedings could not be disclosed to the court except where the court was considering whether it should make an order for costs under s 117(2) and the terms of any such order. After the amendment, the fact that an offer has been made can be disclosed, but not the terms of the offer. According to the Revised Explanatory Memorandum (paragraph 281), the amendment is “intended to promote early settlement of matters”. One circumstance where the amendment will be useful is if one party has made offers to settle and the other party has made no offers. Being able to tell the judge that this is the situation, although valuations and disclosure have been completed, will allow the judge to encourage the party who has not made any offers to do so. Also, a judge will be able to ask if the parties have made any offers and express their displeasure if no offers have been made at all.
2. The court cannot make an order against a guardian ad litem (case guardian) unless the court is satisfied that one or more acts or omissions of the guardian relating to the proceedings are unreasonable or have delayed the proceedings unreasonably (s 117(6)). The reason for this amendment was that the risk of a personal costs order was discouraging people from consenting to being appointed as case guardians.

These changes commenced on 26 October 2018.

Offences of taking or sending a child outside Australia or retaining a child outside Australia

Currently international child abduction from Australia is only a criminal matter in some circumstances. The removal of the child must be in breach of parenting orders made under the FLA, or in the course of proceedings for such orders. The primary emphasis in most matters is on the civil aspects, being locating the children, whether the country the children were abducted to was a signatory to The Hague Convention on the Civil Aspects of International Child Abduction and how the country to which the children were abducted applies the Convention.

Sections 65X and 65Y remain (although s 65Y in particular, has been re-worded), but the range of circumstances which will amount to criminal conduct will be expanded to cover:

• the retention of a child overseas in contravention of a final parenting order and without the written consent of the other person or persons exercising parental responsibility for the child (s 65YA);
• the retention of a child overseas where parenting order proceedings are pending under the FLA, and the child is retained by a party to those proceedings without the written consent of the other party or parties to the pending proceedings, or an order of the court (s 65ZAA).

Specific defences to s 65Y and s 65Z are in ss (2) of each section and apply if:

(a)     the person (whether or not the person is or was the party to the proceedings) takes or sends the child from Australia to a place outside Australia because the person believes the conduct is necessary to prevent family violence; and

(b)     the conduct is reasonable in the circumstances as the person perceives them.

Widening the scope of the offence of taking or sending a child outside Australia and having specific defences has been discussed for at least 20 years. In its 1998 Report “Parental Child Abduction: a Report to the Attorney-General”, the Family Law Council recommended that parental child abduction not be criminalised, but that if its recommendation was not accepted, there should be general exceptions or defences. These included fleeing from violence, and protecting the child from imminent harm. (Recommendation 6(b))

In its 2011 submission to the “International Abduction to and from Australia” Senate Standing Committee on Legal & Constitutional Affairs, 31 October 2011 (“Senate Committee”), the Family Law Council was in favour of the extension of the FLA provisions to cover retention of children overseas beyond the agreed or authorised period. However, the Family Law Council repeated its 1998 view that there should be specific defences if fleeing from family violence, protecting children from danger or imminent harm and a reasonable excuse for failing to return the child to Australia (such as flight cancellations or ill-health).

The advantages and disadvantages of s 65X and s 65Y FLA and extending their scope also apply to the introduction of a discrete criminal offence for international child abduction (which has not been done). They were summarised by the Senate Committee.

The advantages include:

• ensuring that international parental child abduction matters are afforded priority in the allocation of policy resources;
• ensuring that additional investigation and enforcement mechanisms are made available to assist in locating a child. These mechanisms include the use of telephone interceptions and listening devices, the ability to request the assistance of Interpol and overseas police forces to locate abducted children, and the availability of extradition and mutual assistance procedures to return abducting parents to Australia. (p.25)

The disadvantages include:

• such an offence would deter abducting parents from voluntarily returning children or participating in negotiations, and cause them to further evade law enforcement authorities for fear of prosecution;
• the prospect of the taking-parent being subject to criminal proceedings on their return would undermine the effectiveness of the Convention because the existence of a criminal offence may trigger an Article 13(b) exception;
• even if an Article 13(b) exception cannot be established, there is the potential that the child’s best interests would be damaged if a parent is convicted of an offence which may result in his or her imprisonment (thus denying the child the opportunity to have a meaningful relationship with, and be cared for by, that parent);
• the threat of criminal prosecution would have a negative impact on disadvantaged parents such as those who have committed international parental child abduction to escape family violence or child abuse committed by the other parent. (p.26-27)

In addition, the Senate Committee reported that the then Chief Justice of the Family Court, the Hon. Diana Bryant, was opposed to a stand-alone criminal offence (at p.27):

“I have to say that I am not in favour of it, for this reason. What you would say in favour of it is that it is my understanding that it does assist the police and Interpol to look for children overseas, but one would have hoped there might be some other way of doing that. Surely the AFP here can have arrangements in relation to abduction of children short of necessarily having to have criminal offences created. The second reason for doing it, I suppose, is a community perception, particularly from the left-behind parent, that there should be some punishment, but the problem is that in the cases that we see regularly where the children are sought to be returned to a country where there are laws whereby criminality is created by removing a child – typically that is some of the state in the United States, where it is regarded as kidnapping – you often end up having to try to get some kind of undertaking from the other parent not to prosecute so the child can be returned, and that is not always possible if the prosecution is by a district attorney or something. One of the defences that might then arise would be if the father, for example, is not able on the face of it to care for the children and the mother is going to be jailed upon return and there is no-one to look after the child. Then the ‘intolerable situation’ defence would arise. So this problem arises all the time, and it is not uncommon to be seeking for other jurisdictions to forgo prosecution so that the children can be returned. So it is a real issue.”

Again, these arguments also apply to s 65X and s 65Y FLA, and the extension of their operation.

The Committee, in its 2016 Report (Senate Standing Committee on Legal & Constitutional Affairs Family Law Amendment (Financial Agreements & Other Measures) Bill 2015, February 2016, p.26-27), declined to support an offence-specific defence for persons fleeing from family violence on the grounds that the new wrongful retention offences should provide a comprehensive and certain legal basis upon which authorities could take action to recover children who were wrongfully removed or retained, and should serve as a general deterrent to such behaviour. The Committee commented that “complex situations where family members are fleeing with children to escape violence or abuse should be dealt with in Australia”. A differently constituted Committee in 2017 took a different view and recommended that there be specific defences.

A new section 65ZDE provides that section 15.4 of the Criminal Code applies to an offence against any of s 65Y to s 65ZB which deal with the taking, sending or retaining a child outside Australia. This gives category D extended geographical jurisdiction to the offence so that it can be prosecuted whether or not the conduct occurred in Australia. A nexus to Australia or an Australian person is not required.

These changes commence by 25 April 2019 (being six months after Royal Assent).

Bankruptcy

The Bankruptcy Act 1966 has been amended to expressly provide that the Family Court has jurisdiction in bankruptcy where the trustee in bankruptcy is an applicant for an order to set aside a financial agreement under s 90K(1) or (3) or 90UM(1) or (6) FLA (new s 35(1)(b)(ii) and 35(1A)(b)(ii)). This is in addition to the Family Court having jurisdiction in bankruptcy where the trustee in bankruptcy is a party to property settlement proceedings under s 79 or s 90SM, maintenance proceedings or proceedings to set aside or vary a property settlement order under s 79A or s 90SN FLA.

The definition of a “bankrupt” in the FLA has been expanded to include a person who has been discharged from bankruptcy whose property remains vested in the bankruptcy trustee (s 4(6) FLA).

These changes commenced on 26 October 2018.

Re-numbering Part VIIIB

In the wake of the Australian Law Reform Commission’s Discussion Paper on the Review of the Family Law System recommending the re-numbering of the FLA, that sensible proposal has already been partially implemented in relation to Part VIIIB. The downside is that all the decided cases and other parts of the legislation will have incorrect legislative references and any pending orders will need to be changed. This change takes effect on 23 November 2018. The benefits are that the alpha-numeric numbering will now be consecutive and it will be easier to find the required section in the approximately 120 of section 90s in the FLA.

The new numbering is as follows:

Miscellaneous amendments

Other amendments include, in summary:

• The admissibility of communications with family consultants has been changed, with a new s 11C(3) replacing the old s 11C(3);
• Clarification that the Family Court “is and is taken always to have been, a court of law and equity” (s 21(2)). This is relevant to the interpretation of the court’s implied powers;
• Registrars of the Family Court of Australia, the Federal Circuit Court of Australia and the Family Court of Western Australia conducting property settlement conferences have the same protection and immunity as a Judge of the Family Court (s 38Z). This was uncertain before;
• The process and power for making arrests have been changed, with a major re-write of s 122A and 122AA FLA. The arrest provisions in the FLA are now in line with similar powers of the Federal Court of Australia and the Federal Circuit Court of Australia. There is greater clarity as to who can make arrests. In line with similar powers in the Crimes Act 1914, an arrester’s power to enter and search premises and stop and detain conveyances (which include a vehicle, a vessel and an aircraft) for the purposes of making an arrest is more limited (Revised Explanatory Memorandum para 33).
• Section 160 Evidence Act 1995 (Cth) has been amended so that where legislation does not otherwise provide, a postal article sent by pre-paid post is presumed to be received by the recipient on the seventh working day after being posted, rather than on the fourth working day. This change reflects the fact that the postal service is now less frequent.
• Central Authorities under the Child Abduction Convention now have clearer and greater powers to apply for location orders (s 67K(2)).
• The Rules Advisory Committee of the Family Court of Australia will now be appointed by the Chief Justice of the Family Court rather than by the Governor-General after consultation with the Chief Justice (s 124(1) amended and s 124(3) deleted). This is presumably in line with the intention of the Chief Justice that he have greater control over changes to the Rules of both Courts, rather than the decision for any changes having to be decided, as at presect, by a majority of judges of each court.
• The definition of “Registry Manager” has been broadened so that the Family Law Courts have a broad discretion in relation to the appointment, possibly foreshadowing the changes which will occur with the restructure of the Family Law Courts.

The above changes commenced on 26 October 2018, except for the arrest provisions which will commence when the changes to the child abduction provisions commence – probably 25 April 2019.

Conclusion

The various changes in the Amendment Act cover many aspects of the FLA. The renumbering of Pt VIIIB will have the most impact on legal practitioners on a daily basis. There will presumably be a period of confusion whilst everyone adjusts to the new numbers. One of the most significant change is probably the extension of conduct which will amount to criminal offences with respect to international child abduction. It will be interesting to see what, if any, impact this has on the number of parents who abduct children. For lawyers, it will affect the advice given to left-behind parents who need to decide whether to push for criminal charges to be instituted. It will also impact how the return of children is voluntarily negotiated and how and whether the orders are made by overseas courts when there is a greater likelihood that the abducting parent will face criminal charges upon their return to Australia. Other major changes are to the rights of de facto parties to commence property and maintenance proceedings and the ability of parties to tell the court that offers have been made, but not the terms of the offer).

© Copyright – Jacqueline Campbell of Forte Family Lawyers and Wolters Kluwer/CCH. This paper uses some material written for publication in Wolters Kluwer/CCH Australian Family Law and Practice. The material is used with the kind permission of Wolters Kluwer/CCH.

Jacky Campbell, November 2018

Family Violence – changes to the Family Law Act

The Family Law Amendment (Family Violence & Other Measures) Act 2018 (“Family Violence Act”) commenced operation on 1 September 2018. Its changes will impact on the law, practice and procedures in family law matters, not only where there are family violence orders.

Although the Bill received considerable attention when it was introduced to Parliament on 6 December 2017, less attention was paid to it when it finally passed both Houses on 22 August 2018. It received Royal Assent on 31 August 2018. The focus of attention of Australia at that time was on the federal parliamentary Liberal Party leadership spill. Family lawyers were (and still are) concerned about the Bill introduced to Parliament on 23 August 2018 for the proposed merger of the Family Court and the Federal Circuit Court, and their incorporation into the Federal Court, with the Full Court of the Federal Court to hear family law appeals. This article outlines the important changes made by the Family Violence Act, rather than speculate about future legislative changes.

Overview of changes

The Family Violence Act deserves to be given close consideration by family lawyers, as it has brought about major changes to the Family Law Act 1975 (FLA). In summary, these are:

1. Courts can be given by regulation the same family law parenting jurisdiction as exercised by the State and Territory courts of summary jurisdiction. This change is particularly directed at courts exercising welfare jurisdiction in relation to children – such as children’s courts – which are not always courts of summary jurisdiction.
2. The monetary limit on the jurisdiction of courts of summary jurisdiction to hear contested family law property matters without the parties’ consent can be increased by regulation.
3. Courts may give short-form reasons for decisions relating to interim parenting orders.
4. Family law courts have explicit and broader power to dismiss unmeritorious applications.
5. Judges have the discretion to dispense with the requirement to explain an order or injunction to a child where the order or injunction provides for a child to spend time with a person and the child is protected by family violence order, if it is in the best interests of the child not to have the explanation.
6. The 21-day time limit on the revival, variation or suspension of family law orders by State and Territory courts in family violence order proceedings has been removed.
7. A redundant provision that allows a Family Law Court to make an order relieving a party to a marriage from an obligation to perform marital services or render conjugal rights was repealed (s 114(2)).

It was proposed that a breach of a family law injunction for personal protection become a criminal offence, but the introduction of this change was deferred by Parliament.

Jurisdiction of State and Territory courts to hear property matters

Prior to the commencement of the Family Violence Act, courts of summary jurisdiction could hear property settlement matters without the consent of both parties, if the total value of the property did not exceed $20,000. This monetary limit still applies (s 46A(1)), but the regulations of each court of summary jurisdiction can prescribe a higher amount.

The Family Law Council supported an increase in the monetary limit “as a way of supporting clients of these courts to achieve some measure of economic independence without having to initiate proceedings in the family courts”. (Family Law Council: Final Report on Families with Complex Needs and the Intersection of the Family Law and Child Protection Systems, p.145). The upper property limit in the FLA of $20,000 has not been updated since 1988. The Family Law Council said that this sum was equivalent to approximately $43,800 in 2016.

The Family Violence Act allows for relevant State and Territory courts, such as children’s courts, to exercise the same family law jurisdiction as courts of summary jurisdiction when dealing with parenting matters under Pt VII FLA. According to the Revised Explanatory Memorandum this allows parties to resolve related matters together in State and Territory courts, reducing the need to commence proceedings in a second court and can reduce time, cost, pressure and risk for vulnerable families and children. State and Territory courts are not intended to become the primary fora for resolving family law disputes, but have been given additional tools to resolve matters involving family violence holistically.

The Family Law Section of the Law Council of Australia (FLS) supported an increase in the jurisdiction of State and Territory courts in family law property matters to promote opportunities for resolution of multiple aspects of a case in the one court. It proposed that a limit of $100,000 be set by the FLA, rather than regulations, to enable proper consideration of any proposals to increase the amount (Submission to the Attorney-General’s Department on the Exposure Draft, pp 5-6).

Summary Decrees

A new provision, s 45A FLA, has replaced the previous s 118 FLA in relation to the summary dismissal of unmeritorious applications. According to the Revised Explanatory Memorandum, the aims of the new provision are:

• “To clarify and modernise the powers of the court”; and
• To allow a court “to prevent the use of its court room as a tool for perpetrators of family violence to perpetuate violence”.

Section 118, which has been repealed and incorporated into s 45A(4), provided:

“The court may, at any stage of proceedings under this Act, if it is satisfied that the proceedings are frivolous or vexatious:

(a)     Dismiss the proceedings; and

(b)     Make such order as to costs as the court considers just.”

Section 118 was supported, in relation to the Family Court, by Pt 10.3 Family Law Rules 2004.

The new s 45A(1) and (2) allow the court to make a summary decree in favour of one party, in relation to the whole or part of a proceeding, if satisfied that a party has no reasonable prospect of successfully:

• prosecuting the proceedings or part of the proceedings, or
• defending the proceedings or part of the proceedings.

In determining whether a defence or proceeding has no reasonable prospect of success, proceedings need not be hopeless or bound to fail (s 45A(3)).

A court can, as under the previous s 118, “dismiss all or part of proceedings at any stage if it is frivolous, vexatious or an abuse of process” (s 45A(4)).

Reasons in short form

The new s 69ZL FLA provides that a court may give reasons in short form for a decision it makes in relation to an interim parenting order. This amendment implements recommendation 3 of the Family Law Council’s 2015 Interim Report on Families with Complex Needs and the Intersection of the Family Law and Child Protection Systems. The Council identified that a practical barrier to children’s courts or courts of summary jurisdiction exercising family law jurisdiction is that writing detailed judgments is not the usual practice of these courts.

The Revised Explanatory Memorandum states:

“Courts are already able to give reasons for any decision in short form, as long as the reasons are adequate. Adequate reasons are required by the implied guarantee of procedural due process in the exercise of judicial power.”

The FLS generally supported this amendment but was of the view that it was unlikely to have any impact without broader amendments and simplification of the interim parenting decision making process mandated in Part VII FLA.

Explaining orders or injunctions to children

A court exercising FLA jurisdiction is required, to the extent to which the order or injunction provides for a child to spend time with a person, or expressly or impliedly requires or authorises a person to spend time with a child, to explain the order or injunction to the person protected by the family violence order (if that person is not the applicant or respondent) (s 68P(2)(c)(iii)). In some circumstances, the person protected by the family violence order may be a child.

New s 68P(2A), (2B) and (2C) FLA create exceptions to the requirement to explain certain decisions of the court to children. The Revised Explanatory Memorandum explains (para 94) the reason for the change:

“In practice, it can be difficult for the court to comply with the requirements of s 68P(2)(c)(iii) and s 68P(2)(d) where the person protected is (or includes) a child. For instance, young children covered by the order or injunction, such as infants and toddlers, are unlikely to be able to grasp the concepts to be conveyed in the explanation. For older children it may not be in their best interest, and indeed may be distressing, to be exposed to parental controversy to the extent necessary to comply with the requirements.”

Section 68P(2A) specifies that the court is not required to provide the explanation required by s 68P(2)(c)(iii) to a child if the court is satisfied that it is in the child’s best interests not to receive an explanation of the order or injunction. The new s 68P(2B) specifies that the court is not required to include a particular matter otherwise required to be explained by s 68P(2)(d) if the court is satisfied that it is in the child’s best interests for the matter not to be included in the explanation.

Section 68P(2C) provides that when determining what is in a child’s best interests for the purposes of s 68P(2A) and 68P(2B), the court is required to consider the matters in s 60CC(2), but is not required (but may choose) to consider matters listed in s 60CC(3), despite the requirement in s 60CC(1).

Section 68P is intended to strike an appropriate balance between ensuring that judges do not dispense with an explanation lightly, and avoiding an excessive burden on judges to consider an extensive range of matters.

Interaction of family violence orders and FLA parenting orders

Section 68R FLA deals with inconsistency between protection orders made under State and Territory family violence legislation and FLA orders. Section 68R(1)(a) FLA provides that in proceedings to make or vary a family violence order a State or Territory court may revive, vary, discharge or suspend, for example, a parenting order in relation to a person spending time with a child. The Bills Digest (at p 11) explained the purpose of this part of the FLA as:

• to resolve inconsistencies between orders
• to ensure that such orders do not expose people to family violence and
• to achieve the objects and principles in s 60B FLA, which relate to meeting the child’s best interests (s 68N).

The operation of the relevant sections (as they were before the Family Violence Act) is explained in the Bills Digest (at p 11-12):

“Section 68R operates differently depending on whether a parenting order is amended by a state or territory court during proceedings for an interim protection order or for a final protection order. When a parenting order is revived, varied or suspended under s 68R in proceedings to make or vary an interim protection order, s 68T provides that the variation or suspension of the parenting order only has effect for the period of the interim protection order or 21 days from the date of the order, whichever is earlier. In contrast, the Family Law Act does not place a time limit on parenting orders revived, varied, discharged or suspended in proceedings to make or vary a final protection order.”

The new s 68T(1)(b) and (c) implement recommendation 4 of the Family Law Council’s 2015 Interim Report. The amendment is also consistent with recommendation 12 made by the Victorian State Coroner in the findings of the inquest into the death of Luke Geoffrey Batty (Revised Explanatory Memorandum p 20).

To avoid inconsistent orders about parent-child contact, this amendment removed the 21 day time limit. Instead, the court’s revival, variation or suspension under s 68R ceases to have effect at the earliest of:

• The time the interim family violence order stops being in force (unchanged s 68T(1)(a));
• The time specified in the interim order as the time at which the revival, variation or suspension ceases to have effect (new s 68T(1)(b), and
• The time that the order is affected by an order made by a court, under s 68R or otherwise, after the revival, variation or suspension (new s 68T(1)(c).

This means that any revival, variation or suspension of an order will always cease upon the expiration of the interim protection order, but judicial officers have the flexibility to determine timeframes and relist matters to manage cases according to particular circumstances. The objective is to provide certainty for victims of family violence.

Conclusion

The Family Violence Act’s primary purpose is to allow courts making family violence orders (courts of summary jurisdiction and children’s courts) to also exercise FLA jurisdiction, so as to avoid the necessity of the parties also being required to have litigation in a Family Law Court when the FLA issue could have been dealt with by the court making the family violence order.

Whilst most of the changes in the Family Violence Act will only impact on parties where there are family violence orders, there is a wider impact. The power of the Family Law Courts to make a summary decree in favour of one of the parties in relation to part or all of the proceedings has been re-worded and re-located in the FLA. Courts of summary jurisdiction can make regulations to increase the monetary limit of contested property matters from $20,000. Whether the States and Territories will take advantage of this change and therefore we will see more contested property proceedings heard in courts of summary jurisdiction, is not yet clear.

© Copyright – Jacqueline Campbell of Forte Family Lawyers and Wolters Kluwer/CCH. This paper uses some material written for publication in Wolters Kluwer/CCH Australian Family Law and Practice. The material is used with the kind permission of Wolters Kluwer/CCH.

Jacky Campbell, April 2018

Verbiage or substance? – High Court to examine Family Court’s ability to assign tax debts.

The ability of Pt VIIIAA Family Law Act 1975 (FLA) to be used to assign the tax debt of one spouse to another will be examined by the High Court. The decision may have implications for the operation of Part VIIIAA for third parties who are not the Commissioner of Taxation, but the decision is likely to concentrate on it is possible to assign tax debts between spouses. The Commissioner has been granted special leave to appeal to the High Court from the decision of the Full Court of the Family Court in Tomaras & Tomaras and Official Trustee in Bankruptcy and Commissioner of Taxation (2017) FLC 93-806; [2017] FamCAFC 216. The Commissioner is relying on the presumption that statutory provisions which are only expressed in general terms do not bind the Crown.

The decision of the Full Court of the Family Court, including the terms of s 90AE, is discussed here.

Before the High Court the issues raised are:

1. The scope of the presumption that the Crown is not bound by a statute and in particular:

(a)        Whether, as held by the Full Court of the Family Court in the context of construing s 90AE of the FLA, the presumption that members, servants and agents of the executive government, and property held by it or on its behalf, are not bound by general words in a statute “applies only to provisions which impose an obligation or restraint on the Crown”; or alternatively,

(b)        As contended by the Commissioner the presumption is engaged in all circumstances where a statute regulates the conduct or rights of persons, or regulates the use of property, and those regulated persons or property could include the executive property owned by or on its behalf.

2. Assuming there was a presumption that the Crown was not bound by s 90AE of the FLA, whether that presumption was rebutted.

In oral submissions to the High Court reported in Commissioner of Taxation v Tomaras & Ors [2018] HCATrans 56 the Commissioner said that the ultimate issue to be determined in the proposed appeal was whether the power of the Family Court under s 90AE of the FLA to make substitution orders directed to creditors extends to the making of such orders directed to the Commissioner in respect of tax-related liabilities.

Justice Edelman queried whether the “presumption” was not a presumption but a rule of construction which applied with differing degrees of force in different cases. He said that if that was so, then “this is just verbiage rather than substance”.

The Commissioner rejected the view of the majority of the Full Court of the Family Court that s 90AE imposed a benefit on the Crown, rather than a detriment, so the presumption did not arise. The Commissioner agreed with Justice Aldridge, the dissenting judge in the Full Court of the Family Court, that s 90AE imposed a burden by requiring a creditor to litigate to defend its rights so as not to be worse off because of a s 90AE order. Justice Aldridge said (at [73]):

“Being no worse off is quite different to receiving a benefit.”

Other issues which arose in the special leave application and therefore may be considered in the substantive application included:

• The relevance of the nature of the tax debt including whether any rights of objection remained;
• The relationship of s 90AE to s 79 (the power to make a property settlement order);
• Is the term “creditor” which in s 79(10) includes the Crown, also defined to include the Crown in s 90AE?
• Given that s 79 can be used to potentially destroy or lessen the real economic interests of the Crown, how does that relate to any protection given by s 90AE(3)(b)?
• Are review rights with respect to tax liabilities put at risk or displaced if someone is substituted as a tax debtor?

The Commissioner referred to a number of applications having been filed in the Family Law Court seeking so-called “Tomaras orders” – that is applications seeking to have substitution orders made in respect of tax related liabilities. In these circumstances, the Commissioner will presumably be keen for an early hearing.

© Copyright – Jacqueline Campbell of Forte Family Lawyers and Wolters Kluwer/CCH. This paper uses some material written for publication in Wolters Kluwer/CCH Australian Family Law and Practice. The material is used with the kind permission of Wolters Kluwer/CCH.

Jacky Campbell, November 2018

Bullet-proof financial agreements—rare as hens’ teeth? Looking at financial agreements after Thorne v Kennedy

There is probably no other aspect of family law which has been subject to such a barrage of legislative changes, prospective legislative changes and contradictory judgments, than financial agreements. The High Court delivered its judgment in Thorne v Kennedy [2017] HCA 49; (2017) FLC 93-807 on 8 November 2017, apparently changing the law, yet again. There has been a strong reaction, almost panic-stricken, in the media and by lawyers to the first examination of financial agreements by the High Court. Is this reaction justified? Has the High Court put a bullet through financial agreements, or are they still a viable option?

This paper covers:

1. What needs to go into a financial agreement to make it valid?
2. Duress, undue influence, unconscionability and Thorne v Kennedy
3. Disclosure
4. Power of the court to declare financial agreements binding
5. Dealing with hybrid agreements
6. Contract law and financial agreements – how do they interact?
7. Equitable and common law right to performance of contract
8. Interpretation of financial agreements – Uncertainty and incompleteness
9. Material change in circumstances in relation to children
10. Checklist

What needs to go into a financial agreement to make it valid?

The basics

Before preparing a financial agreement, re-read s 90G(1) and (1A) (or the de facto equivalents of s 90UJ(1) and (1A)), s 90K (or 90UM noting that the de facto equivalent is differently worded) and s 90KA (s 90UN). Sections 90G and 90G(1A) set out when an agreement is binding, s 90K sets out when an agreement can be set aside and s 90KA deals with the enforceability of financial agreements.

The agreement also needs to comply with one of s 90B, 90C, 90D, 90UB, 90UC or 90UD, or be a termination agreement under s 90J or 90UK, so it is important to re-read the relevant section. There are subtle but important differences which are beyond the scope of this paper.

When is an agreement binding?

An agreement is binding if it complies with s 90G(1) (or s 90UJ(1)):

Section 90G(1)  “Subject to subsection (1A), a financial agreement is binding on the parties to the agreement if, and only if:

(a)  the agreement is signed by all parties; and

(b)  before signing the agreement, each spouse 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 that the advice was provided, to that party of making the agreement; and

(c)  either before or after signing the agreement, each spouse party was provided with a signed statement by the legal practitioner stating that the advice referred to in paragraph (b) was provided to that party (whether or not the statement is annexed to the agreement); and

(ca)  a copy of the statement referred to in paragraph (c) that was provided to a spouse party is given to the other spouse party or to a legal practitioner for the other spouse party; and

(d)  the agreement has not been terminated and has not been set aside by a court.”

Sections 90G(1A)–(1D), which allow certain agreements which do not comply with s 90G(1) to be “saved”, are set out later in this paper.

An agreement which is otherwise binding can be set aside on any of the grounds in s 90K (s 90UM). The most relevant for the purposes of this paper are s 90K(1)(a), (b), (d) and (e). Section 90K provides that “a court may set aside a financial 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:

(i) for the purpose, or for purposes that included the purpose, of defrauding or defeating a creditor or creditors of the party; or

(ii) with reckless disregard of the interests of a creditor or creditors of the party; or

(b) the 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; or

(e) 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.”

Remember that s 90UM, which applies to agreements between de facto couples, is worded and numbered differently.

2. Duress, undue influence, unconscionability and Thorne v Kennedy

In its first examination of financial agreements, the High Court in Thorne v Kennedy [2017] HCA 49; (2017) FLC 93-807 set aside two financial agreements, casting considerable doubt on the viability of financial agreements which are a bad bargain for one of the parties. Unanimously, the High Court set aside the two agreements for unconscionable conduct. One was executed before the wedding and the second was executed after the wedding. The plurality also set them aside for undue influence, finding it was unnecessary to decide whether there was duress. Helpfully, the High Court explained the distinctions between the three concepts, as the concepts are often confused and used interchangeably. The question is, in clarifying the law, did the High Court set such a low bar that it will be impossible for a financial agreement to withstand an application to set it aside?

The facts of Thorne v Kennedy

The wife was aged 36 and the husband was 67 when they met on a bride website in mid-2006. The wife was living overseas, spoke Greek and very little English. She had no children and no assets of any substance, whilst the husband was an Australian property developer with assets worth at least $18 million. He was divorced from his first wife, and had three adult children.

During their courtship the husband promised the wife that he would look after her like “a queen”. In February 2007 the wife travelled to Australia with the husband and moved into his penthouse. The husband made it clear to the wife prior to her coming to Australia that he wanted to protect his wealth for his children and that, if they were to get married, she would have to sign a legal agreement to that effect. The wife, however, did not learn the terms of the first agreement until shortly before the wedding. By that stage, the wife’s parents and sister had arrived in Australia from Eastern Europe for the wedding. The husband told the wife that if she failed to sign the first agreement, the wedding was off.

The first of the two agreements was given to the wife 10 days before the wedding. The wife only expressed concern about the testamentary provisions – not the separation provisions (of course, despite s 90H, she should have been more concerned about the terms of his Will). She did not believe there was any likelihood either party would initiate a separation. Her solicitor advised the wife orally and in writing not to sign the first agreement, telling her that it was all in the husband’s favour. After some minor changes to the testamentary provisions of the first agreement requested by the wife’s solicitors were agreed to by the husband, the wife received further advice on the amended first agreement. Her solicitor again advised her not to sign it. The wife gave evidence that she understood her solicitor’s advice to be that it was the worst agreement that the solicitor had ever seen.

Under the separation provisions, the wife was to receive a total payment of $50,000 plus CPI in the event of a separation provided they were married for at least three years, which the wife’s solicitor described as “piteously small”. In the event of the husband’s death, the wife would receive an apartment worth up to $1.5M, a Mercedes and a continuing income. Despite her solicitor’s strong advice, the wife nevertheless signed the first agreement 4 days before the wedding. The first agreement contained a recital that within 30 days the parties would sign another agreement in similar terms.

In November 2007 the wife signed the second agreement, revoking the first agreement but otherwise in the same terms. The wife’s solicitor urged her not to sign the second agreement. During the meeting with her solicitor the wife received a telephone call from the husband asking her how much longer she would be. The wife’s solicitor had the impression that the wife was being pressured to sign the second agreement.

The husband signed a separation declaration after the couple had been married for slightly less than 4 years.

Litigation history

The wife commenced proceedings in the Federal Circuit Court, seeking orders under the Family Law Act 1975 (“FLA”) that both agreements be declared not to be binding and/or to be set aside, and orders for a property settlement and spousal maintenance. The husband died part way through the hearing and the husband’s legal personal representatives were substituted for him in the proceedings.

In March 2015 Demack J in Thorne & Kennedy [2015] FCCA 484 made orders that neither Agreement was binding and set them both aside. Judge Demack held (at [94]) that the wife had:

“signed the Agreements under duress borne of inequality of bargaining power where there was no outcome to her that was fair and reasonable.”

On 26 September 2016 the Full Court of the Family Court (Strickland, Aldridge and Cronin JJ) in Kennedy & Thorne (2016) FLC 90-737 allowed an appeal by the husband’s estate. The Full Court found that both agreements were binding on the parties, holding that there had not been duress, undue influence or unconscionable conduct by the husband.

On 10 March 2017 the High Court granted special leave to the wife to appeal from the decision of the Full Court of the Family Court. The special leave application is reported as Thorne v Kennedy [2017] HCA Trans 54. Further details of the special leave application are in an article by the writer at http://www.wolterskluwercentral.com.au/legal/family-law/high-court-rule-financial-agreements/

The grounds of appeal were that the Full Court erred in law in failing to find the financial agreements were not binding and they should be set aside on the ground of duress, undue influence or unconscionable conduct.

What did the High Court decide?

The plurality consisted of Kiefel CJ, Bell, Gageler, Keane and Edelman JJ. They held that the findings and conclusion of the trial judge should not have been disturbed by the Full Court and both agreements were voidable due to both undue influence and unconscionable conduct.

The plurality said that the trial judge used duress interchangeably with undue influence, and considered that undue influence was (at [2]) “a better characterisation of her findings”. The plurality decided that it was not necessary to consider whether the agreement should be set aside for duress.

In two separate judgments, Nettle and Gordon JJ concurred that the agreements should be set aside for unconscionable conduct, but did not agree that they should be set aside for undue influence.

Requirements of duress

The plurality commenced by considering the requirements of duress, although it held that it was not necessary to decide whether the agreements should be set aside for duress. The plurality described the requirements for duress (at [26]):

“Duress does not require that the person’s will be overborne. Nor does it require that the pressure be such as to deprive the person of any free agency or ability to decide. The person subjected to duress is usually able to assess alternatives and to make a choice. The person submits to the demand knowing ‘only too well’ what he or she is doing” [footnotes removed, but relying strongly on Crescendo Management Pty Ltd v Westpac Banking Corporation (1988) 19 NSWLR 40]

The focus is upon the effect of a particular type of pressure on the person seeking to set aside the transaction.”­

The plurality noted (at [27]) the uncertainty as to whether duress should be based on any unlawful threat or conduct or whether lawful threats or conduct might suffice. It said that the question was a “difficult” one, but did not shed any light on the answer to it. Justice Nettle believed that the law of duress in Australia was more settled and that (at [71]) the test of illegitimate pressure was “whether the pressure goes beyond what is reasonably necessary for the protection of legitimate interests”.

The plurality’s view was that it was not necessary for the trial judge (and therefore the High Court) to determine whether there was common law duress, because the sense in which the trial judge described the pressure on the wife was to focus on the wife’s lack of free choice (in the sense used in the undue influence cases) rather than whether the husband was the source of all the relevant pressure, or whether the impropriety or illegitimacy of the husband’s lawful actions might suffice to constitute duress.

Requirements of undue influence

The High Court plurality referred (at [30]) to “the difficulty of defining undue influence” and that “the boundaries, particularly between undue influence and duress, are blurred”. Undue influence occurred when a party was “deprived … of ‘free agency’” [footnotes removed].

One reason why defining undue influence is so difficult is that it can arise from widely different sources, only one of which is excessive pressure. The pressure need not be illegitimate or improper.

The plurality noted (at [14]) that there were different ways to prove the existence of undue influence. One method of proof was by direct evidence of the circumstances of the particular transaction and that was the approach relied upon by the trial judge and the High Court. The other method was where there was a relationship which gave rise to a presumption of undue influence. The plurality rejected the proposition that the wife was entitled to the benefit of a presumption of undue influence because of the relationship of fiancé and fiancée, as that presumption no longer existed.

In Johnson v Buttress (1936) 56 CLR 113 at 134; [1936] HCA 41, Dixon J described how undue influence could arise from the “deliberate contrivance” of another (which naturally includes pressure) giving rise to such influence over the mind of the other that the act of the other is not a “free act”. The plurality accepted this analysis, and said (at [32]):

“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.” [footnotes omitted]

The plurality noted (at [14]) that there were different ways to prove the existence of undue influence. One method of proof was by direct evidence of the circumstances of the particular transaction and that was the approach relied upon by the trial judge and the High Court. The other method was where there was a relationship which gave rise to a presumption of undue influence. The plurality rejected the proposition that the wife was entitled to the benefit of a presumption of undue influence because of the relationship of fiancé and fiancée, as that presumption no longer existed.

Requirements for unconscionable conduct

For the sake of clarity it is useful to include the requirements for unconscionable conduct, although this is not considered at length in this paper. Unconscionable conduct is a legal principle which is well developed in Australia, both in its statutory contexts and in equity. The parties agreed that the applicable principles of unconscionable conduct in equity were recently restated by the High Court in Kakavas v Crown Melbourne Ltd (2013) 250 CLR 392; [2013] HCA 25. No submissions were made as to whether the statutory concept of unconscionable conduct in s 90K(1)(e) might differ from the equitable concept in s 90K(1)(b) and the High Court did not determine that issue.

A finding of unconscionable conduct requires (at [38]) that the innocent party is subject to a special disadvantage “which seriously affects the ability of the innocent party to make a judgment as to [the innocent party’s] own best interests”. The other party must also unconscientiously take advantage of that special disadvantage, and have known or ought to have known of the existence and effect of the special disadvantage.

The plurality quoted favourably from Commonwealth Bank of Australia Ltd v Amadio (1983) 151 CLR 447 at 461, where Mason J emphasised the difference between unconscionable conduct and undue influence:

“In the latter the will of the innocent party is not independent and voluntary because it is overborne. In the former the will of the innocent party, even if independent and voluntary, is the result of the disadvantageous position in which he is placed and of the other party unconscientiously taking advantage of that position’.”

The trial judge’s decision

The plurality found that the trial judge was at a considerable advantage in assessing the parties and their personalities, particularly where issues of undue influence and unconscionable conduct were involved. In Kakavas the High Court said that where a transaction is sought to be impugned for vitiating factors, such as duress, undue influence or unconscionable conduct, it is necessary for a trial judge to conduct a “close consideration of the facts”. It was essential for an appellate court to scrutinise the trial judge’s findings in light of the advantages enjoyed by the trial judge.

The trial judge posed the hypothetical question of why the wife would sign an agreement when she understood the advice of her solicitor to be that the agreement was the worst that the solicitor had ever seen. The trial judge also asked why, despite the advice of her solicitor, the wife failed to conceive of the notion that the husband might end the marriage.

The trial judge described duress ([2015] FCCA 484 at [68]) as “a form of unconscionable conduct”. The plurality said that this did not mean that duress was subsumed within the doctrine of unconscionable transactions, but the trial judge used “unconscionable” in the sense described by Gaudron, McHugh, Gummow and Hayne JJ in Garcia v National Australia Bank Ltd [(1998) 194 CLR 395 (at [34])] as “to characterise the result rather than to identify the reasoning that leads to the application of that description”.

The trial judge concluded that the wife was powerless to make any decision other than to sign the first agreement, and referred to the inequality of bargaining power and a lack of any outcome for the wife that was “fair or reasonable”. However, the trial judge also explained that the wife’s situation was “much more than inequality of financial position”, setting out six matters which, in combination, led her to the conclusion that the wife had “no choice” or was powerless:

1. Her lack of financial equality with the husband;
2. Her lack of permanent status in Australia at the time;
3. Her reliance on the husband for all things;
4. Her emotional connectedness to their relationship and the prospect of motherhood;
5. Her emotional preparation for marriage; and
6. The “publicness” of her upcoming marriage.

These six matters were the basis for what the plurality described as the “vivid” description by the trial judge (quoted at [47]) of the wife’s circumstances:

“She was in Australia only in furtherance of their relationship. She had left behind her life and minimal possessions … She brought no assets of substance to the relationship. If the relationship ended, she would have nothing. No job, no visa, no home, no place, no community. The consequences of the relationship being at an end would have significant and serious consequences to Ms Thorne. She would not be entitled to remain in Australia and she had nothing to return to anywhere else in the world.

Every bargaining chip and every power was in Mr Kennedy’s hands. Either the document, as it was, was signed, or the relationship was at an end. The husband made that clear.”

As to the second agreement, the High Court plurality noted (at [48]) that the trial judge held that it was “simply a continuation of the first – the marriage would be at an end before it was begun if it wasn’t signed”. In effect, the trial judge’s conclusion was that the same matters which vitiated the first agreement, with the exception of the time pressure caused by the impending wedding, also vitiated the second agreement.

The Full Court’s decision

The Full Court found that the agreements were fair and reasonable because, as summarised by the plurality (at [51]):

1. 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
2. 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 held that the wife could not have been subject to undue influence because she acquiesced in the husband’s desire to protect his assets for his children and because she had no concern about what she would receive on separation. The Full Court also held that the husband’s conduct was not unconscionable because he did not take advantage of the wife, referring to:

1. The lack of any misrepresentation by the husband about his financial position (as found by the trial judge and the Full Court). Even if the husband had failed to disclose, it was fatal to this ground that (at [109] by the Full Court):

“The wife cannot point to any detriment suffered by her as a consequence of her claims of non-disclosure, given that her legal advice was not to sign the agreement, it being described by her lawyer as “the worst agreement I have ever seen”. Despite that advice, the wife went ahead and signed the agreement. We also fail to see how that advice would have altered if the husband’s worth had indeed not been fully disclosed, and in fact, when the entirety of the advice given is analysed, there is no room to suggest, as the wife does, that the advice as to her rights would have been different.”

1. The husband’s early statements to the wife that made clear that she would not receive any part of his wealth on separation;
2. The wife’s staunch belief that the husband would never leave her and her lack of concern about her financial position while the husband was alive; and
3. The husband’s acceptance of handwritten amendments to the agreements that were made by the wife’s solicitor.

The High Court plurality, noting (at [54]) the advantages enjoyed by the trial judge in evaluating the evidence, said that with one exception, none of the findings of fact by the trial judge were overturned by the Full Court. That exception was the Full Court’s rejection of the trial judge’s finding that there was no outcome available to the wife that was fair or reasonable. The High Court found that the Full Court erred in rejecting this finding. It was open to the trial judge to conclude that the husband, as the wife knew, was not prepared to amend the agreement other than in minor respects. Further, the High Court plurality said (at [55]) that the description of the agreements by the trial judge as not being “fair or reasonable” was not merely open to her, it was “an understatement”. The unchallenged evidence of the wife’s solicitor was that the terms of the agreements were “entirely inappropriate” and wholly inadequate.

As the terms of the agreement were so unfavourable to the wife – a bad bargain – the plurality considered those terms to be relevant to a finding of undue influence. It said (at [56]) that the trial judge:

“was correct to consider the unfair and unreasonable terms of the pre-nuptial agreement and the post-nuptial agreement as matters relevant to her consideration of whether the agreements were vitiated. Of course, the nature of agreements of this type means that their terms will usually be more favourable, and sometimes much more favourable, for one party. However, despite the usual financial imbalance in agreements of that nature, it can be an indicium of undue influence if a pre-nuptial or post-nuptial agreement is signed despite being known to be grossly unreasonable even for agreements of this nature.”

The plurality did not agree with the Full Court that the trial judge’s conclusion was based only upon an inequality of bargaining power. The trial judge carefully set out the 6 specific factors (stated earlier in this paper) which, together with the lack of a fair or reasonable outcome, led her to the conclusion that the wife had no choice but to enter into the two agreements.

In circumstances where the Full Court accepted almost all of the findings of fact, and had erred in not accepting there was no outcome available to the wife which was fair and reasonable, the High Court plurality said that the Full Court ought to have found that the wife was subject to undue influence, albeit mis-described by the trial judge as duress.

The plurality’s conclusion

The plurality set out six general factors which it identified as being relevant to whether a financial agreement should be set aside for undue influence (at [60]):

1. Whether the agreement was offered on a basis that it was not subject to negotiation;
2. The emotional circumstances in which the agreement was entered including any explicit or implicit threat to end a marriage or to end an engagement;
3. Whether there was any time for careful reflection;
4. The nature of the parties’ relationship;
5. The relative financial positions of the parties; and
6. The independent advice that was received and whether there was time to reflect on that advice.

These factors were not only important to the determination in this case, but give guidance as to what is relevant in future applications to set aside financial agreements for undue influence.

In relation to unconscionable conduct, the High Court plurality relied on Amadio and said (at [64-65]) that the adjective “special” in the requirement for “special disadvantage” is “used to emphasise that the disadvantage is not a mere difference in the bargaining power but requires an inability for a person to make a judgment as to his or her own best interests”.

The trial judge found that the wife’s powerlessness and lack of choice but to enter into the agreements pointed inevitably to the conclusion that she was at a special disadvantage.

The husband was aware of the wife’s special disadvantage and it was, in part, created by him:

1. He created the urgency with which the pre-nuptial agreement was required to be signed and the haste surrounding the post-nuptial agreement and the advice given about the latter agreement.
2. She had no reason to anticipate an intention on his part to insist upon terms of marriage that were as unreasonable as those contained in the agreements, even though she knew in advance that there was to be some type of document.
3. The wife and her family members had been brought to Australia for the wedding by the husband and his ultimatum was not accompanied by any offer to assist them to return home.

The High Court plurality said these matters increased the pressure which contributed to the substantial subordination of the wife’s free will in relation to the agreements. The husband took advantage of the wife’s vulnerability to obtain agreements which, on the uncontested assessment of the wife’s solicitor, were “entirely inappropriate” and wholly inadequate.

Minority judgments

There were two separate minority judgments, being of Justices Nettle and Gordon. Both agreed that the 2 agreements should be set aside for unconscionability, but not for undue influence.

Justice Nettle said that he could not depart from the decision of the Court of Appeal of the Supreme Court of New South Wales in Australia & New Zealand Banking Group v Karam (2005) 64 NSWLR 149, which decided that the concept of illegitimate pressure should be restricted to the exertion of pressure by “threatened or actual unlawful conduct”. He said that had “largely been followed without demur”. Whilst Nettle J preferred a broader view of the requirements for a finding of duress, he noted that the equitable doctrine of unconscionable conduct did not have the same restrictions as undue influence and was not restricted to unlawful means.

Although Nettle J believed that the concept of illegitimate pressure might be more appropriate for this case, it was also capable of being seen as unconscionable conduct, for reasons similar to those expressed by the plurality. Like the plurality, Nettle J’s view (at [76]) was that the circumstances had so affected the wife’s state of mind that she was incapable of make a judgement in her own interests. There was no other rational explanation for the wife’s decision not to insist upon the substantive changes which her solicitor recommended, and instead to acquiesce to the husband’s “extraordinary demands”.

The second agreement was dependent for its efficacy upon the first agreement, and so it fell with the earlier agreement, but, if that were not so (at [77]) the wife was “in a position of special disadvantage which rendered her even less capable of making a decision in her own best interests to refuse to sign the second agreement than she had been capable at the time of the first agreement of insisting upon amendments in accordance with [her solicitor’s] recommendations”. On Nettle J’s analysis, the second agreement was more at risk of being set aside than the first agreement.

Justice Nettle held that it was against equity and good conscience for the husband or his successors to be permitted to enforce either agreement.

Justice Gordon held that undue influence did not apply because (at [80]) the wife’s “capacity to make an independent judgment was not affected”. She “was able to comprehend what she was doing when she signed the agreements, and that she knew and recognised the effect and importance of the advice she was given”.  Moreover, she wanted the marriage to proceed and to prosper. She knew and understood that it would proceed only if she accepted his terms. Once she decided to go ahead with the marriage, it was right to say, as the trial judge said, that she had “no choice” except to enter into the agreements. No other terms were available. But her capacity to make an independent, informed and voluntary judgment about whether to marry on those terms was unaffected and she chose to proceed. Her will was not overborne.

Justice Gordon said in relation to unconscionability (at [81]) that although the wife’s “independent, informed and voluntary will was not impaired, she was unable, in the circumstances, to make a rational judgement to protect her own interests”. Those circumstances were evident to, and substantially created, by the husband and it was unconscionable for the husband to procure or accept the wife’s assent to the agreements.

Justice Gordon set out the requirements to establish unconscionable conduct (at [113]):

“A special disadvantage may also be discerned from the relationship between parties to a transaction; for instance, where there is ‘a strong emotional dependence or attachment’ … Whichever matters are relevant to a given case, it is not sufficient that they give rise to inequality of bargaining power: a special disadvantage is one that “seriously affects” the weaker party’s ability to safeguard their interests.”

She found that the wife was under a special disadvantage and that the agreements were “grossly improvident” (Bridgewater v Leahy (1998) 194 CLR 457 at 493). It was relevant that the wife’s entitlements in the event of separation were (at [121]) “extraordinarily and disproportionately small in comparison to what the wife would have been entitled to if she had not entered into the agreements”. Unlike the other judges who looked at the general unfairness of the agreements as against an unstated benchmark, Gordon J, expressly compared the wife’s entitlements under the agreements to her entitlements under the FLA, if she had not entered into the agreements.

Although the wife was expecting an agreement to protect the husband’s wealth for his children, he had brought her to Australia promising to look after her like “a queen” and it was only 10 days before the wedding that she received detailed information about the husband’s finances and became aware of the specific contents of the first agreement.

Justice Gordon found (at [123]) that the fact that the wife received independent legal advice about the two agreements and rejected her solicitor’s recommendation on each occasion did not contradict a finding that there was not unconscionable conduct. The fact that she was willing to sign both agreements despite being advised that they were “terrible” served to underscore the extent of the special disadvantage under which she laboured, and to reinforce the conclusion that it was unconscientious for the husband to procure or accept her assent.

A bad bargain?

Perhaps the most important aspect of the High Court judgment is its attitude to unfair agreements or to “a bad bargain”. The Full Court of the Family Court has said, in relation to whether a financial agreement should be found to be binding under s 90G(1A), that parties are free to enter into “a bad bargain”. By contrast, the High Court did not agree that in relation to s 90K(1)(b) and (e) “a bad bargain” will always be upheld, and in fact found that a bad bargain may contribute to a finding that it should be set aside. The terms of the agreements were very unfavourable to the wife and the plurality considered their terms to be relevant to a finding of undue influence. It said (at [56]) that the trial judge:

“was correct to consider the unfair and unreasonable terms of the pre-nuptial agreement and the post-nuptial agreement as matters relevant to her consideration of whether the agreements were vitiated. Of course, the nature of agreements of this type means that their terms will usually be more favourable, and sometimes much more favourable, for one party.  However, despite the usual financial imbalance in agreements of that nature, it can be an indicium of undue influence if a pre-nuptial or post-nuptial agreement is signed despite being known to be grossly unreasonable even for agreements of this nature.”

Interestingly, it was only Gordon J who compared the outcome for the wife under the agreement to the outcome under the FLA. It is unclear by what benchmark the plurality and Nettle J judged the agreements as being “unfair and unreasonable” to the wife.

The Full Court of the Family Court has stated its views about bad bargains in relation to s 90G(1A) rather than in relation to s 90K, but it is arguably now open to the Full Court to reconsider whether a “bad bargain” is relevant under s 90G(1A) to whether it is unjust and inequitable for a financial agreement to be found to be binding.

3. Disclosure

An explicit duty of disclosure is not set out in the FLA in relation to financial agreements. The duty is almost a negative one – if a party does not disclose their financial circumstances, the agreement is at greater risk of being set aside under s 90K(1)(a) or s 90UM(1)(a) or perhaps s 90K(1)(e) or s 90UM(1)(h).

A duty of disclosure may arise in relation to financial agreements in various ways:

• the Family Law Rules 2004, especially r 13.04(1) and the Pre-Action Procedures and the Federal Circuit Court Rules 2001, especially r 24.03
• the meaning of fraud” in s 90K(1)(a), (aa) and (ab), and 90UM(1)(a) – (d)
• the common law and equitable doctrines incorporated by s 90K(1)(b), 90UM(1)(e), 90KA, and 90UN, e.g. misrepresentation, unconscionable conduct.

Rule 13.04(1) requires that in any financial case there be a “full and frank disclosure of the party’s financial circumstances”. This suggests that silence and failure to disclose material facts amount to statutory fraud upon the court or the other party.

However, r 13.04 only applies to “a financial case” which is defined in the Dictionary to the Family Law Rules so as not to include the making of a financial agreement, but only proceedings to set one aside under s 90K or s 90UN. Justice Murphy said in Hoult & Hoult [2011] FamCA 1023 (at [126]) that there was an argument that financial agreements ought to embrace the fundamental principle in the Court’s Rules, namely the duty of full and frank disclosure, but the position was clarified in the FLA by specifying that fraud for the purposes of s 90K(1)(a) can be constituted by material non-disclosure.

The Full Court of the Family Court in Kennedy & Thorne (2016) FLC 93-757 (which was successfully appealed to the High Court on other grounds), adopted the submissions made on behalf of the husband’s deceased estate as to the distinction between disclosure in relation to property settlement orders and financial agreements (at [104]):

“… The obligation of disclosure under Pt VIII occurs in a context where a court is required to make findings about the assets, liabilities and financial resources of the parties, and where the court is also required to be satisfied that it is just and equitable to make orders.

By contrast, a financial agreement is a private contract between parties into which there is no express statutory requirement that disclosure be made or valuations be obtained; and there is no judicial scrutiny relating to their formation. A party may enter an agreement, and such agreement is capable of being binding, with little or no knowledge of the other party’s financial position. That is, consistent with the doctrine of freedom of contract, a party [sic] enter into a bargain without undertaking due diligence if they choose to do so, just as they may enter a bad bargain in the face of the proper due diligence. The fact that a financial agreement results in a different outcome to that which may have been awarded under s 79 and s 75 is not relevant to whether the agreement should be set aside.” (Footnotes omitted)

The Full Court pointed out that the safeguard was that if there is inadequate disclosure, the legal advice given to the other party can be, for example, not to enter into the agreement or only to enter into it upon receipt of specific financial information. Whilst correct, this presumes that the parties are on relatively equal bargaining terms.

Furthermore, it was fatal to the wife’s argument that she could not point to any detriment suffered by her as a consequence of her claims of non-disclosure, given that her legal advice was not to sign it. Her lawyer described the agreement as “the worst agreement I have ever seen”. There was no indication that the wife would not have executed the agreement if the husband’s wealth had been fully disclosed.

In Thorne v Kennedy all members of the High Court found that the fact that the wife entered into “a bad bargain” was relevant to the determination that the agreement should be set aside for unconscionable conduct and by the majority for undue influence. The High Court did not deal with disclosure, but it is at least arguable that where an agreement includes statements to the effect that the parties waived their rights to seek disclosure from each other and there was unequal bargaining power, that the non-disclosure might assist the court to find that there has been a vitiating factor, such as undue influence.

Case examples

In Grant & Grant-Lovett [2010] FMCAfam 162 the court found that the fact that the parties had been married for 12 years did not lessen the parties’ obligation to disclose prior to entering into the financial agreement.

In Adame & Adame [2014] FCCA 42 one of the grounds on which the financial agreement was set aside was non-disclosure of material matters by the husband. He failed to disclose real estate in the United States and bank accounts. Judge Jarrett did not accept that the disclosure requirement extended to providing values of assets, but he considered that parties were generally entitled to satisfy themselves about the values of assets and financial resources if they chose to do so. The failure to disclose was also found to be a misrepresentation. The agreement was voidable at the wife’s option.

In Jeeves & Jeeves (No 3) [2010] FamCA 488, although Cronin J found there had been a suppression of evidence, the wife’s case did not reach the standard of establishing any deceit on the part of the husband. There was no evidence that the husband concealed any plans that would have objectively made a difference. The wife did not act on the husband’s assertions. She did not believe the husband’s information and did not act upon it. There could therefore be no fraud, duress or unconscionable conduct on the part of the husband.

The wife’s application was under both s 79A and s 90K. In relation to the distinction between the two sections, Cronin J said (at [484], [485]):

“In respect of the financial agreement executed prior to the orders being made by the Court, the wife’s argument was inextricably linked to the material relating to the s 79A application. The words in s 90K are slightly different to those in s 79A but the underlying concept is the same.

The simple use of the word ‘fraud’ in s 90K must be read widely because of the inclusion of the reference to non-disclosure of a ‘material matter’. Thus it encompasses knowledge and intention relating to financial matters that, if known, would create a different picture to that portrayed on the surface. It is hardly distinguishable from the s 90K(1)(e) reference to conduct that was in all of the circumstances unconscionable. Fraud no longer means just the unlawful use of pressure to enter into such an arrangement.”

On appeal in Jeeves & Jeeves [2011] FamCAFC 94, the Full Court found that although the trial judge had erred in some of his findings as to the husband’s disclosure, the wife had not established that the non-disclosure was, or could reasonably have been, material to her consent, as she didn’t believe him anyway.

Justice Murphy in Hoult & Hoult [2011] FamCA 1023 disagreed with some earlier cases which supported inadvertent non-disclosure as being sufficient to constitute fraud under s 90K(1)(a). He considered that as s 90K(1)(a) refers to “fraud” there must be some proof of an intention to deceive.

In Parke & Parke [2015] FCCA 1692 a financial agreement was not set aside for non-disclosure or suppression of facts amounting to a misrepresentation. The husband represented that Schedule 1 contained a list of all of his assets. That was untrue. He omitted the self-managed superannuation fund of which both parties were members although the wife did not know of its existence or even that she had a member’s account. The finding of the misrepresentation being false, rather than unintentional, was strengthened by the conduct of the applicant in the financial agreement proceedings where he did not disclose the fund. Its existence was only discovered as a result of a subpoena to the husband’s accountant. However, the wife did not rely on the misrepresentations. She did not prove inducement. The agreement was set aside under s 90K(1)(b), (c) and (e).

A Full Court appeal by the husband in Parke did not proceed as the husband died and his legal personal representative discontinued the action.

The parties in Kapsalis & Kapsalis [2017] FamCA 89 entered into 2 agreements. The court found that the wife chose not to make enquiries of the husband about his financial position before she signed a cohabitation agreement in 2004 under State legislation, although she conceded that she had every opportunity to do so. She understood when she signed the agreement that she would receive nothing if she and the husband separated. She conceded in cross-examination that, had she been told the husband’s assets were worth, say $20 million rather than $3 – 4 million, she would still have entered into the agreement. She knew he had a house and corporate assets, but made no enquiry as to the value of them before entering into a second agreement under s 90B FLA one year after entering into the cohabitation agreement. Justice Rees found (at [25]):

“More relevantly here, it was clear … that nothing in the husband’s disclosure of his assets induced her to enter into the Agreement. To use the words of the section, the wife’s entering into the Agreement was not ‘obtained’ by the husband’s representations about his asset position. She was determined to enter into the Agreement no matter what his asset position was.”

After an eight year marriage and two children, the wife received no property and only modest spousal maintenance. This view of the effect of non-disclosure was consistent with the Full Court’s approach in Kennedy & Thorne (2016) FLC 93-757; [2016] FamCAFC 189, which was appealed to the High Court on other grounds. Although the Full Court in Kennedy & Thorne did not refer to Jeeves (No. 3), the trial Judge in Jeeves (No. 3) was a member of the Full Court in Kennedy & Thorne. The Full Court quoted favourably from the trustees’ submission (at [104]) who compared the obligation to make full and frank disclosure under s 79, to the position with financial agreements:

“By contrast, a financial agreement is a private contract between parties into which there is no express statutory requirement that disclosure be made or valuations be obtained; and there is no judicial scrutiny relating to their formation. A party may enter an agreement, and such agreement is capable of being binding, with little or no knowledge of the other party’s financial position. That is, consistent with the doctrine of freedom of contract, a party enter into a bargain without undertaking due diligence if they choose to do so, just as they may enter a bad bargain in the face of the proper due diligence. The fact that a financial agreement results in a different outcome to that which may have been awarded under s 79 and s 75 is not relevant to whether the agreement should be set aside [Hoult & Hoult)].”

It is difficult to say if the outcome in Kapsalis would have been different if it was determined after the High Court delivered its judgment in Thorne v Kennedy, because the background facts set out in Kapsalis are insufficient. Almost certainly, though, the case would have been argued differently in relation to whether there was undue influence or unconscionable conduct.

In Ainsley & Lake [2016] FCCA 2132, the wife sought enforcement of a post-separation financial agreement and the husband sought that it be set aside pursuant to s 90K(1)(a). The wife did not disclose her superannuation of $35,000 in the agreement although she had told her lawyers of its value and they had confirmed this in a letter. The husband knew that the wife had superannuation but believed it to be about $6,000. There was a blank space left in the schedule next to the words “Ms Ainsley’s superannuation”. The asset pool was modest, being less than $400,000.

The husband defaulted under the agreement, with his 2 breaches amounting to over $38,000.

Judge Henderson found that the wife failed “to disclose a material fact, albeit without any intention to defraud in the usual meaning of such a phrase” (at [14]).

She accepted that fraud under s 90K(1)(a) had a broader meaning than the general understanding of its meaning and seemed to indicate that s 90K(1)(a) set a high bar said (at [23]–[24]):

“To find that an agreement was binding when there has been a non-disclose [sic] of a material matter would make a mockery of s 90K(1)(a) and its clear intention. For parties to be able to rely upon this section there must be a full and frank disclosure by each of them of their total financial position as at the date of signing the deed. That is clearly the intention of s 90K(1) and the intention of the certificate so that there is confidence that advice given to a party is as best as it can be because all material facts have been disclosed.

In addition the wife’s failure to disclose her current superannuation at the time she signed the deed is in breach of recital K, recital L and recital M of the binding financial agreement.”

The agreement was set aside although the husband had knowledge that the wife had some superannuation, he had failed to comply with the terms of the agreement and the pool was modest. These matters were irrelevant to the discrete issue in the case, which was the wife’s failure to disclose.

The wife argued that the husband’s failure to waive privilege and produce his then solicitor’s file was relevant and an adverse inference could be drawn from it. Judge Henderson rejected this argument and concluded (at [27]):

“It was the wife’s obligation to disclose her financial position. It was not the husband’s obligation to find it out.”

The wife’s application for leave to appeal out of time was dismissed in Ainsley & Lake [2016] FamCAFC 253.

4. Power of the court to declare financial agreements binding

To mitigate the strict technical interpretation of s 90G and make it more difficult for financial agreements to be set side, the Federal Justice System Amendment (Efficiency Measures) Act (No 1) 2009 (Cth) introduced remedial sections into Pt VIIIA and Pt VIIIAB relieving against the consequence of an agreement not meeting the requirements of s 90G(1)(b), (c) and (ca) or s 90UJ(1)(b), (c) and (ca).

To put it bluntly, to have a bullet-proof agreement, if you stuff something up under s 90G(1) (s 90UJ(1)), you need to be able to try to “save” it under s 90G(1A) (s 90UJ(1A)).

When can an agreement be saved? The legislative provisions

Section 90G(1A)–(1C) states:

“(1A) A financial agreement is binding on the parties to the agreement if:

(a)   the agreement is signed by all parties; and

(b)   one or more of paragraphs (1)(b), (c) and (ca) are not satisfied in relation to the agreement; and

(c)   a court is satisfied that it would be unjust and inequitable if the agreement were not binding on the spouse parties to the agreement (disregarding any changes in circumstances from the time the agreement was made); and

(d)   the court makes an order under subsection (1B) declaring that the agreement is binding on the parties to the agreement; and

(e)   the agreement has not been terminated and has not been set aside by a court.

(1B)   For the purposes of paragraph (1A)(d), a court may make an order declaring that a financial agreement is binding on the parties to the agreement, upon application (the enforcement application) by a spouse party seeking to enforce the agreement.

(1C)   To avoid doubt, section 90KA applies in relation to the enforcement application.”

Section 90UJ(1A) – (1C) are the equivalent provisions for Pt VIIIAB financial agreements.

The effect of s 90G(1A) is that an agreement, provided that it is signed by all parties, which does not meet all the other requirements of s 90G may be saved “if a court is satisfied that it would be unjust and inequitable if the agreement were not binding on the spouse parties”. In considering this, any changes in circumstances after the agreement was executed are irrelevant. This summary is subject to the difficulty with the transitional provisions identified in Hoult and Parker, and of interpreting s 90G(1A)(c), both of which are discussed below.

The Hoult and Parker appeals

The two main cases on s 90G(1A) – (1C) are Hoult and Parker. It is useful to look at both the trial judgments and the appeals, as there were strong minority judgments which approved aspects of the trial judgments. Because of the divergent views, it was my view before Thorne v Kennedy, that the interpretation of these sections remained unsettled. After Thorne v Kennedy, there is, in my view, an even stronger case for reviewing the interpretation of these sections.

In Hoult & Hoult [2012] FamCA 367 when discussing the exercise of the discretion under s 90G(1A), Murphy J referred to the distinction between the phrase “just and equitable” used in s 79 and the phrase “unjust and inequitable” used in s 90G(1A)(c). He said (at [37], [39]):

“Yet, it nevertheless seems to me that in the exercise of the s 90G(1A) discretion, the ‘justice and equity’ of the bargain, or, perhaps, its inherent ‘fairness’ referenced to ordinary notions of that term, cannot be wholly irrelevant to the exercise of the s 90G(1A) discretion. …

In other words, it seems to me that the content of the bargain reached between the parties, in all of the circumstances of their particular marriage and its breakdown, must have some relevance if the inquiry is into ‘injustice and inequity’.”

Justice Murphy said (at [57]) that the enquiry required of s 90G(1A)(c) was a wide-ranging one that might include considerations such as:

“•    The facts and circumstances surrounding the particular s 90G requirement not being met;

• What the parties themselves said and did, if anything, so as to render the agreement not binding;

• The circumstances within which the parties’ bargain was concluded;

• The length of time between the signing of the agreement and the decision as to whether the parties are to be held to it;
• What the parties said and did in reliance upon the agreement being binding subsequent to the signing of the agreement;
• Whether the terms of the bargain itself offend ordinary notions of fairness or plainly fall markedly outside any reasonable broad assessment of the s 79 discretion;”

Justice Murphy found that it would be unjust and inequitable if the financial agreement was not binding on the spouse parties to the agreement, saying (at [59]):

“I found in the first hearing that the wife was an active participant in negotiations that led to earlier drafts of the agreement and in discussions by which a bargain was struck. The bargain was satisfactory to both the husband and the wife at the time it was struck. Proper weight should be given to holding the parties to their bargain and to the importance that the legislature attaches thereto evident in the section in addition to, the place of Pt VIIIA in the Act and its role in replacing, relevantly, s 87 agreements. These, too, are important considerations.”

Both parties appealed. The husband appealed against the finding that the agreement was not binding within s 90G(1)(b). The wife appealed against the later declaration that within s 90G(1A)(c), it would be “unjust and inequitable” if the agreement was not binding on the parties.

On appeal, two out of the three judges of the Full Court expressly rejected the last of the 6 factors above, the concept of a “bad bargain” being relevant to the exercise of the s 90G(1A) discretion. In the wake of the High Court’s judgment in Thorne v Kennedy, perhaps Murphy J was right and the Full Court was wrong?

The Full Court upheld both parties’ appeals in Hoult & Hoult (2013) FLC 93-546; [2013] FamCAFC 214. The majority, Strickland and Ainslie-Wallace JJ, found that Murphy J misdirected himself and applied the wrong test in interpreting and exercising the discretion under s 90G(1A) and erred in finding that a relevant enquiry in exercising the discretion under s 90G(1)(c) was whether “the terms of the bargain itself offend ordinary notions of fairness or plainly fall markedly outside any reasonable broad assessment of the s 79 discretion”.

Justices Strickland and Ainslie-Wallace said (at [305]–[306]):

“We are firmly of the view that the content of the bargain has no relevance to the exercise of discretion under s 90G(1A)(c) and we base that on the plain words of the paragraph. That is also consistent with what Justice Strickland said at first instance in Parker … and neither of the judges who formed the majority in the Full Court in Parker found otherwise.

We do not accept that because the enquiry in paragraph (c) is as to injustice and inequity, the content of the bargain must have some relevance. The issue of injustice and inequity can far more easily be seen as directed to whether, given the nature and extent of the non-compliance with the s 90G(1) requirements, it would be unjust and inequitable if the agreement was not binding.”

Justices Strickland and Ainslie-Wallace noted that whereas the trial judge claimed not to pass judgment or comment upon how the terms of the agreement might compare to any s 79 order made by the court, he did in fact consider the justice and equity of the bargain “in s 79 terms”, and overlooked the plain words of the paragraph.

Justice Thackray also upheld the appeals, but for slightly different reasons. Importantly, he found the brevity of the consultation was consistent with the wife’s assertion that she had not received the requisite advice. During a 50 minute attendance, the solicitor read the agreement to the wife, whose first language was not English, verbatim. Justice Thackray considered the fairness of the agreement was potentially relevant to s 90G(1A)- (1C) and said (at [197], [200], [201]):

“Having determined the appeal should be allowed for another reason, it is unnecessary to express a concluded view on Murphy J’s view that the inherent fairness of an agreement cannot be “wholly irrelevant” to the exercise of the discretion. However, as presently advised, I consider the inference to be drawn from the words in brackets is that although it is impermissible to take account of “circumstances” that have changed after execution of the agreement, it is permissible to take into account “circumstances” at the time of formation of the agreement. However, I cannot see any warrant in the text or in the extrinsic materials to treat “circumstances” as being restricted to matters associated with the negotiation, drafting and execution of the agreement, since these are not “circumstances” that are capable of change after execution. If those were truly the only relevant “circumstances”, then the words in brackets would appear to be surplus (rather than words of limitation, as suggested by Strickland and Ainslie-Wallace JJ) …

Although the Act now undoubtedly allows parties to enter into bad or grossly unfair bargains, it is perfectly consistent for the legislation to permit consideration of the fairness of the bargain (judged at the date of execution) in those cases where the safeguards in s 90G(1) have not been met. The absence of one or more of these safeguards surely means that different public policy considerations apply. Furthermore, failure to consider the potential injustice of the terms of the bargain would mean the discretion is exercised in a vacuum.

Therefore, while it may be appropriate to make a s 90G(1B) declaration where a party did not receive the prescribed legal advice but where the bargain was fair at the time it was struck, it may be inappropriate to make such a declaration where the advice was not given and the bargain was unfair or even punitive.”

The High Court in Thorne v Kennedy, whilst involving a consideration of s 90K, arguably affects the interpretation of s 90G(1) and 90G(1A)–(1C). If the bargain isn’t fair, and particularly if advice was not given, should s 90G(1) be more strictly adhered to? Should the court be more reluctant to find the agreement binding under s 90G(1A) than if there is a more minor beach of s 90G(1) and the agreement is a fair one? The High Court in Thorne v Kennedy reminded us that financial agreements are contracts, so contract law is relevant.

Justice Strickland pointed out at first instance in Parker & Parker [2010] FamCA 664 (at [108]):

“Significantly s 90G(1A)(c) does not refer to whether the terms of the agreement are unjust and inequitable, but whether ‘it would be unjust and inequitable if the agreement was not binding’. … (Our emphasis)”

He also noted that the legislature deliberately chose the words “unjust and inequitable” rather than “just and equitable” as in s 79 and considered (at [110]) that he was required:

“… to determine whether, given the circumstances surrounding the making of the financial agreement in this case, it would be unjust and inequitable for the agreement not to be binding on the parties.”

The husband submitted that the wife should not be able to avoid the terms of the agreement being binding on the basis of a technicality and should not be able to rely on her own legal practitioner’s omission. Justice Strickland was concerned that the wife did not receive advice as to the amendment to the agreement. Despite this omission being within s 90G(1A), he was not satisfied that it was unjust and inequitable if the agreement was not binding. He said (at [113], [115]):

“As mentioned above, the intention of the amendments is to avoid financial agreements being found not to bind the parties due to technical difficulties. Although s 90G(1A)(b) includes subsection (1)(b) in the list of relevant subsections, it could be argued that the

provision of legal advice is not a ‘technical’ issue but a substantive matter going to the heart of the agreement …

However, the receipt of independent legal advice by all parties to a financial agreement is an essential requirement. Indeed, it could well be unjust and inequitable to the wife if she was bound by the financial agreement in circumstances where I have found she was not fully advised of the implications of the amendment to clause 15.”

The husband appealed. A majority of the Full Court in Parker & Parker (2012) FLC 93-499; [2012] FamCAFC 33 allowed the appeal and remitted the matter for rehearing. This was decided before the Full Court decided Hoult. Justice Coleman said that Strickland J’s view of s 90G(1A) was overly narrow. Justice Coleman considered that s 90G(1A), (1B) and (1C) were “remedial” or “beneficial” and statutory interpretation principles required such provisions to be interpreted “generously” to ensure that the “mischief which the legislation sought to address was remedied” (see DC Pearce & R S Geddes, Statutory Interpretation in Australia, LawNews Butterworths, 7^th ed, 2011 at p 30).

The husband did not need to seek an order to enforce the financial agreement, as the terms of the agreement had already been put into effect. He could only seek an order to dismiss the wife’s s 79 application. There was a question as to whether the remedy in s 90G(1B) was available to the husband as s 90G(1B) referred to an “enforcement application being made by the party seeking to enforce the agreement”. Justice Coleman allowed the appeal on the basis that a “permissibly generous interpretation of s 90G(1A)” would not have led the trial judge to the conclusion he reached, “albeit other factors may have”. He did not specify those factors.

Justice May said Strickland J was hindered in considering s 90G(1A) by the manner in which the case was presented. There was no alternative but for the matter to be remitted for re-hearing so that consideration could be given to:

• The reference to an “enforcement application”, noting that no such application was made by the husband. She said, however, that “this may be of little moment”;
• Evidence to be adduced directed to an application under s 90G(1A);
• The full weight of s 90KA may need to be considered as s 90G(1C) refers to s 90KA.

Justice Murphy was the only judge to dismiss the appeal. He agreed with the trial judge, Strickland J, that s 90G(1A) could not be used to find the agreement was binding. Justice Murphy agreed though with Coleman J that s 90G(1A), (1B) and (1C) were remedial provisions and should be read broadly so that an “enforcement application” was not required in the narrow sense.

Justice Murphy was also concerned about the legislation which applied to this particular agreement, as a result of the transitional provisions of the Federal Justice System Amendment (Efficiency Measures) Act (No 1) (2009) (Cth) (“Efficiency Measures Act”). The trial took place 12 months before judgment was handed down in Senior & Anderson [2011] FamCAFC 129; (2011)

FLC 93-470 which dealt with the application of s　90G to an agreement entered into in the same period as the agreement in Parker, namely after 14 January 2004 and before 4 January 2010. This meant that the Efficiency Measures Act’s retrospective operation applied so as to (at [168] of Parker):

“(a) give s 90G(1) the “consolidated form” outlined in Senior at [189];

(b) give s 90G(1A) a form which excludes from its operation:

(i) s 90G(1)(c) either in the form in which that sub-paragraph appears in Senior or as it appears in the amended s　90G; and

(ii) s 90G(1)(ca).

(c) render s 90G(1A) applicable only to a financial agreement declared to be not binding by reason of non-compliance with s 90G(1)(b). But compliance with that paragraph is referenced to the “consolidated form” of that paragraph.”

The consolidated form of s　90G which Murphy J said applied in the 2004 to 2010 period was:

“Section 90G(1) Subject to subsection (1A), a financial agreement is binding on the parties to the agreement if, and only if:

(a) the agreement is signed by all parties; and

(b) before signing the agreement, each spouse 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 that the advice was provided, to that party of making the agreement;

OR

before signing the agreement, the spouse party was provided with independent legal advice from a legal practitioner about:

i. the effect of the agreement on the rights of that party; and

ii. whether or not, at the time when the advice was provided, it was to the advantage, financially or otherwise, of that party to make the agreement; and

iii. whether or not, at that time, it was prudent for that party to make the agreement; and

iv. whether or not, at that time and in the light of such circumstances as were, at that time, reasonably foreseeable, the provisions of the agreement were fair and reasonable.

(c) either before or after signing the agreement, each spouse party was provided with a signed statement by the legal practitioner stating that the advice referred to in the italicised text or, in the alternative, stating that the advice referred to in the underlined text in paragraph (b) above, was provided to that party (whether or not the statement is annexed to the agreement); and

(d) the agreement has not been terminated and has not been set aside by a court.

[Note to 90G(1) has been omitted]

(1A) A financial agreement is binding on the parties to the agreement if:

(a) the agreement is signed by all parties; and

(b) One or more of paragraphs (1)(b) in either of the forms in which it above appears (c) and (ca) are is not satisfied in relation to the agreement; and

(c) a court is satisfied that it would be unjust and inequitable if the agreement were not binding on the spouse parties to the agreement (disregarding any changes in circumstances from the time the agreement was made); and

(d) the court makes an order under subsection (1B) declaring that the agreement is binding on the parties to the agreement; and

(e) the agreement has not been terminated and has not been set aside by a court.

(1B) For the purposes of paragraph (1A)(d), a court may make an order declaring that a financial agreement is binding on the parties to the agreement, upon application (the enforcement application) by a spouse party seeking to enforce the agreement.

(1C) To avoid doubt, section 90KA applies in relation to the enforcement application.

(2) A court may make such orders for the enforcement of a financial agreement that is binding on the parties to the agreement as it thinks necessary.”

Justice Murphy considered that the trial judge made two errors:

1. 1. There was not an “agreement” and an “amended agreement”. A document was signed by the wife on 5 November 2004, and submitted to the husband’s solicitors on 8 November 2004. The document proffered by the husband on 11 November 2004 which included the addition of a substantive term by him constituted a counter-offer to the offer made by the wife. On the traditional analysis of offer and acceptance, there was only an agreement on 12 November 2004 when the wife accepted the husband’s counter-offer. The analysis of compliance with s　90G at trial concentrated on what took place before and after 5 November 2004, when it should have concentrated on what took place before and after 12 November 2004.

Justice Murphy agreed with the trial judge that there was insufficient evidence by which he could be satisfied that there was compliance with s　90G(1)(b) in its correct “consolidated form”, leading to Murphy J’s conclusion that the trial judge’s declaration that the agreement was not binding by reason of non-compliance with s　90G(1)(b) was plainly right.

2. The application of the transitional provisions of the Efficiency Measures Act.

When can an agreement be saved? The case law

A review of the cases which have considered s　90G(1A)–(1C) reveals a dearth of cases which actually show how these provisions apply. This is unfortunate, as ensuring a bullet-proof agreement is assisted by knowing when the courts won’t save an agreement under these sections. Due to lack of evidence to consider the s　90G(1A) question, cases which reach the Full Court are usually remitted for re-hearing as to whether the agreement should be saved.

The manner in which s　90G(1A)–(1C) should be applied was considered, with some disagreement, in the following cases which were remitted for a re-hearing:

• Hoult & Hoult [2012] FamCA 367
• Hoult & Hoult [2013] FamCAFC 109; (2013) FLC 93-546
• Parker & Parker [2010] FamCA 664
• Parker & Parker [2012] FamCAFC 33; (2012) FLC 93-499
• Senior & Anderson [2011] FamCA 192; (2011) FLC 93-470

Other cases in which the result was that they were remitted for re-hearing, and are not particularly helpful to the question here are:

• Bilal & Omar [2015] FamCAFC 30; (2015) FLC 93-636 because the judge incorrectly found that the wife had not waived legal professional privilege.
• Logan & Logan [2013] FamCAFC 151; (2013) FLC 93-535 because it was not apparent how the trial judge found that the wife’s evidence was insufficient for the trial judge to be reasonably satisfied that s　90G(1)(b) had not been complied with.
• Campbell & Peters [2014] FamCAFC 76 because the issues of s　90G and 90G(1A) were not adequately dealt with.

The cases we are left with are:

• Manner & Manner [2015] FCCA 3043
• Piper & Mueller [2015] FamCAFC 241; (2015) FLC 93-686
• The Estate of Ms Fan & Lok [2015] FamCA 300
• Senior & Anderson [2011] FamCA 802
• Abrum & Abrum [2013] FamCA 897
• Warner & Cummings [2015] FCCA 3043

Manner & Manner [2015] FCCA 3043

The wife argued unsuccessfully that she did not receive the requisite advice. However, Jarrett J accepted that the husband who did not receive the requisite advice and concluded (at [142]):

“Again, leaving aside the certificate signed by [his lawyer] and recital J in the agreement, there is no evidence from [his lawyer] that he gave advice to Mr Manner about the matters specified in s　90G(1)(b) of the Act, or the matters provided for in item 8A(2) of the Efficiency Measures Act. The only evidence I have about those matters is in the certificate that is attached to the agreement and recital J in the agreement. At no time in the course of his evidence did [his lawyer]:

1. 1. swear that what he certified in the certificate of advice annexed to the agreement was true;
   2. give any particularity about the occasion or occasions upon which he gave the requisite advice to Mr Manner; or
   3. give any particularity about the advice that he gave to Mr Manner.”

There was no question that s　90G(1A)(a), (b), (d) and (e) were satisfied. The issue was whether s　90G(1A)(c) was satisfied. After rejecting the wife’s application that the agreement be set aside under s　90K for fraud, Jarrett J found that in the making of the agreement the husband engaged in unconscionable conduct. The circumstances which led to this finding were (at [183]):

“a. Mr Manner was in a much stronger financial position and Ms Manner as each of them well knew;

b. Ms Manner asked three times in writing (2 and 9 February and 30 April 2007) for details of Mr Manner’s financial position;

c. Mr Manner gave instructions to his solicitor not to disclose his assets and liabilities and not to answer the correspondence from Ms Manner’s solicitor in any meaningful way;

d. Mr Manner then told his solicitor not to negotiate on his behalf, that he would do that directly with Ms Manner, thereby cutting out Mr Davies in the process;

e. Mr Manner knew that Ms Manner was very keen to marry him and had been for a long time;

f. Ms Manner knew that Mr Manner would not marry her unless she entered into a “pre-nup” before the wedding;

g. arrangements for their wedding had been made and guests were attending.

Mr Manner, I am satisfied, either by design or by accident, created an atmosphere of crisis when he had his own solicitor deliver the first draft of the agreement to Ms Manner’s solicitor (omitted) hours before the wedding and apparently without warning. It was at that point, for the first time, that Ms Manner was given a list of Mr Manner’s assets and liabilities. In my view, there was insufficient time for her to form any view about the accuracy of that list let alone make her own inquiries about the value of his assets if that is what she wished to do.”

Judge Jarrett declined to set the agreement aside under s　90K because the significant delay between the parties’ separation and the commencement of the proceedings (nearly 2¾ years) was unexplained and in the meantime the wife had insisted that the agreement be performed.

For the same reasons, Jarrett J was satisfied that it would be unjust and inequitable if the agreement were not binding. The agreement was “saved” because the wife had sought to enjoy the benefits of the financial agreement. Having made the decision to call on performance of the agreement, and accepted its performance, there was a very strong argument that she should not later be heard to assert rights which were inconsistent with that choice. The wife’s own conduct in affirming the financial agreement through her insistence on its performance was, the wife said, nothing more than a sham because she did not consider the agreement binding and she always intended to pursue a property settlement with the husband. For Jarrett J those matters weighed heavily against exercising the s　90K(1) discretion in the wife’s favour. In addition, it was the husband who had not received legal advice, not the wife, and the husband sought to maintain the agreement. It is likely that this case would not be decided differently post Thorne v Kennedy. Although not expressly stated by Jarrett J, equity relies on clean hands. The wife did not have clean hands.

If the agreement was set aside, s　79 proceedings could not be commenced as the wife had passed away. This was not considered to be a relevant factor by the court as other courts could deal with the parties’ disputes.

Piper & Mueller [2015] FamCAFC 241; (2015) FLC 93-686

The husband argued that the agreement was not binding because the certificate used words not used in s　90UJ(1) by referring to:

“whether or not, at the time the advice was provided, it was to the advantage financially or otherwise, of that party to make the Agreement.”

Justices Ryan and Aldridge summarised the evidence given by the husband (at [19]) to which objection was not taken, that instead of the advice he should have received, he:

“received advice as to the effect of the agreement on the parties’ rights, whether or not it was to the appellant’s advantage, financially or otherwise, to make the agreement, whether or not it was prudent for him to make the agreement and whether or not at the time, and in the light of such circumstances as were at that time reasonably foreseeable, the provisions were fair and reasonable.”

After looking at c