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, 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, 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, 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, October 2018

Hot Cases in family law – 2018

Introduction

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, 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 cases not under the FLA about giving advice, the judges concluded (at [52] – [53]):

“The significance of these cases is that, in determining what is “prudent”, the court looks to the future and the interests of the person in taking, or not taking, the proposed course. In other words, whether a particular course is prudent involves consideration of the advantages and disadvantages of the proposed course. Similarly, an assessment of whether the provisions of an agreement were fair and reasonable, necessarily involves a consideration of the advantages and disadvantages of those provisions.

… That evidence [as to the advice that the husband was given] gives rise to the inference that the appellant had been given advice as to the advantages and disadvantages of making the agreement. Advice as to whether making the agreement was prudent, or whether its provisions were fair and reasonable must have involved such consideration and advice. How else could advice be given that the proposed course was prudent, or the terms fair and reasonable?”

They said that the matters considered by the trial judge under s　90UJ(1A) were “relevant considerations that carried considerable and appropriate weight. The reference to the word ‘disadvantage’ in her Honour’s reasons … is clearly a reference to the disadvantages of an agreement not being in place as opposed to the disadvantage of losing the benefit of the particular terms of this agreement” (at [58]). The factors the trial judge took into account were:

• It would be to the disadvantage of the respondent if the agreement that the parties entered into was not upheld;
• The parties got advice;
• They each saw solicitors;
• The documents made it abundantly clear that each party wanted to keep their own assets;
• Both parties were adults;
• They had each been advised that they knew what they were doing;
• It was the intention of both parties that the agreement would deal with their financial arrangements and that neither of them would have resort to the FLA;

Justices Ryan and Aldridge referred to the Full Court in Hoult & Hoult [2013] FamCAFC 109; (2013) FLC 93-546 where Strickland and Ainslie-Wallace JJ (at [307]) stated the range of factors that were appropriate to consider when exercising the discretion (being factors relied upon by the trial Judge with one deletion):

• The terms of the section, the nature of a financial agreement as a creature of the Act, and the place of Part VIIIA within the overall scheme of the Act;
• The nature and extent of the non-compliance with the requirements of s 90G(1);
• The facts and circumstances surrounding the making of the agreement including, in particular, if one of the parties has complied with all of the mandatory requirements necessary to render the agreement binding.

Justices Ryan and Aldridge concluded (at [60], [62]) that the nature of the non-compliance was not substantial. The agreement was drawn up by the husband’s own solicitors on his instructions and he had the benefit of legal advice before signing the agreement and before it was sent to the wife for her to sign. The evidence did not establish that there was a failure to give the requisite legal advice to the husband.

Justice Murphy agreed with the conclusions of Ryan and Aldridge JJ.

The agreement in Senior & Anderson [2011] FamCA 802 was entered into when the transitional provisions of s　90G applied, so the advice requirement was not a requirement which could be dispensed with. This was a re-hearing before Young J as to whether the agreement was binding under s　90G(1) or 90G(1A) and (1B) after the Full Court had upheld the husband’s appeal.

The husband disagreed with the finding by the Full Court that the remedies in s　90G(1A), (1B) and (1C) were not available if there was not an application to enforce a financial agreement. He sought leave to amend his response. The wife agreed with the husband’s interpretation and did not oppose the granting of leave. The husband also argued for a narrow interpretation of s　90G(1A)(c) as detailed in Parker & Parker [2013] FamCA 664.

Justice Young disagreed with the husband and agreed with the wife with respect to the different reasoning of Strickland and Murphy JJ in Senior & Anderson. He considered that Murphy J (who repeated his views in Parker above) was most likely correct and found that as the agreement between the parties satisfied s　90G(1)(b) but did not satisfy s　90G(1)(c), the consolidated s　90G(1A)(b) was not satisfied as each party was not provided with signed statements by their legal practitioners stating that the advice had been provided as the certificates referred to incorrect names. The form of s　90G(1A) at the relevant time did not give this as a ground on which an agreement could be found to be binding.

Of course, it must be remembered that Senior & Anderson is only relevant to agreements entered into in the 2004-2010 period.

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). The certificates stated that the advice given was:

“1. the effect of the Deed on the rights of the parties to apply for an order for property adjustment under the Family Law Act 1975 (Cth);

2. whether or not at that time it was to the advantage, financially or otherwise, of my client to enter into the Deed;

3. whether or not at that time it was prudent for my client to enter into the Deed; and

4. whether or not at that time and in the light of such circumstances as were at that time reasonably foreseeable the provisions of the Deed were fair.”

Paragraphs 3 and 4 were no longer required by s　90G(1) when the agreement was entered into, but Aldridge J found that their presence did not render the certificate non-compliant. However, paragraphs 1 and 2 presented more serious problems, as (at [56]):

“Section 90G(1)(b) requires advice to be given about “the effect of agreement on the rights of that party”. That is different to the “rights of the parties to apply for an order for property adjustment”. Similarly, the Act requires advice to be given about “the advantages and disadvantages” and not merely the “advantage, financially or otherwise” of entry into the agreement.”

(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 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 solicitor didn’t give the advice in accordance with s　90G(1), as it was at the time (in 2007), but also didn’t give advice which complied with any other version of s　90G(1). There was no history taken of the marriage, no instructions taken on contributions and s　75(2) factors, and no advice given on the wife’s rights under s　79. There was no suggestion or recommendation that the parties could negotiate about the terms of the agreement. 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 noted that the lack of advice or the lack of proper advice was not, of itself, determinative. He quoted from Thackray J (the minority judge on this point) in Hoult & Hoult and agreed with him that where there are minor breaches of s　90G(1) the court might be more easily satisfied that it would be unjust and inequitable if the agreement was not found to be binding, than where there are more serious breaches. It did not reflect a change in the onus but reflected the wide range of weight that can be given to various factors. In the case before him the non-compliance with s 90G(1)(b) was serious in that appropriate legal advice was not given as was required. 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. 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.

Estate of Ms Fan & Lok [2015] FamCA 300

A pre-nuptial 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. 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.

The husband sought to set the agreement aside. He unsuccessfully argued that either the agreement was impracticable to be carried out (s　90K(1)(d)) or that there had been a material change in circumstances (s　90K(1)(c)). The former argument was rejected as the husband did not have evidence to support his assertion, and the latter as there were no children of the marriage.

The husband also argued that the agreement was not binding as he had not received the requisite legal advice required by s　90G(1)(b). 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. Justice Rees did not deal with the argument that the agreement may have still been valid (e.g. under 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. Her Honour concluded (at [124]) without giving a detailed explanation as to her reasons:

“I do not find that the nature and extent of the non-compliance with the requirements of s　90G(1)(b)-(ca), which follows from the Court’s inability to rectify the certificates of legal advice, is sufficient to prevent the exercise of my discretion pursuant to s　90G(1A)(c).”

Other remedies were available to the deceased estate if the agreement was found not to be binding, so this was not a relevant issue.

Warner & Cummings [2017] FCCA 432

The husband did not raise his discontent with the agreement until the primary asset (a property known as Property E) did not sell for the amount that he anticipated and expected. Likewise, his expectations regarding an insurance recovery was not as much as he expected. It was not until 2 years after the agreement was entered into that he sought to re-visit the terms of the agreement.

Judge Neville considered the timing of the husband’s complaint about the financial agreement to be relevant to s　90UJ(1A)(c) and said (at [125]):

“In all of the circumstances, not least the Court’s assessment of the opportunism of the Applicant in bringing the Application, the “technical” nature of any omissions or deficiencies in the Agreement and or advice in relation to it, it would be utterly unjust and inequitable if the Agreement were not to be binding on the parties. The Applicant has sought, long after the event, to renege on the Agreement he had struck with the Respondent, which was properly recorded in that Agreement. He did so only after there was a change in his financial circumstances. And prior to the filing of the Application, for some two years or thereabouts there was no issue raised by the Applicant in relation to the nature, quality or extent of the advice provided to him by his former solicitor.”

Although Neville J seemed satisfied on the totality of the evidence that the relevant advice was given to the husband, he nevertheless declared the agreement binding under s　90UJ(1B).

5. Dealing with hybrid agreements

It has been the usual practice for parties to enter into two separate agreements if they want an agreement as de facto partners (under s 90UB or s 90UC of Pt VIIIAB) and as a couple contemplating marriage (under s　90B of Pt VIIIA). This appeared to be the best practice, as it ensured:

• that the advice is given in relation to each type of agreement, and
• that if one agreement is found not to be binding or set aside, the other agreement may still stand.

However, the Full Court in Piper & Mueller (2015) FLC 93-686; [2015] FamCAFC 241 in two separate judgments determined that one agreement could be under both Pts VIIIA and VIIIAB FLA. The parties were in a de facto relationship and also engaged to marry. As they had not married, whether the agreement would still be valid if they were married did not need to be determined.

Justices Ryan and Aldridge said (at [33]) that it was “a powerful indication that the two financial agreements can exist concurrently and in the one document” that s 90B(1)(aa) specifically prevents parties to a s 90B financial agreement from entering into another financial agreement to which s 90C and 90D apply, and that a similar scheme applied under Pt VIIIAB by the application of s 90UB(1)(b)(b). However, the Pt VIIIA exclusion in s 90B(1)(aa) did not preclude a Pt VIIIAB agreement and the Pt VIIIAB exclusion in s　90UB(1)(b) did not preclude a Pt VIIIA agreement.

The notion that two financial agreements can exist concurrently and in the one document was, the judges said, reinforced by the fact that only one can have operative effect at any one time. Both may be binding on the parties at the time of execution, but only one can have operative effect.

The operative terms of the agreement only referred to the “breakdown of the relationship” and not the “breakdown of a marriage”. Arguably, the precise phrase “breakdown of marriage” must appear in an agreement under s　90B for it to be binding. If that was true, there may have been no valid Pt　VIIIA financial agreement (s　90B), but the validity of the Pt　VIIIAB financial agreement (s　90UC) would be unaffected.

The Full Court did not believe that different types of advice were required to ensure the validity of the agreement under Pts　VIIIA and VIIIAB, but even if this is correct, the Full Court considered that both types of advice could be given in relation to the one agreement. If the formal requirements for one agreement were met, but not for the other one, the valid agreement would still stand.

While the Full Court did not believe that different advice was required under each section, one of the main areas of difference is addressed in the Civil Law & Justice Legislation Amendment Bill 2017. Currently, there is no provision in the FLA for a de facto couple whose financial agreement has been set aside or found to be invalid to apply for orders under s　90SE, 90SG or 90SM or a declaration under s　90SL, unless the application is made within two years of the end of the de facto relationship. The proposed amendment to s　44 FLA will allow an application to be made within 12 months after the day a financial agreement is set aside or found to be invalid.

Another change was proposed by the Family Law Amendment (Financial Agreements and Other Measures) Bill 2015, which lapsed upon the calling of the 2016 Federal election and is not in the 2017 Bill. This change would have ended maintenance obligations in Pt　VIIIAB financial agreements in the event of the recipient remarrying or entering into a de facto relationship with another person. Currently, only maintenance for married couples ends upon re-marriage (s　82(4)), although not upon entering into a de facto relationship with another person.

Other distinctions include that “other matters” cannot be dealt with in a Pt VIIAB agreement and a Pt VIIIAB agreement terminates upon marriage.

So, even if I am wrong (and the Full Court says I am), care is required with hybrid agreements, and the advice given separately in relation to hybrid agreements or agreements entered into under Pt VIIIA and Pt　VIIIAB.

6. Contract law and financial agreements – how do they interact?

It is beyond the scope of this paper to consider all the grounds in s　90K and 90UM for setting aside a financial agreement. Sections　90K(1)(b) and 90UM(1)(e) allow a court to set aside a financial agreement or a termination agreement if, and only if, the court is satisfied that “the agreement is void, voidable or unenforceable”. These sections incorporate all the principles of common law and equity which might render a contract “void, voidable or unenforceable” into the grounds to set aside agreements.

The three concepts are:

• Void. If an agreement is void it never effectively existed. Contracts may be void for uncertainty, incompleteness or, in very limited circumstances, mistake.
• Voidable. A voidable contract can be pronounced void by one of the parties or held to be void by a court. It is not void unless action to void the contract is taken. Agreements may be voidable due to misrepresentation, mistake, duress, undue influence or unconscionability. A party may choose to rescind or affirm the agreement which is valid unless and until it is rescinded.
• Unenforceable. Unenforceable means that the contract is valid but for some reason cannot be enforced. An agreement may be unenforceable for public policy reasons or breach of contract.

An aggrieved party cannot unilaterally set aside a financial agreement. Setting aside requires a court order. Even where an applicant satisfies common law principles and establishes that the agreement is “void, voidable or unenforceable”, the court still has a discretion whether to set it aside.

Section 90K(1)(b) highlights the tension between the two main objectives of contract law:

1. to find a valid contract and promote commercial certainty, and
2. to protect parties who are at, or are assumed to be at, a disadvantage.

Grounds for finding a contract void or voidable which are particularly relevant to financial agreements are:

• Uncertainty. If an essential term is too vague the agreement will be void.
• Incompleteness. If the parties have failed to reach agreement on an essential term the agreement will be void.
• Duress.
• Undue influence.
• Unconscionability.
• Misrepresentation.
• Mistake.
• Fraud.

7. Equitable and common law rights to performance of contracts

Sections 90KA and 90UN deal with the validity, enforceability and effect of financial agreements and termination agreements. Section 90KA states:

“The question whether a financial agreement or a termination agreement is valid, enforceable or effective is to be determined by the court according to the principles of law and equity that are applicable in determining the validity, enforceability and effect of contracts and purported contracts, and, in proceedings relating to such an agreement, the court:

(a)　 subject to　paragraph　(b), has the same powers, may grant the same remedies and must have the same regard to the rights of third parties as the High Court has, may grant and is required to have in proceedings in connection with contracts or purported contracts, being proceedings in which the High Court has original jurisdiction; and

(b) 　has power to make an order for the payment, by a party to the agreement to another party to the agreement, of interest on an amount payable under the agreement, from the time when the amount became or becomes due and payable, at a rate not exceeding the rate prescribed by the applicable Rules of Court; and

(c) in addition to, or instead of, making an order or orders under paragraph　(a) or (b), may order that the agreement, or a specified part of the agreement, be enforced as if it were an order of the court.”

The meaning and effect of s 90KA and its interaction with s　90K are still being explored by the courts and there is disagreement. Recent examples of its use are discussed below.

Cole & Abati [2015] FamCA 185

The trial judge, Macmillan J, made an anti-suit injunction restraining the husband from taking legal proceedings in Indonesia relating to property owned by the wife. The parties separated after 8 months and had 1 child. The husband had assets in Australia, New Zealand and Indonesia of $63 million. The wife had assets in Indonesia of $3 million which she had acquired prior to the marriage with money given to her by the husband.

The financial agreement was executed on the parties’ wedding day as a s　90B agreement. The husband’s statement of independent legal advice was signed that day, but before they were married. The wife’s statement had been signed three days earlier. She was pregnant at the time of the marriage and had moved from Indonesia to Australia earlier that year. The parties had been in a de　facto relationship for between 2 and 2½ years.

Although the Family Court is arguably not a court of equity, Macmillan J accepted that an injunction could be granted in the exercise of the power conferred by s 90KA. This approach was not challenged on appeal and the Full Court proceeded on the basis that this was correct.

The wife relied on s　90KA and s　34 FLA. Justice Macmillan did not find it necessary to consider whether s　34 (which gives the court power to issue writs), gave her the power to grant the injunction, although she noted that the Family Court had previously relied upon that section to make injunctions of the kind sought by the wife. Justice Macmillan accepted that there was no basis for construing the opening words of s　90KA as confining the operation of the words “in proceedings relating to such an agreement” to proceedings in which there was question as to whether the agreement was “valid, enforceable, or effective” (at [68] of Abati & Cole [2015] FamCA 185).

Justice Macmillan’s approach was upheld by the Full Court of the Family Court in Cole & Abati (2016) FLC 93-705; [2016] FamCAFC 78, in the absence of any challenge to that approach.

A narrower approach was adopted by Carew J in Lincoln (deceased) & Miller [2016] FamCA 457. Justice Carew’s judgment was delivered after the Full Court’s judgment in Abati & Cole, but the hearing of Lincoln was prior. Justice Carew refused to make declarations as to the validity of the financial agreement, as she said there was doubt as to whether there was a question as to the validity, enforceability or effectiveness of the financial agreement as required by s　90UN (the Pt　VIIIAB equivalent of s　90KA for de facto couples).

Cai & Hsueh [2017] FamCA 671

Justice Foster gave effect to the common intention of the parties as to the meaning of the agreement, taking into account s 90KA which enabled the Court to rely on the breadth of s 32 Judiciary Act 1903 (Cth) to “quell” disputes about financial agreements. Whilst this case is perhaps not the best exposition of the law of unenforceability of contracts where there is lack of clarity, the reference to s 32 is a useful reminder of the potential breadth of s　90KA. Section 32 provides:

“The High Court in the exercise of its original jurisdiction in any cause or matter pending before it, whether originated in the High Court or removed into it from another Court, shall have power to grant, and shall grant, either absolutely or on such terms and conditions as are just, all such remedies whatsoever as any of the parties thereto are entitled to in respect of any legal or equitable claim properly brought forward by them respectively in the cause or matter; so that as far as possible all matters in controversy between the parties regarding the cause of action, or arising out of or connected with the cause of action, may be completely and finally determined, and all multiplicity of legal proceedings concerning any of such matters may be avoided.”

An appeal to the Full Court in Hsueh & Cai [2017] FamCAFC 172 was not relevant to this issue.

Donald & Forsyth (2015) FLC 93-650; [2015] FamCAFC 72

The principles applied in determining whether a party to a contract has repudiated the contract such that the other party can terminate it were set out by Strickland and Ryan JJ (at [67]):

“a. there must be either a breach or an anticipatory breach of an essential term of the contract, or a sufficiently serious breach of a non-essential term (Koompahtoo Local Aboriginal Land Council and Anor v Sanpine Pty Limited and Anor [2007] HCA 61; (2007) 233 CLR 115), and

b. the other party must be ready and willing to complete the contract (Foran v Wight [1989] HCA 51; (1989) 168 CLR 385).”

The trial judge found that the husband’s position that he would not participate in paying his share of the cost of repairs to a property amounted to a repudiation of the contract.

The Full Court, in two separate judgments, found that the husband’s anticipatory breach of the agreement related to a non-essential term and that his anticipatory breach was not sufficient grounds to justify the wife rescinding the agreement.

Justices Strickland and Ryan found that the essential term was that the house be marketed in good repair. The husband did not seek to breach that term. If the husband had maintained his resistance to having his half-share of the costs of repair deducted from the proceeds of sale, then the obvious remedy for the wife was in damages. It was also apparent that at the time of the purported termination of the agreement by the husband, the wife was not ready and willing to complete the agreement as she did not want to sell the property. Therefore, she was not able to rescind the agreement.

The husband was entitled to seek orders for enforcement of the agreement. May J, but not Strickland and Ryan JJ referred expressly to s　90KA as being relevant.

8. Interpretation of financial agreements – 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.

Gibbs & Gibbs [2015] FamCA 630

Justice Hogan, in setting aside the financial agreement for uncertainty, said (at [8]):

“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.”

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 (eg 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. 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:

1. 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.”

9. Material change in circumstances in relation to children

Under s　90K(1)(d) and 90UM(1)(g) changed circumstances in relation to a child may be a ground to set aside a financial or termination agreement. Section 90K(1)(d) requires that:

“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…”

Section 90K(2) sets out that 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.”

For an agreement to be set aside under this ground it must be established:

1. that there has been a change in circumstances relating to the care, welfare and development of a child;

2. that the change in circumstances is “material”;

3. the change will cause either the child or the person with caring responsibility for the child to suffer hardship if the agreement is not set aside;

4. the court then has a discretion as to whether or not to set the agreement aside.

The term “material” occurs in s 90K(1)(a) and (d) and 90UM(1)(a) and (g). It appears to be a less stringent test than the term “exceptional” used in s 79A(1)(d) and 90SN(1)(d) and in s　136(2)Child Support (Assessment) Act 1989 which are similar provisions.

Parkes & Parkes [2014] FCCA 102

The financial agreement was set aside on the grounds of duress, but was also set aside under s　90K(1)(d). The financial agreement was signed by the wife three days before the wedding and gave the wife no entitlement to any of the property of the husband. After five years of marriage, the parties had two children for which the wife had the major responsibility for care, including the major financial responsibility. She had been employed full time when the agreement was entered into, but at the time of trial, she was a full time carer of the children and dependent upon Centrelink payments and child support. The only property listed in the financial agreement as belonging to her were a car which had been sold and the proceeds used for the family, and her superannuation. Under the agreement she had no claim on the matrimonial home, another real property and a business.

Judge Phipps found that there had been a material change in circumstances of the type required under s 90K(1)(d) and that if the agreement was not set aside, the wife would suffer hardship.

Pascot & Pascot [2011] FamCA 945

The financial agreement was entered into when the parties were the parents of one child and the prospective parents of a second child. There was no consideration in the agreement to the possibility of a third child and no evidence that this was discussed during the parties’ negotiations. As there is no definition of “material” in the FLA, Le Poer Trench J looked at the definition in the Butterworths Legal Dictionary where “material” is defined as “important, essential or relevant” and “material alteration” is defined as being “a substantial or significant alteration”. Adopting these definitions, Le Poer Trench J said (at [359]):

“The birth of a third child cannot be dismissed as an insignificant or unsubstantial change in circumstances. There are significant costs associated with an additional child in terms of time and emotional investment as well as the financial cost that would most certainly affect the care, welfare and development of the children of the relationship. The change is certainly relevant to the agreement, as there is specific provision that the wife is to be primarily responsible for the children and she is not permitted by the Agreement to claim any compensation from the husband for that effort.”

The agreement assumed that the wife would be able to support herself and the children with an unspecified appropriate level of child support paid by the husband. This created hardship for the wife, thus satisfying the second leg of s 90K(1)(d).

Fewster & Drake [2015] FamCA 602

Justice Foster set aside the agreement under s 90K(1)(d). At the time of entering into the agreement the wife was pregnant, and there had been two miscarriages. A　second child was born two years after the agreement.

The agreement provided in substance for the parties to retain their respective assets as at the date of the agreement and for any after-acquired joint property to be divided, after reimbursement of contributions with interest calculated at a daily rate, in the same proportions as the contributions. During the negotiations, at the request of the wife, the right of the wife to apply for spousal maintenance was re-instated.

Justice Foster said that it was not difficult to see that the wife would have little expectancy to any interest in after-acquired joint property when, at the time of the agreement, she had no prospective capacity to make any contribution. He relied heavily on Pascot. Some of the wife’s other grounds for setting aside the agreement which were unsuccessful – duress, undue influence and unconscionable conduct – might be decided differently since Thorne v Kennedy.

Fewster & Drake (2016) FLC 93-745; [2016] FamCAFC 214

On appeal, Aldridge and Kent JJ (with whom Strickland J agreed), noted that few cases have examined s　90K(1)(d). They referred unfavourably to the test for s　90K(1)(d) as proposed by Le　Poer Trench J in Pascot. That test (at [354] of Pascot) was:

“a. There must be circumstances that have arisen since the making of the Binding Financial Agreement, being circumstances of a material nature relating to the care, welfare and development of a child of the marriage;

b. It must be demonstrated that the child or the applicant, if she has caring responsibility for the child, will suffer hardship if the court does not set the agreement aside;

c. The court may set the agreement aside if it considers it appropriate and make such orders under sec 90K(3) as it deems appropriate.”

Justices Aldridge and Kent were critical of this analysis of the test (at [50]):

“Essentially, the analysis in Pascot separates the words of the subsection into three steps. However, this test omits the critical words ‘as a result of that change’. Those words provide a necessary link between the changing circumstances and the hardship. According to the clear terms of the subsection, the hardship must result from the material change in circumstances, and not from some other cause.”

In relation to the meaning of “material”, Aldridge and Kent JJ said (at [52]) that the words “substantial, significant and relevant” used by the trial Judge were not an inapt way of describing the word; however, “for our part we do not see the benefit of substituting other words for those used in the Act itself, as in some cases that can mislead”.

Justices Aldridge and Kent found (at [63]) that the trial Judge had not erred in finding that the birth of the second child and the mother having the overwhelming care of the children physically and financially after separation constituted a material change in circumstances that had arisen since the parties entered into the agreement.

However, in relation to “hardship”, they said (at [65]) that it was “the changed circumstances which must give rise to the hardship, and not the agreement itself”.

The Full Court referred to Hoult & Hoult (2013) FLC 93-546; [2013] FamCAFC 214 and confirmed that there is no statutory provision which enables a financial agreement to be set aside “merely because it is unfair”. The hardship required was something more than unfairness. The Full Court quoted favourably from Whitford & Whitford (1979) FLC 90-612 at pp 78,144–78,145 where the Full Court said that “hardship” in relation to s 44(4) 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 s 44(4) the word should have its usual, though not necessarily its most stringent, connotations.”

Although Whitford dealt with applications for leave to institute property proceedings the Full Court in Hoult found that these passages were relevant to the ordinary meaning of “hardship”. The Full Court rejected the approach taken by the trial judge in Pascot (and adopted by the trial judge in Fewster & Drake) (at [378], [379]):

“If the Agreement is set aside, the wife would be able to make an application for orders under s 72 and 79 of the Act. It is safe to say that the outcome of such an application is likely to be very different to that brought about by the Agreement.

In light of this, I would find that hardship on the part of the wife is established, and that setting the Agreement aside is the only remedy.”

The Full Court concluded (at [71]) that “those findings do not establish hardship as it is correctly understood”. The husband’s appeal against the order setting aside the agreement was allowed as:

• The evidence did not establish how the wife’s circumstances had changed as a result of birth of or the care, development and welfare of the second child.
• The order did not permit a comparison to be undertaken between the financial position of the child, or the wife, under the agreement and the position that would exist if the agreement was set aside.
• There could be no determination that hardship would ensue if the agreement was not set aside.

An order for interim spousal maintenance had been made pending the determination of property proceedings. It was set aside and the application for spousal maintenance remitted for rehearing.

Post Thorne v Kennedy, it is possible that the test for the hardship required might be less stringent and closer to that used in Parkes and Pascot than that set out in Fewster & Drake but the Full Court has currently set a very high bar.

Kapsalis & Kapsalis [2017] FamCA 89

Justice Rees followed Fewster & Drake, saying (at [42]):

“The wife does not assert that she suffered any hardship after the birth of the children and up to the date of separation. The hardship which she now asserts arises out of the fact that she no longer lives in the house owned by the husband, that she has to pay rent, and that she no longer has the use of the husband’s income. Those are not matters arising out of changed circumstances relating to the children but rather out of changed circumstances relating to the marriage and separation.”

Justice Rees rejected the wife’s submission that the mere circumstance of the birth of children was sufficient to amount to a change in circumstances. The agreement itself contemplated that the parties would have children and that the agreement would still be binding. Justice Rees agreed with the Full Court in Fewster that the birth of a child is within the ordinary realms of expectation of a marriage and so is the care, welfare and development of a child.

The wife’s weekly income consisted of Centrelink benefits, child support and spousal maintenance. Her income totalled $1,224 per week, or $63,648 per annum, tax-free. She paid rent of $540 per week and, although her financial position was poor, it did not equate with the test of “hardness, severity, privation, that which is hard to bear, or a substantial detriment” as adopted in Fewster. The wife conceded that she had a good work history and that she was capable of seeking employment of some kind when the children were not in her care (which was every weekend). The wife conceded that she had the capacity to improve her financial position.

Milavic & Banks (No 2) [2016] FamCA 884

Justice Macmillan held that there was a “material change in circumstances” within s 90UM(1)(g). A child was born with autism after the signing of the financial agreement. It was found by Macmillan J (at [94]) that “the fact that since the parties entered into the Agreement the younger child has been diagnosed with autism, adding significantly to what is required of the parties for his care physically and emotionally and to some extent financially, is a material change relating to his care welfare and development”.

However, Macmillan J declined to set aside the agreement on that ground, stating (at [110]):

“Insofar as there is hardship caused to the husband, and directly or indirectly to the younger child, because he is in a financially disadvantageous position compared to the wife, that is in my view not a consequence of the fact that the child is autistic and in fact arguably his position would be exactly the same even if the child had not been autistic.”

The child spent limited time with the husband and the wife paid the husband child support. Insofar as there were additional costs arising from the child’s autism, the wife was meeting the lion’s share of those expenses, there was no dispute that the wife had the capacity to meet the child’s expenditure or that she would not do so. There was also evidence of government funding to meet the child’s needs.

10. Checklist

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 matters covered by the agreement can be.
4. Is it necessary to update disclosure or lists of assets & liabilities since the first draft?
5. Have detailed and contemporaneous file notes of conferences, including the time the conferences started and ended and who was present.
6. Give the client a letter of advice about the final version of the agreement a few days before the agreement is signed.
7. 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.
8. 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.
9. 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.
10. Avoid, if possible, provisions relating to superannuation in agreements entered into before separation, as the s　90MJ(1) requirements may not be met.
11. 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. The proviso to this is that the impact of Thorne v Kennedy, if any, on s　79A is unknown. Will it be easier to set aside orders for undue influence or unconscionable conduct than it has been for duress? Are they “any other circumstance” in s　79(1)(a)?
12. Property acquired after the end of a de facto relationship or after a divorce cannot be dealt with in a financial agreement.
13. If there are spousal maintenance provisions, ensure you have complied with s　90E or 90UH and s　90F or 90UI.
14. 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.
15. Check for uncertainties and inconsistencies in drafting. Use terms which are in the FLA.
16. Have another senior lawyer read the agreement.
17. Have you covered all the assets and potential assets?
18. Have you read the most recent cases on financial agreements, particularly of the Full Court and the High Court?
19. Are there potential claims in overseas jurisdictions now or later?
20. Don’t forget the kids. If the parties may have children, then provide for this.

Following the High Court judgment in Thorne v Kennedy, whilst there are many uncertainties, some further matters can be added to the above checklist:

21. 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:

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

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

21.3.  Whether there was any time for careful reflection;

21.4.  The nature of the parties’ relationship;

21.5.  The relative financial positions of the parties; and

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

22. An agreement which is fair and reasonable, perhaps close to a party’s s　79 entitlements, is more likely to be upheld.
23. Ensure there is mutual disclosure
24. 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).

Conclusion

An earlier version of this paper was substantially written before Thorne v Kennedy was handed down, but following Thorne v Kennedy had to be substantially re-written to place provisos and question marks over cases already decided in relation to financial agreements, and not just those dealing with duress, undue influence and unconscionable conduct. As it was never intended that this paper deal with these vitiating factors, the fact that so much had to be reviewed and re-written was a surprise. It is likely there will be other surprises as the courts, lawyers and clients make sense of and apply the High Court’s first look at financial agreements.

It is possible to have a “bullet-proof” financial agreement, but the High Court has made it harder. Following Thorne v Kennedy, it is even more important than it was before to meet the requirements of s　90G(1) (or S　90UM(1)) and not just rely on the “saving” provisions as an escape clause. Having a fair bargain has always been my recommendation but it is even more important now, as it gives fewer opportunities for a party, lawyers and the courts to find that an agreement is not binding or have it set aside.

amended slightly on 13 November 2018

© 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, August 2018

Shining a torch on the bleakness of parental alienation – Solicitors in the coalmine

This paper is not an analysis of the psychological literature, but is written from the perspective of a solicitor who acts for parents who display alienating behaviour to their former partners and parents whose relationship with their children appear to have been damaged or may be in the process of being damaged by the behaviour of their former partner.

Rather than deal with the theory, this paper looks at a selection of cases which demonstrate possible warning signs of parental alienation and strategies. It ends with some practical tips as to the role of the solicitor and strategies to give the preferred and rejected parent.

Alarm bells should ring when your client gives an extremely negative report of the other parent and reports that the interactions of that parent with the children are always poor and that the other parent has nothing to offer as a parent to the children.

Pierce & Pierce [2010] FMCAfam 1137

Over the course of the years of litigation, the relationship between the parents and between the father and the children deteriorated. Initially, a shared parenting arrangement was proposed by both parents with the father spending substantial and significant time with the children.

Ultimately, orders were made that the children live with the mother, that the mother have sole parental responsibility and that the father see one child on alternate weekends and his time with the other two children be swiftly reintroduced.

Several of the father’s witnesses were not challenged regarding the father’s relationship with the children, which was described as strong and loving though not always perfect (e.g. he was sometimes sarcastic with them). Federal Magistrate Coker found the lack of challenge notable. Several witnesses said they had seen the father raise his voice to the kids or smack them in an appropriate show of discipline, but none had heard him call the children names or hit them inappropriately. It was suggested that the father had called certain behaviours “stupid”, but he had not called the children “stupid”.

A third report was prepared after the report writer had a chance to see other subpoenaed materials and updated affidavit evidence. In light of the additional information, she suggested the father had, in 2009, been grieving his mother’s death and although he made changes to his parenting and stopped hitting the children after the first report writer had said he should not, he continued to yell at them. This ongoing angry criticism up until the children ceased contact with him was his greatest regret. The children perceived him as abusive and didn’t notice the changes in his parenting behaviour. The whole family was stuck around the point of separation emotionally – the parents had been unable to be conciliatory to one another and relations between them had deteriorated over time. The report writer believed it was no wonder that the children struggled to manage living with both parents.

The Federal Magistrate was enormously troubled by the evidence given by both parents. His perceptions of the father were that:

• He loved his children and wanted a relationship with them.
• He put his own wishes and expectations to the forefront.
• He had not attended therapy, despite clear benefits and repeat recommendations, the father said he could not afford it. He had not investigated methods to pay e.g. health insurance.
• He lacked insight into his role in the deterioration, tended to blame the mother and talked about her brainwashing the children.
• He acknowledged partial responsibility for the relationships breaking down and for the difficulties between him and the mother and children following separation but wasn’t willing to specifically particularise what he had done or suggest what he could do to improve matters. He lacked appreciation that attending counselling could help him.
• He ran a stricter household whereas the mother’s was more permissive. He recognised this but didn’t seem to recognise that both ways were valid.
• He didn’t realise that better relations with the mother and trying to re-establish trust would improve his relations with the children. He felt that his role as father in the children’s life wasn’t being supported, and the mother was all to blame for the deteriorated relationship.
• He sometimes refused to take steps that would have improved matters e.g. attending children’s birthday activities at the mother’s home when the mother’s new partner was present or when domestic violence orders were in place, even though these steps might have improved relations significantly.
• He preferred to follow what the court suggested in regard to his future relations with the children. The Federal Magistrate understood why he might say this but expected the father to have at least some stated preferences or some fall back positions.
• There were small things he could have done to improve relations with the children, but refused to do for emotive reasons.
• He was unable to say what he could do to improve relations with the children, even though he very much wanted that improvement.

The Federal Magistrate found that some of the allegations about how the father disciplined the children were exaggerations if not outright misstatements even though it was true that the father was angry and sometimes sarcastic with the children. The father had become downtrodden by the situation. The Federal Magistrate seemed hopeful and made comments about how there was much that the father could have done better but that no parent was a perfect parent. The father now seemed to recognise the need to make changes, but didn’t yet fully understand what those changes ought to be. One child had recently expressed a desire to see the father again and that augured well.

The Federal Magistrate’s perceptions of the mother were that:

• He had real concerns around whether mother wanted to foster the relationship with the father.
• She was less than fully frank. She hadn’t told the father about X wanting to see him, and this was a poor oversight. She talked the talk, but did not walk the walk.
• She changed her story and wasn’t frank about the circumstances under which the children wrote certain notes. The Federal Magistrate found that even if the children had not been influenced directly by the mother in writing the letters, which was possible, that they may have written with an idea in mind of what the mother would want them to say regarding future contact with the father.
• She was trying to win the case rather than ensuring the children’s best interests were addressed.
• Although the mother claimed to be intimidated and downtrodden by the father, this was not the impression she gave in the witness box. She came across as in control of herself.
• The mother loved the children and the children loved her, but the Federal Magistrate also found the mother was intent on having her way.

Federal Magistrate Coker found that the situation was not one of parental alienation, and that the relationship between the father and X and Y was best described as estranged rather than alienated. At least one child, Z, still had a close positive relationship with the father, and at least one other, X, was seeking positive reintroduction with the father, whereas Y was more thoroughly estranged. In the past the children had a positive relationship with the father which had deteriorated, and the Federal Magistrate was uncertain whether this happened through the mother’s influence or through the children’s aligning themselves with the mother and against the father without being directly influenced.

Federal Magistrate Coker found the mother now understood more clearly the harm that could result to the children in the short and long term if the issues between them and their father were not addressed. With counselling, the assistance of experts, and the real good will of the parties, he considered that the relationship breakdown between the father and the two eldest children could be addressed.

Considering the s 60CC factors, the Federal Magistrate noted that there was estrangement between X and Y and the father, and that this needed to be addressed to facilitate a meaningful relationship with both parents. However, the children were at risk, not in terms of their physical welfare (he ultimately rejected the suggestion that the father had been violent with the children or subjected them to physical abuse), but in terms of their mental/emotional health. For this reason the Federal Magistrate adopted the ICL’s recommendation that specific orders for time spent not be made, but rather that arrangements be made for reunification counselling, with the objective that time with the two children who were not seeing the father be swiftly re-introduced.

McGregor & McGregor [2012] FamCAFC 69

The Full Court allowed an appeal by a father who challenged orders that changed the children’s living arrangements from living with him to living with the mother. The appeal focussed on the Federal Magistrate’s significant reliance on social science scholarship and journal articles in his judgment. The findings of fact were not challenged. It was the conclusions based on those findings, which appeared to have been drawn by viewing the facts largely through the prism of journal articles about parental alienation, that were at issue.

The father argued that Federal Magistrate O’Dwyer had relied on academic writing on parental alienation by the academics Fidler and Bala, Federal Magistrate Altobelli’s paper on parental alienation and other unidentified “literature” in coming to conclusions about the evidence, and that the parents had not had an opportunity to cross examine, respond to, or introduce contradictory evidence in relation to these sources. Neither of the parents seemingly introduced the majority of this material – the Federal Magistrate informed himself, and therefore was in error.

Ward & Ward (No 2) [2016] FamCA 890

Justice Tree, in the first paragraph of his judgment said:

“Francis Bacon famously warned that care must be taken to avoid an outcome where “the remedy is worse than the disease”. This case exquisitely exemplifies that conundrum.”

The mother sought that the children not spend time with or communicate with the father for at least 6 months. The older child, Y, was 14 and the younger child X was 12.

The father unsuccessfully sought to the have the trial adjourned on the first day of the trial and then took no further part in the trial. He made it clear that his proposal was that the parties have equal shared parental responsibility and that the children be free to live with either parent. The mother and Independent Children’s Lawyer opposed these orders.

There was an inappropriate conversation between the father, his wife and the older child. Whilst Tree J was critical of the father’s behaviour, he was also critical of the mother’s response to it. She recorded it and didn’t intervene to stop it. She was prepared to allow her child to be emotionally hurt so she could gain evidence.

Justice Tree reached positive conclusions about the benefits for the children of having a relationship with the father (at [173]):

“No one really contended that both children would not, in the long-term, benefit from having a meaningful relationship with their father. He presents as their gateway to adventurous outdoor activities, and particularly fishing. The father has a long history of involving both boys in those sorts of activities, and I have little doubt that they are highlights of their lives. Moreover, it is plain that the father does deeply love both children, and does have their best interests at heart. The criticism that is really made of him however is that he allows himself to be dominated by his wife L, and does not protect the children from her emotional manipulation of them. However if the adverse aspects of that influence could be mitigated, there is no doubt that the children would both benefit from a meaningful relationship with their father, and that the best means of facilitating it is likely to be spending regular face-to-face time with him.”

Justice Tree concluded about the mother (at [174]) that so long as she remained abstinent from alcohol, there was no reason to doubt that the behaviours which she had demonstrated in the past, much to the annoyance and embarrassment of the children, were unlikely to recur. He was therefore satisfied that each of the children would benefit from a meaningful relationship with the mother, and as with the father, that was likely to be best facilitated by each of them spending regular face-to-face time with her, and her being involved in all aspects of their lives. Justice Tree recognised though that neither household was the perfect environment for the children.

The older child was living with the mother, and he appeared to be coping well with that. To the extent that he was experiencing distress, it was his rejection by the father, and estrangement from his brother, that appeared to be the active ingredients. The younger child had for nearly two years consistently refused to spend time with or communicate amicably with his mother. His dreadful behaviour at the shopping centre contact visits left Tree J in no doubt that he was adamant that he did not wish to live with her, except if he chose to do so, and under a regime, including a progression of time, of his choosing. Justice Tree was satisfied that if he were forced to live with the mother, he would experience extreme distress.

In evidence the mother expressed a view that she sometimes had a fantasy that, after the younger child came to live with her, he would cry whilst cuddling her and say “mum, why didn’t you rescue me sooner.” In Tree J’s view that epitomised the mother’s completely unrealistic assessment of the likely effect on the child of him coming to live with her.

A major difficulty in managing the younger child’s emotional reaction to being forced to live with his mother, was that he presently had no therapist who might help him through such a momentous change, and was unlikely to accept any such support. There was a further practical difficulty, that even if the child availed himself of counselling, the consensus view was that he needed a male counsellor. There was only one suitable male counsellor in the town, and he was very busy, with long waiting times for an appointment.

There was some prospect that the younger child would self-harm if forced to live with the mother. However, Tree J found the risk of him in fact committing suicide, or self-harming, was relatively low.

Justice Tree concluded (at [225], [230]):

“On balance, I am therefore confident that the effect on the younger child of being physically forced to live with the mother against his express and strongly articulated wishes, (assuming he can be forced to remain with her) is likely to be emotionally cataclysmic and of considerable duration, and will affect his schooling. It is only when his will has been wholly crushed that he will move to a condition of, most likely, sullen and resentful acceptance of his fate. …

I have already observed that the younger child’s present primary source of support, nurture and comfort is the father. He is completely estranged from the mother, and presently derives no support from her whatsoever. The effect of the child not spending time or communicating with the father, therefore, would be to deprive him of the primary source of nurture that he presently has the benefit of. I assess that the impact on him of that loss is likely to be profound, in that he will likely go through something akin to a kind of grieving for the forced termination of the relationship which he presently has. The likely effect of him not spending time or communicating with the father is therefore considerable.”

The points which favoured the status quo or were against the mother’s proposal that the children live with her for 6 months before any reunification with the father were (at [276]):

• The younger child is strongly antipathetic to the mother and has some basis to be so;
• Previous attempts at reunification of the younger child with the mother have all been dismal failures (noting that the mother says this is the fault of the father);
• The mother agreed to the status quo in the parenting plan as recently as August 2016, and her justification for doing so is weak, but somewhat plausible [accepting that I have now determined she entered it knowingly and voluntarily];
• The current situation reflects the children’s wishes (leaving aside that the older child has a wish to see his father, and that the mother contends the younger child’s wish is not genuine [which I have discussed earlier in these reasons]);
• The younger child has a strong bond with his father (which therefore also predicts that it will likely survive any moratorium);
• The mother’s proposal is wholly contrary to the younger child’s strongly expressed wishes, and he is a child who always seems to have gotten his way with both parents;
• The mother’s proposal would cause great upset for the younger child, with no real likelihood that he will avail himself of therapy to assist him cope, noting importantly that he has no established bond with a therapist which he could immediately avail himself of to deal with any grief upon dislocation of his relationship with his father;
• The younger child (and indeed the older child) will in any event shortly be grieving the loss of their paternal grandfather (with, on the mother’s proposal, absolutely no access to – even to talk with – the father to help in this grieving process) and further, he is at the end of his first year in high school where he appears to have been doing well;
• The mother’s proposal would see great turmoil in the children’s lives for at least a further 12 months, and probably longer (accepting that even the alternative proposal of Ms B discussed below would see some turmoil);
• The success of the mother’s proposal is wholly dependent on her ability to control/discipline the younger child, which in the past she has unable to do, except with the assistance of the mother’s partner, who no longer lives with her and plans to have no part in the reunification strategy;
• The mother has no concrete plans about how to manage the younger child on his return, and seems naïve about his likely reaction;
• It would wholly sever both children’s relationship with the father for at least six months, and perhaps longer, and if permanently, thereby effecting the very harm the solution is designed to avoid;
• Whilst the mother is likely to better facilitate a relationship between the children and the father than he would with her, there is no guarantee that she will do so, especially given Mr F’s strong antipathy to the father and the father’s wife having anything further to do with the children;
• There is no strong probability that the mother’s orders would in fact effect reunification [in fact as has been seen, I assess their likely success as low].

The points in favour of mother’s proposal, or against the status quo, were listed (at [277]):

• The mother has the greater capacity to protect the children from emotional harm;
• The mother’s proposal might reunify the younger child with her;
• The mother’s proposal might promote a healthier relationship between the children and the father;
• The mother’s proposal might reunify the children;
• The status quo, and the children’s presently expressed wishes, are likely in some respect the product of manipulation or alienation by the father and his wife, and perhaps to a lesser extent the mother and her partner;
• The mother’s proposal would best protect the children from the coercion and control of the father’s wife;
• The younger child is unlikely to otherwise voluntarily re-establish a relationship with his mother;
• The siblings are presently separated, save for going to the same school and playing handball and online games together, noting that they did spend time successfully together both at a movie on 21 May 2016 and on 4 September 2016 with the father for Father’s Day;
• There is a risk of further emotional harm to the younger child if he remains in the father’s care;
• There is a risk of deterioration of the younger child’s mental health if he remains in the father’s care;
• There are some asserted risks of harm in relation to alcohol abuse in the father’s care [accepting I have not found them to be of any great moment].

Justice Tree observed (at [281]) “that sometimes parties can create insoluble problems.” He concluded (at [285]):

“Ultimately it comes down to a consideration of whether the potential benefits of the mother’s proposal outweigh the likely risks. I am not satisfied that they do. The only certainty of the mother’s proposal is that it will greatly and adversely affect the younger child, and the older child also, in that they will be deprived of any communication, much less face-to-face time, with the father for at least six months, and perhaps longer. As I have observed, if their relationship with the father is permanently lost, that will effect the very harm that the proposal is designed to remedy.”

The orders made were very unusual as they left the children ultimately to decide what they did. The orders included:

3. The children live and spend time with the parents as may be agreed between the parties from time to time, but in default of agreement, then:

(a)   Each of the children may choose to live with and spend time with either or both parents, including on a week about basis, and in the event that one or both children so express a choice:

(i)    The mother and father shall support the child’s choice;

(ii)   The parents shall facilitate and promote the children living with or spending time with the other parent;

(b)   If Y does not express a choice, then he will live with the mother and spend such time with the father as he may choose;

(c)   If X does not express a choice, then he will live with the father and spend such time with the mother as he may choose.

4. Whilst in the care of either parent, the children are to communicate with the other parent as may be agreed between the parties from time to time, but in default of any such agreements, at times and by means of the children’s choosing.
5. For so long and for all periods as the children are not residing in the same household for at least two nights per week, then the parents must do all acts and things necessary to facilitate the children spending time with each other after school on Monday and Wednesday each week from 3:30pm to 5:30pm.
6. The children’s time with each other under order 5 shall occur at such locations as may be agreed between the parties from time to time, but in default of agreement, then:

(a)   The mother is to forthwith, and every six months thereafter, nominate and advise the father of 3 locations, which may include either parent’s house, but must include at least one other place;

(b)   The father is to choose one of the mother’s nominated locations which choice shall thereafter bind the mother for the next six months;

(c)   If the father does not so choose within 7 days of the mother communicating her nominations to him, then the mother may choose, which choice shall thereafter bind the father for the next six months.

Ralton & Ralton

The decision of the trial judge, Riethmuller J is at [2016] FCCA 1832 and the appeal decision is [2017] FamCAFC 182. The appeal was dismissed.

The children were given into the sole care of the father by Riethmuller J. The father only reluctantly sought a change in residence. Under the final orders, for six months the only time the children had with the mother was 2 hours of supervised time on one of the children’s birthdays and 4 hours, on Christmas Day. For the next 12 months, the mother had supervised time at a contact centre fortnightly for 2 hours before 6 visits of unsupervised time each alternate Sunday for 4 hours and then alternate weekends and half of the school holidays. The independent children’s lawyer had liberty to apply.

The ages of the 2 children were not precisely reported but they were approximately 7 and 9 years old. The focus at trial and on appeal was on X, the older child who was described as B in the Full Court judgment.

Judge Riethmuller noted that there were a relatively small number of significant factual disputes and they related to the allegations about the behaviour of the father – whether he had been violent in a physical sense, or violent or angry in his behaviour towards the mother or children, and in particular whether or not he had been violent towards to X. It was not in dispute that as time had passed X had become strongly resistant to spending time with his father, that he had run away from school on a number of occasions when the father was meant to be picking him up from school, and that he had refused to attend school on occasions when he expected that his father would be picking him up.

The problems had become so severe that at the end of the trial the judge suspended all contact pending delivery of his judgment to prevent X running away at handover attempts. On the day that judgment was delivered, Riethmuller J ordered that the children be placed in the childcare room at the court for the purpose of ensuring they were in a safe location to be advised of the outcome of the proceedings by the Family Consultant and independent children’s lawyer. The mother said she was unable to get X to come in to the court building. A recovery order was issued so that the Police could assist, and with their assistance X was in a room on the same level as the childcare room, so in a safe and contained environment.

The child Y continued to attend spending time with his father until the most recent visit when she refused in a manner not dissimilar to X.

Judge Riethmuller noted that despite significant efforts to have professionals work with the parties about their own attitudes to parenting and their relationships with the children, the situation had not improved but had steadily worsened throughout the last 18 months.

The mother’s evidence demonstrated to Riethmuller J that she was absolutely fixed in her views, even down to the simplest things. For example when the children did not want to go to see their father because she erroneously thought that they would not come back to her on Mother’s Day that weekend (the orders made provision for them to return for Mother’s Day), she suggested that in some way this was the father’s fault. The father had presumably expected to comply with the existing orders and the suggestion that he should bear some blame for not having notified the mother of his intention to comply with the orders, even though he was completely unaware of her mistake in that regard, highlighted the mother’s attitude. Judge Riethmuller considered that it was representative of the nature of her evidence that all difficulties seemed to have been caused by the fault, directly or indirectly, of the father.

Judge Riethmuller was particularly troubled by parts of the mother’s evidence. For example it seemed clear that she could not even conceive of the possibility that the version of events she received from X about the father might not be correct particularly in the light of evidence given by the 3 professionals. The mother’s primary case was that X’s story to her and in his diary should be accepted as being absolutely correct. However it seemed to Riethmuller J that on any rational view of the evidence one must at least consider the possibility of those things not being correct given the evidence of the professionals who had interviewed X.

Judge Riethmuller was also troubled by the extent to which the mother attached significance to some events. For example X complained that he was forced to play in the cold sprinkler water. The trial judge noted that this was the type of thing that children in X’s age bracket did regularly, and although in retrospect he found it not so positive an experience, it was difficult to see why significant weight should be attached to what was a very minor incident. Other relatively minor incidents occurred with X’s half-siblings or step-siblings. These had the air of the type of horseplay that boys of that age from time to time engage in.

Judge Riethmuller noted (at [32]):

“Whilst in a perfect world many of these things would not happen, one also has to bear in mind that in the real world much goes on and the weight to be attached needs to be kept in perspective”.

The mother demonstrated a lack of insight into the family needs in the father’s household, particularly given that the father’s mother was very ill and that he had other children in his life. The number of extracurricular activities arranged by the mother for the children remained high and together with the engagement of the children in school parties meant that a considerable number of pre-arranged events occurred during the father’s time. The trial judge felt this showed a lack of appreciation by the mother that there needed to be some time and space in the father’s household for the father to be able to develop a relationship and have activities with the children, and also for the children to spend time with family. In light of the way in which the activities were presented to him and the way in which they impacted upon the potential for him to arrange family activities and time with the children, Riethmuller J could understand the father’s reluctance in taking the children to every party to which they were invited. The children were invited to a very large number of parties and children normally miss some of these because of family activities.

The mother was strongly fixated on questions of family violence. At best, her case was that the only recent incident involving her was a relatively minor one when the father videoed her taking the children to parties on his contact weekend. Whilst not condoning the videoing, Riethmuller J the trial judge considered it quite different from the classical stalking complaint. The other incidents involving the mother directly occurred many years ago, but they remained a very significant part of the case from the mother’s perspective.

Judge Riethmuller concluded in relation to the mother at ([39]):

“I accept that the mother is a loving mother of the children and that she meets their day-to-day needs in terms of ensuring that they are properly cared for and attend school and the like. I have real reservations about her capacity to separate out her own needs from the children and her capacity to maintain perspective and objectivity when dealing with issues that cause the children concern or quiet, which is a significant parenting skill when bringing up children.”

The father had been surprisingly compliant and surprisingly prepared to engage with professionals in the past and undertake courses, particularly if it was accepted that the mother’s view of him was correct. There was an incident at a dance concert when the father allowed the child X to remain with his mother when he expressed in strong terms that this was his preference. This showed that he had a capacity to separate his obvious needs and desires to have time with the children from his extreme frustrations, and put the interests of the children first. When giving evidence he was obviously genuinely distressed about the events that had taken place. He showed a very genuine interest in the children and trying to find a way to have a relationship with them. He had persisted with what must have been very expensive proceedings since 2010, the various interlocutory processes and the costs of counselling and the like since that time.

It was also relevant that the father was prepared to take advice not to pursue the contravention applications but move straight to trial of the significant issues, when Riethmuller J offered a priority final hearing. This showed a lack of vindictiveness and demonstrated a clear desire to have the underlying issues resolved. He was not simply pursuing legal proceedings to punish the mother. The videoing of the mother was inappropriate but was a lapse of judgement fuelled by extreme frustration.

Judge Riethmuller accepted that, as Ms P indicated in the Family Report, the father could have done more in terms of preparing for the possibility that the children would live with him. However he had engaged and had indicated a clear preparedness to continue to engage with professionals into the future. The trial judge was persuaded that the father did not perhaps fully understand the difficulties that might arise if the children were to go to live with him from that day but he was convinced that the father had a reasonable idea of the likely difficulties.

Evidence was given by the school principal which showed that there had been difficulties with the changeovers which took place at the school. The idea of using the school as a changeover point was that it would save the parties from interacting with each other but this was ineffective and left the school with considerable difficulties dealing with the children in their attempts to facilitate the changeover and reduce the conflict.

Judge Riethmuller was critical of the mother’s choice of expert. In particular:

• His evidence was relatively limited.
• He focussed heavily on primary attachment in the first 2-3 years of life.
• He did not present as a contemporary expert. For example he used the phrase “sole custody”.
• He did not deal with any of the history but was critical of the father for bringing a particular application.
• He ignored the intensive work that had already been done with the family whilst recommending more intensive work.
• He didn’t see the parties or the children.
• He was focussed on the academic discussion of alienation rather than the actual circumstances of the family, particularly the children.

One of the major aspects of the mother’s case was relying upon X’s journal which could easily lead one to conclude that X had an appalling time when he went to his father’s household and was treated appallingly. Judge Riethmuller said (at [77]):

“It is, in many respects, almost reminiscent to a modern day rendition of something like Cinderella’s story. If it is accurate, it would be a very strong factor against him having to see his father.”

The mother considered that one of the most significant matters that X raised was an allegation that the father threatened to chop his fingers off. The father’s evidence was that this was an offhand comment intended to be humorous when the father was gently rebuking the children for taking biscuits from the biscuit tin. He called out to them “If you keep getting into that tin, I’ll chop your fingers off.” Judge Riethmuller considered that taken out of context it sounded appalling and within context it could easily have been a joke. In the context of this case, though, it was unfortunate that the comment was made.

Judge Riethmuller pointed that the father’s household may well include language such as “shit” and “shut up” and given the father’s background, appearance and trade, other more colourful words were undoubtedly used by him from time-to-time, but that had to be contextualised. Judge Riethmuller said (at [88]):

“I am persuaded that, when I look at the evidence as a whole, whilst it may not be Shakespearean sonnets that are whispered every day in the father’s household, but a more rough and tumble form of language, it’s certainly within the reasonable range of Australian society.”

Most of the incidents between the mother and the father which were raised by the mother were situational arguments, not unusual for couples that were separating. Even accepting the mother’s evidence at its highest with respect to these incidents, they showed considerable anger and difficulty between the parents about separating and about the children’s arrangements, but the incidents seemed to have ceased relatively soon after separation.

The pattern of the mother’s behaviour was set out in the report (at [109]):

“The family report assessment found there were numerous indications that Ms Ralton has behaved in a manner that is recorded in the professional literature as associated with parental alienation. These indications include:

a.  That the children express strong feelings of fear and unwillingness to spend time with Mr Ralton that is incommensurate with the explanations they provide for their feelings of fear,

b.  That there is a consistent pattern of Ms Raltonseeking to limit the time and telephone contact the children have with Mr Ralton, or the information Mr Ralton has about the children’s medical needs or extracurricular activities, and that Ms Ralton has sought other legal measures such as obtaining intervention orders, or seeking letters from her general medical professional, to support her decisions to limit the time the children spend with their father

c.  That the children’s rejection of Mr Raltonextends to other members of the paternal family, such as their half-brother A and their step-brother B,

d.  That Ms Ralton has demonstrated a pattern of arranging activities for the children to attend during the time they spend with Mr Ralton, and then proposing that the children should ‘choose’ whether they spend time with their father. This option of choice has been largely demonstrated through the repeated presentation of X’s school work or pages from his diary where he reports not wanting to spend time with his father

e.  That Ms Ralton demonstrates patterns of ‘service shopping’ where professional advice is only accepted when it is in line with her views such as the advice of her local medical practitioner or the counsellors at (omitted) while other professional advice is rejected such as the advice of Ms L or Ms S,

f.  That there are indications of tacit rewards for the children’s rejecting behaviour towards Mr Ralton, for example permissive parenting practices regarding food, co-sleeping arrangements, and possibly attendance at extracurricular activities,

g.  That there has been a pattern of increasing rejection of Mr Ralton,

h.  That Ms Ralton describes her behaviour in terms of following the children’s wishes or being protective of the children

In addition, the professional literature proposes;

i.  That children who are most vulnerable to alienation practices are generally between the ages of 8 and 15 years,

j.  Developmental disorders or emotional difficulties increase a child’s vulnerability, as these children lack the resilience to withstand the pressures associated with high post-separation conflict between parents,

k.  The personality features of ‘favoured’ parents include a tendency to be rigidly defended and moralistic, they perceive themselves to be flawless and virtuous and often externalise responsibility onto others, and they often have limited insight into themselves and their effect on others.

l.  Favoured parents often have an enmeshed relationship with the aligned child

m.  Aligned children are angrier than non-aligned children, and alienated children are more likely to demonstrate defiant or rigid behaviour, often refuse to attend school and are more likely to develop eating disorders

n.  Favoured parents often falsely or without reasonable basis make allegations of abuse against the other parent, which feature delusional statements or gross distortions of events.

Judge Riethmuller concluded (at [113]-[114], [119]-[120], [123]-[125]:

“In summary, the case, is one where the mother is completely opposed to the children spending time with the father, although she would verbalise that as allowing the child to choose. In the context of the facts and circumstances of this case it is apparent that such a choice means there would not be time. It is clear that the mother’s reactions to the father and time are likely to cause the children to pick up on the mother’s distress. The mother is not only without the capacity to even contemplate that these may be the underlying features of the case, but quite intransigent in her resistance to this as even a hypothesis that one might need to consider, even if she does not accept it is the true hypothesis.

It seems to me that this presents a number of difficulties for the children. It is certainly a very unhealthy environment for children to be developing in, where the mother has an intransigent and insightless view of an aspect of their lives so significant as the relationship with their other parent. There is the real likelihood that these behaviours would also occur with respect to other events in the children’s lives. I am persuaded on the evidence that if they stay with the mother, they will not have any real relationship with the father. Indeed, even if I were to order them to have supervised time only a few times a year, it seems to me to be most likely that they would refuse to go into the session with the father, as is demonstrated with the family consultant interviews and even today where, without knowing the result, the child X refused to even come into the court building until such time as the police were called. …

If the children were to go to the father’s household, there would be considerable grieving in the short term for the loss of the mother and, certainly, today will be a particularly difficult day for the children when they are told what is to occur.

I am persuaded that the father will facilitate the children to have a relationship with the mother, to the extent that this can be made possible, without destroying the children’s relationship with him. His relationship with his other child appears positive and he continues to interact with the other child’s mother in a way that clearly facilitates both their relationship with the child. …

However, there is a very real prospect that the movement of the children to the father’s household enables them to have a relationship build up that is sufficiently strong to withstand the mother’s anxiety. It places them in the position where they will be able to have a positive and loving relationship with both parents, not just one parent, which would be a significant improvement to their circumstances.

If I make no order to change the care arrangements, it would do nothing to relieve their immediate distress about contact. To do that, I would have to effectively remove the father from their lives until they were far older. This is likely to have a significant damaging impact upon them in the long term.

If I change their care arrangements, they will suffer significant distress today. I must also take into account that there are no guarantees that a change in care arrangement would result in the positive outcome of them ending up with a good relationship with both parents. A change in care arrangement could fail. There is a risk of that, and that must be carefully balanced in determining what an appropriate order should be today. There is, of course, also the potential benefits of a change in care arrangements if, in a year’s time, we see these two children having positive relationships with both of their parents and a feeling that they have the love and support of both parents to guide them and care for them through their lives.”

 The Full Court dismissed the mother’s appeal. It approved of the approach taken by Riethmuller J to list the final hearing with priority rather than deal with the interim and contravention applications. It said (at [71]):

“Faced with the serious issues raised by the evidence that they had just heard and the very concerning behaviour of B, His Honour took the very appropriate and responsible course of giving this matter priority over other matters in his docket by bringing forward the final hearing. The matter was plainly urgent.”

The Full Court said (at [4]) that the significant factor that lead to Riethmuller J making the orders moving the children to live with the father were his findings that the children were “at risk of longer term psychological harm in the mother’s household” and that if they remained in the mother’s care they would not have any real relationship with the father. The Full Court noted that Riethmuller J was at pains to avoid the use of labels such as “parental alienation” or “enmeshment” although these words were used in the family consultant’s report in a passage quoted by the trial judge. The Full Court found that Riethmuller J did not make the findings of enmeshment and parental alienation about which the mother complained. Rather, Riethmuller J had regard to and made findings in accordance with the behaviour described in the family consultant’s report. Each of these paragraphs identified particular conduct of the mother and none attempted to provide a psychological label for it. The Full Court (at [191]) noted that Riethmuller J clearly indicated that he would consider:

“The circumstances confronting these two children in each of the households and the behaviours exhibited” rather than engage in a discussion of psychological concepts.”

The Full Court did not consider there was any substance in the mother’s criticism that Riethmuller J had no regard to the scientific papers to which he was referred to by the mother. For the reasons already given there was no need for him to do so and in the absence of expert evidence on the issue, having regard to academic literature can be a dangerous course e.g. McGregor & McGregor [2012] FamCAFC 69.

Conclusion

The cases discussed above were selected to show the different approaches taken by the courts. McGregor and Ralton are consistent in demonstrating that reliance on social science cannot occur in the absence of the evidence being given by an appropriately qualified expert. In Pierce the children were left living with the preferred parent with orders made for the swift reintroduction of the two estranged children. Whether or not this worked is unknown.

The approach in Ward was not very interventionist. The children were largely left to decide their own arrangements. The more “textbook” approach was taken in Ralton. Orders were made for the children to live with the father (the rejected parent), see the mother on two special occasions in the next 6 months and then be gradually reintroduced to spending time with the mother (the preferred parent).

Caution: This advice is of a general nature only and does not take into account the particular circumstances or needs of your personal situation and is no substitute for legal advice taking into account the particular circumstances of the case.

Jacky Campbell, March 2018

5 top tips for preparing financial agreements after Thorne v Kennedy

If you think that the law relating to financial agreements changes faster than Australia changes Prime Ministers, you’re right. The High Court in Thorne v Kennedy (2017) FLC 93-807 added to the complexity. Here are the 5 top tips for preparing financial agreements in the wake of Thorne v Kennedy:

1. The stronger party should be prepared to negotiate the terms. A “take it or the relationship ends” approach means that the agreement is more likely to be set aside.
2. There should be time for careful reflection about the terms of the agreement, but the High Court did not say how long this should be. It is likely to vary according to the weaker party’s level of education and literacy, the terms of the agreement and other matters.
3. The terms of an agreement which is “a bad bargain” for one of the parties may be relied on to establish that there was undue influence or unconscionable conduct. Why else would they have entered into it? An agreement which gives an outcome which is within the broad range of the broad discretion given under s 79 and s 90SM Family Law Act 1975 to make a property settlement order is more likely to withstand scrutiny than one which is “unfair and unreasonable”.
4. If an agreement entered into before the commencement of a relationship or a marriage was affected by undue influence or unconscionable conduct, an agreement entered into after the relationship or the marriage commences is likely to be affected by the same vitiating factor.
5. Be wary of false declarations in recitals such as:

5.1  A party is able to support themselves without an income tested pension or benefit when they clearly cannot;

5.2  There has been mutual disclosure when there has not;

5.3  A mutual waiver of the right to disclosure, particularly when the parties have unequal bargaining power.

There is no easy substitute for reading the cases and checking the legislation, but if you follow the above guidelines and check the terms of s 90G(1) Family Law Act 1975 (or s 90UJ(1) for de facto couples) as well as the section that the agreement is made under (e.g. s 90B for pre-nuptial agreements), you will be on the right track.

© Copyright – Jacqueline Campbell of Forte Family Lawyers and Wolters Kluwer. This article 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.

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.

Jacky Campbell, July 2017

Property—the latest on contributions and superannuation

Introduction

The assessment of contributions to property is a fraught area. Clients often want to argue that their contributions should be given more weight. This is particularly problematic when dealing with initial contributions, post-separation contributions, windfall such as inheritance and Tattslotto wins.

This paper gives some background to the problems and discusses recent cases.

CONTRIBUTIONS

Mallet

The starting point in considering the assessment of contributions must always be the High Court’s judgment in Mallet v Mallet. ^[1]In separate judgments the High Court rejected in strong terms, the notion or presumption of equality of contributions as a normal or proper starting point after a long marriage. Gibbs CJ said:

The respective value of the contributions made by the parties must depend entirely on the facts of the case and the nature of a final order made by the court must result from a proper exercise of the wide discretionary power… unfettered by the application of supposed rules for which the Family Law Act provides no warrant. ^[2]

Fields & Smith

Contributions are assessed at the date of trial, not the date of separation. There is a tendency for parties, and sometimes the courts, to look at contributions differently after separation, as if there are “two pools”. However, Bryant CJ and Ainslie-Wallace J in Fields & Smith^[3] (for example) referred to several cases^[4]where the Full Court had cautioned against automatically assessing contributions differently after separation, as s 79(4) requires a “holistic” assessment of the parties’ contributions. There is a tension between these two approaches.

In Fields & Smith, the trial Judge had assessed the wife’s post-separation contributions as less than her contributions during the marriage, and assessed the husband’s contributions, which were primarily financial, as being greater than those of the wife both during cohabitation and after separation. The wife’s contributions were primarily as a parent and homemaker. Following separation, her role had altered because the children had left home and the parties no longer belonged to a household where they provided each other with mutual support. After a 29 year marriage the trial Judge distributed the property on the basis of contributions as to 60% to the husband and 40% to the wife and made no s 75(2) adjustment.

Before the Full Court, the wife pointed to the “implicit prejudice” of failing to acknowledge the intrinsic changes to the role of a long term homemaker and parent as the children grow older, where the parties had accepted and agreed on that role during the marriage. Bryant CJ and Ainslie-Wallace J agreed that there was a potential for prejudice but pointed out that s 75(2) could be used to take account of matters other than contributions where it was appropriate to do so. May J found that the trial judge had “impermissibly ignored the wife’s continuing contributions” and that the proper exercise of discretion ought to have led to a finding that the property be divided equally.

The problem of comparing financial contributions with homemaking and parenting contributions was described in Norbis v Norbis^[5] (the ultimate High Court decision on the asset-by-asset approach) in a passage recently quoted by Ainslie-Wallace and Ryan JJ in Stone & Stone.^[6] Mason & Deane JJ said in Norbis, whilst stating that the general preference was for a global approach that this was for reasons of convenience:

Although it is natural to assess financial contributions under s 79(4)(a) by reference to individual assets, it is also natural to assess the contribution of a spouse as homemaker and parent either by reference to the whole of the parties’ property or to some part of that property. For ease of comparison and calculation it will be convenient in assessing the overall contributions of the parties at some stage to place the two types of contributions on the same basis, ie on a global or, alternatively, on an “asset-by-asset” basis. Which of the two approaches is the more convenient will depend on the circumstances of the particular case. However, there is much to be said for the view that in most cases the global approach is the more convenient.^[7]

It is also problematic that some contributions such as inheritances and lottery wins are capable of precise assessment in monetary terms but perhaps only in historical monetary terms, and other contributions, such as parenting, are incapable of measurement in monetary terms^[8]. The Full Court in Fields & Smith accepted that assessing the contributions of a homemaker/parent after the children had grown up as less than those of the primary income-earner could be unfair and that s 75(2) factors (presumably s 75(2)(j) and (k)) were relevant.

Relevance of timing of contribution

An early and often quoted case on the relevance of the timing of a particular contribution when contributions are being assessed is Aleksovski & Aleksovski.^[9] During an 18-year marriage each party provided their labours towards the acquisition, conservation and improvement of assets, and towards the welfare of the marriage generally. Late in the marriage, the wife received a large capital sum due to a personal injury claim arising from a motor vehicle accident. Baker and Rowlands JJ said:

It is therefore necessary that trial Judges weigh and assess the contributions of all kinds and from all sources made by each of the parties throughout the period of their cohabitation and then translate such assessment into a percentage of the overall property of the parties or provide for a transfer of property in specie in accordance with that assessment.

It really comes down to questions of weight. Whilst weight would and must be given to a contribution which a party makes shortly before the separation, less weight may be given to a contribution made by one of the parties to a marriage early in the cohabitation period of a long marriage, particularly in circumstances where the contribution has gone into the parties’ assets or been used up in the payment of family expenses.^[10]

Kay J, in a more frequently quoted passage, albeit the minority judgment, said:

In my view whether the capital sum was acquired early in the marriage, in the midst of the marriage or late in the marriage, the same principles apply to it. The Judge must weigh up various areas of contribution. In a short marriage, significant weight might be given to a large capital contribution. In a long marriage, other factors often assume great significance and ought not be left almost unseen by eyes dazzled by the magnitude of recently acquired capital. A party may enter a marriage with a gold bar which sits in a bank vault for the entirety of the marriage. For 20 years the parties each strive for their mutual support and at the end of the 20 year marriage, they have the gold bar. In another scenario they enter the marriage with nothing, they strive for 20 years and on the last day the wife inherits a gold bar. In my view it matters little when the gold bar entered the relationship. What is important is to somehow give a reasonable value to all of the elements that go to making up the entirety of the marriage relationship. Just as early capital contribution is diminished by subsequent events during the marriage, late capital contribution which leads to an accelerated improvement in the value of the assets of the parties may also be given something less than directly proportional weight because of those other elements.^[11]

All three judges allowed the appeal by the husband. The majority considered that less weight may be given to a contribution made by a party early in a long period of cohabitation than one made shortly before separation. This “erosion” principle is discussed later in this paper. Kay J considered that the time at which the contribution was made did not necessarily affect the outcome. All contributions needed to be weighed up.

Cronin J in Murdock & Tucker^[12] quoted with approval the above passage of Baker and Rowlands JJ. He said:

There is also a risk that the isolating of one or more items of property creates an artificial approach where percentages are applied to certain items but not others. Such a focus can ignore long and consistent contributions because of the attraction of a very recent financial one. That attention may also ignore long periods of homemaker and parent roles.^[13]

In Bolger & Headon^[14] the Court was required to weigh up the wife’s inheritance received at around the time of separation (valued at $250,000 at the time of trial), as against the husband’s initial contribution of $774,900. The trial Judge accepted the submission of the wife’s counsel that she should receive a 7.5% credit for her contribution in a $1.5 m pool. The trial judge gave the husband a 7% credit his contribution. The husband appealed. The Full Court said that the trial Judge erred in assessing the wife’s inheritance at 7.5% while assessing the value of the husband’s initial contribution made 7½ years earlier as requiring an adjustment of 7%.

A further difficulty with the approach of the trial Judge was that she assessed contributions by attributing specific percentages to each component of the contributions and used 50/50 as a starting point. This was described by the husband’s Counsel as “a suppressed assumption that you start from equality”^[15] – an approach which was erroneous and inconsistent with Mallett.

The Full Court in Bolger quoted the above passages from Aleksovski and then quoted from the Full Court in Dickons & Dickons, emphasising a holistic rather than a mathematical approach to the assessment of contributions:^[16]

There can be little doubt that the classification of contributions by reference to terms such as “initial contributions”, “contributions during the relationship”, and “post-separation contributions”, can be helpful as a convenient means of giving coherent expression to the evidence in a s79 case and to giving coherence to the nature, form and extent of the parties’ respective contributions. However, the task of assessing contributions is holistic and but part of a yet further holistic determination of what orders, if any, represent justice and equity in the particular circumstances of this particular relationship. … The essential task is to assess the nature, form and extent of the contributions of all types made by each of the parties within the context of an analysis of their particular relationship. …

The necessarily imprecise “wide discretion” inherent in what is required by the section is made no more precise or coherent by attributing percentage figures to arbitrary time frames or categorisations of contributions within the relationship. Indeed, we consider that doing so is contrary to the holistic analysis required by the section and, in the usual course of events, should be avoided.^[17]

The Full Court in Bolger also quoted favourably the following passage from the Full Court in Lovine & Connor^[18] on the difficulty of weighing up contributions when not all are measurable in money terms:

As part of the process of ultimately determining just and equitable orders under s 79 there is included a complex of discretionary assessments and judgments of many components of contribution, only some of which are capable of measurement in money terms and then often only in historical, rather than present, money terms. Any dictate to the effect that in the course of assessment each disparate component part or kind of contribution must be assigned a discrete and identifiable value or percentage is antithetical to the nature of the discretion involved.^[19]

The Full Court (in a bench which included Kay J) said in the earlier case of Williams & Williams,^[20] that looking at the value of an initial contribution at the commencement of cohabitation without looking at its value at the time it was realised or at the time of the trial was incorrect, although it was important to weigh up all contributions. The Full Court said:

We think that there is force in the proposition that a reference to the value of an item as at the date of the commencement of cohabitation without reference to its value to the parties at the time it was realised or its value to the parties at the time of trial, if still intact, may not give adequate recognition to the importance of its contribution to the pool of assets ultimately available for distribution towards the parties. Thus where the pool of assets available for distribution between the parties consists of say an investment portfolio or a block of land or a painting that has risen significantly in value as a result of market forces, it is appropriate to give recognition to its value at the time of hearing or the time it was realised rather than simply pay attention to its initial value … But in so doing it is equally as important to give recognition to the myriad of other contributions that each of the parties has made during the course of their relationship.^[21]

Consistently with Williams, in Agius & Agius^[22] the Full Court looked at the values of the assets brought into the relationship by the wife at the time of trial and not just at the times they were purchased. The wife won a Tattslotto prize of about $450,000 shortly prior to the commencement of the 10 year period of cohabitation. At the commencement of cohabitation, the husband had no significant assets whereas the wife had 2 properties and the balance of her Tattslotto winnings. A third property was purchased during the marriage in the name of the husband largely using the wife’s Tattslotto winnings. The wife’s father also lent monies to assist the wife with the purchase of all 3 properties. The wife always earned substantially more than the husband.

The Federal Magistrate found that the husband’s contribution based entitlements were 25% of a pool of about $1m, which meant that he could retain the cheapest of the 3 properties, being the one purchased during the relationship. There was no s 75(2) adjustment.

In upholding the decision of the Federal Magistrate, the Full Court referred to the fact that at the time of trial the 2 properties which the wife owned at the commencement of cohabitation were worth $775,000 and represented approximately 72% of the current net assets. The third property, which was retained by the husband (although the husband had made no financial contribution to it) had a value of $250,000. At the commencement of cohabitation, the wife’s 2 properties and the balance of her Tattslotto win were approximately $645,000 which amounted to about 60% of the pool at trial.

“Erosion” Principle

Despite Kay J’s often quoted passage from Aleksovski, later contributions are usually given more weight than early contributions. This is known as the “erosion” principle.^[23] For example, in Bonnici & Bonnici^[24] and Burke & Burke^[25]the courts credited the recipient of an inheritance received shortly prior to or after separation entirely with that contribution, effectively quarantining it from the pool. By contrast, in cases such as MVB & SDB^[26], early inheritances were not given much weight.

The Full Court in Pierce & Pierce^[27] added a gloss to the erosion principle:

In our opinion it is not so much a question of erosion of contributions but a question of what weight is to be attached in all the circumstances, to the initial contributions. It is necessary to weigh the initial contributions by a party with all other relevant contributions of both the husband and the wife. In considering the weight to be attached to the initial contribution, in this case of the husband, regard must be had to the use made by the parties of that contribution.^[28]

Most recently, in Wallis & Manning^[29] the Full Court summarised the position with reference to Aleksovski, Dickons and other cases as:

By those central submissions the parties approached the assessment of contributions by suggesting that “an adjustment” should be made to a result reached otherwise by reference to a miscellany of other contributions. Her Honour adopted a similar approach. Such an approach is by no means uncommon to both the presentation of cases and the structure of judgments. It is convenient in this case, as it is more broadly, so as to describe a contribution or contributions of a particular type said to have particular importance and to distinguish it or them from other contributions.

Yet, that approach must also ensure that the “myriad of other contributions” and the duration over which, and circumstances in which, the miscellany of other s 79(4) contributions were made is not accorded a subsidiary role. The essential s 79(4) task is for “trial Judges [to] weigh and assess the contributions of all kinds and from all sources made by each of the parties throughout the period of their cohabitation.^[30]

A different approach was taken by Cronin J in Sinclair & Sinclair^[31] (see also Murdock & Tucker quoted earlier in this paper) where he suggested that greater weight might be given to early contributions:

The longer the relationship, the greater the importance of the early non-financial contributions because like an initial financial contribution from which more wealth grows, they form the foundation of the relationship. They set up needs and obligations of the parties about support for one another and children. They set up assets that require ongoing maintenance and preservation. Thus, what happened from 1959 to 1985 in this case is important. The inherited wealth had not significantly materialised until towards the end of that period and it has the tendency to distract attention from the importance of the early period of this relationship when both parties worked extremely hard at whatever commitments they had made to each other to fulfil. True it is also that some of those contributions are offset by the benefits received but all this shows the inability of the law to simply process the outcome by some mathematical formula.^[32]

Recent “windfall” cases

Eufrosin

In Eufrosin & Eufrosin,^[33] the husband argued that he had contributed to the wife’s gambling win of $5 million received six months after separation. There was uncertainty as to the source of the funds used to purchase the ticket. Stevenson J accepted that the source was the wife, rather than the husband. Stevenson J agreed with the wife that it was “pure sophistry” to credit the husband with a contribution to the funds used for the purchase of the winning ticket. She referred with approval to the English decision of S v AG^[34] where Justice Mostyn remarked:

The price of the ticket, £1 or £2, is so inconsequential as can be safely disregarded. Arguments that the £1 or £2 derives from the joint matrimonial economy are, it can be said, pure sophistry. The money could just as easily have been found on the pavement.^[35]

Stevenson J adopted a two pool approach. Pool 1 consisted of the assets, liabilities and financial resources at separation (although not necessarily at that value or quantum) and Pool 2 consisted of the assets, liabilities and financial resources representing the balance of the wife’s share of the lottery win. The net property in Pool 1 was $2,437,987 and in Pool 2 was $3,368,530.

Stevenson J assessed the parties’ contributions to Pool 1 as equal and that the husband made no contribution to Pool 2. No s 75(2) adjustment was made to Pool 1. The husband argued for a 33.3% (or $1,111,615) adjustment in his favour in relation to Pool 2. The wife argued that it should be only 5% (or $168,426). Section 75(2)(b) was relevant because as a result of the contributions assessment, the wife had over $4.5 million and the husband, after a 20 year marriage with 2 adult children, had just over $1.2 million on contributions. Stevenson J rejected both proposals and made an adjustment of $500,000 out of Pool 2 to recognise the husband’s future needs.

On appeal in Eufrosin & Eufrosin^[36] the Full Court rejected the significant focus by the husband at trial on the source of funds used by the wife to purchase the winning ticket. The parties were living “separate” lives, including separate financial lives. The Full Court said:

That crucial matter, the importance of which is reinforced by the High Court in Stanford, renders reference to the sources of the funds or nomenclature such as “joint funds” or “matrimonial property” unhelpful in assessing what is just and equitable.^[37]

The Full Court said this approach was consistent with Zyk and Anastasio where the tickets were purchased during the relationship:

As this Court in Zyk made clear, the source of funds should not “determine the issue” of how a lottery win should be treated for s 79 purposes. What is relevant, in our view, is the nature of the parties’ relationship at the time the lottery ticket was purchased. In our view, the authorities just cited, together with what was said by the High Court in Stanford regarding the “common use” of property, is sufficient to dispose of the husband’s contention that her Honour erred in failing to find that he contributed to the wife’s lottery win. At the time the wife purchased the ticket, regardless of the source of the funds, the “joint endeavour” that had been the parties’ marriage had dissolved; there was no longer a “common use” of property. Rather, the parties were applying funds for their respective individual purposes.^[38]

The Full Court upheld the two pool approach and the orders made by the trial Judge.

Singerson & Joans

In Singerson & Joans^[39] the Full Court took a “two pool” approach. The outcome was that the wife received a significant proportion of the husband’s inheritance, based on her contributions to the marriage prior to it being received, as well as her post-separation contributions. The husband’s father died in February 2009, in the same month as, but just prior to, the parties’ separation. The husband received an inheritance of approximately $3 million.

During the marriage the wife made greater contributions to the responsibilities of caring for the children, and her financial contributions (except for the inheritance) were much greater. After initially working as a professional, she operated a successful business. The husband was retrenched in 1991 and suffered from depression from time to time in the years that followed. His employment since 2001 had been sporadic. Separation occurred 4 years prior to trial, during which period the parties shared the care of the children.

The trial judge’s assessment was that the wife receive 60% of the property excluding the inheritance (valued at $4,806,000) and a 20% share of the husband’s inheritance (valued at $2,619,105). This translated to the wife receiving 46% of the combined property and the husband receiving 54%. In practical terms, the wife retained $3,408,000 and the husband retained $4,017,000 of the total pool of $7,425,000. The trial Judge adopted an asset by asset approach, but compared the ultimate result to outcomes based on other possible approaches including a global approach.

On appeal, the husband sought 40% of the property (excluding the inheritance) and to retain the balance of his inheritance. This equated to about 61% of all the property. The wife sought 65%, but her position before the Court was to seek 55% of all the property, including the inheritance.

The Full Court found that the trial Judge, in desiring to give the parties a speedy resolution by delivering judgment promptly after the end of the trial:

… intermingled his assessments on contributions with s 79(4)(e) matters when utilising a separate approach. In doing so we find he fell into the error identified by Nygh J of “mistaking the trees for the forest.^[40]

The Full Court was critical of the manner in which the trial Judge assessed the wife’s contributions to the husband’s inheritance. It said:

We are of the view that his Honour misled himself, and thus fell into error, in identifying only the four years between separation and trial as being the appropriate time upon which to assess contributions to the inheritance rather than across their 15 year relationship.

Section 79(4) of the Act is clear. There is nothing to suggest that any category of contributions needs to be quarantined and applied solely to particular assets. The court is mandated to look at the totality of what the parties have contributed in a financial and non-financial sense, including contributions to the welfare of the family and to the acquisition, conservation and improvement of assets. The court is required to evaluate the significance of all the various contributions to the property, notwithstanding there may be different categories of that property.^[41]

The Full Court therefore impliedly dismissed any notion of a “fractional contemporaneity”^[42] being a requirement in the assessment of contributions and gave the wife 73% of the property excluding the inheritance, which was 47.5% of all the property including the inheritance, with the net result that the wife retained about $3.6 m and the husband retained about $3.9 million. The Full Court concluded that, over a period of approximately 15 years cohabitation and a further 4 years between separation and the trial, the wife made significantly greater contributions to the property acquired prior to separation, both in a financial sense and as a homemaker and parent. The Full Court said:

Despite the timing of the receipt of the inheritance we consider that over this long marriage a global approach is appropriate. The contributions the parties made to various components of their assets are assessed carefully and then looked at holistically to arrive at an overall assessment.

On this basis and utilising the trial judge’s largely unchallenged findings of fact we would assess the parties’ contributions to all their property to the date of trial as 52.5 per cent in favour of the husband.

This assessment acknowledges the initial contributions of the husband and also his post separation inheritance. However, this is more than matched by, inter alia, the considerable contributions of the wife to the family including her post separation contributions.^[43]

The husband’s position after the appeal, was over $100,000 worse than it was before (without taking legal costs into account).

Bishop

In Bishop & Bishop^[44] the court had to weigh up the husband’s initial contribution and the wife’s inheritance received later in the marriage. The trial judge considered he was constrained by the authority of Bonnici^[45] to leave the wife’s inheritance out of the calculation of the pool. The Full Court said:

We agree … that his Honour was not constrained by what the Full Court said in Bonnici about the treatment of inheritances. As the Full Court emphasised in that decision, and as we cannot emphasise too strongly, each case in this jurisdiction will depend on its own facts or circumstances.^[46]

The Full Court did not, however, interfere with the trial judge’s decision on this ground, as taking the inheritance into account as a s 75(2) factor only, was an approach which was open to him.

The husband referred to the unfairness of the different treatment of his initial contribution in 1982 with the wife’s inheritance received before separation. The Full Court said:

It is relevant to mention in this context that counsel for the husband endeavoured to persuade us that it was in some way inconsistent, or even unjust, that the wife’s inheritance had been effectively quarantined, while the rural property which could be traced to an initial contribution by the husband was included in the so-called “asset pool”, and that the husband’s contribution of that property was ultimately given no greater weight than the wife’s contributions to the parties’ property (being property other than her inheritance and both parties’ superannuation interests).

The difficulty with such an argument is that although the husband brought some rural property (subject to a mortgage) into the marriage, over the years of the marriage, that property, and the property subsequently acquired with the proceeds of sale of the first property, were used for the benefit of the family (as a home and a source of income), with the wife having made significant financial and non-financial contributions to both properties. On the other hand, the husband was found to have made no contribution to the wife’s inheritance.

His Honour cannot be said to have been wrong in having treated, in what can be termed, separate categories, property to which both parties had contributed and property to which only one (or perhaps neither) had contributed. Whether each party’s contributions to the property to which they had contributed were adequately recognised by his Honour is a different consideration, and is one to which we will return.^[47]

The appeal was allowed on other grounds.

Elford

Elford & Elford^[48] involved a lottery win by the husband of $622,842 in January 2004, about a year after cohabitation of slightly less than 10 years commenced. The husband had been using the same numbers since 1995 and always paid for the weekly tickets. He retained the winnings in a separate account, topped up by about $27,000 from his savings and that sum of $650,000 remained intact at the end of the marriage.

Roberts J distinguished the facts from those in Anastasio & Anastasio.^[49] The husband in Elford never intended the weekly purchase of lottery tickets to be “a joint matrimonial purpose” of the type in Anastasio. Roberts J quoted from Eufrosin & Eufrosin^[50] the passage which referred to the “common use” of property discussed in Stanford v Stanford.^[51] He then said:

In my view, it is not only “the nature of the parties’ relationship at the time the lottery ticket was purchased” that sets this case apart from so many of the decided “lottery winnings” cases; it is also the manner in which the husband and the wife conducted their financial affairs after those winnings were received by the husband in 2014. Those winnings were placed into an account in the husband’s sole name and that is where they remain to this day. The parties also kept all their other finances separate for the entirety of their relationship.

In view of those circumstances, I consider it appropriate to treat the husband’s lottery winnings of $622,842 in January 2004 as a contribution by the husband alone.^[52]

The wife initially sought $480,000 from the husband, but reduced her claim to $360,000. The husband sought to pay her $50,000 after initially seeking that her claim be wholly dismissed. At the time of trial the husband’s assets were worth $1,313,500 and the wife’s were $89,600. At the time of the lottery win and taking into account the win, their respective assets were $1,158,000 and $130,000.

Roberts J assessed the wife’s contributions as 10%. Based on contributions and after taking into account $14,800 used by the wife from the sale of shares to pay her legal costs, the husband would have to pay the wife $51,000 to bring her proportion of the pool up to 10%. The husband was older, in poor health and effectively blind. The wife worked full time and had three children but the husband had no legal liability to support them. Their respective incomes were similar. No adjustment was made for s 75(2) factors. Roberts J effectively treated the husband’s lottery win as Kay J’s gold bar in Aleksovksi.

Perhaps not surprisingly, the wife appealed. She failed, although as a majority of the Full Court said:

Some or all of us may have reached a decision different to His Honour but that circumstance does not warrant appellate interference. In the absence of any demonstrable criteria by which it is said that His Honour’s decisions [sic] was “plainly wrong”, we are in the position of being asked to provide a “second opinion” as to the appropriate exercise of discretion. We are unable to persuade ourselves that the result is outside the parameters upon which reasonable judicial minds might differ.^[53]

       [emphasis added]

This was certainly a case where the husband was rewarded for not sharing. If he had put his win into a home for the parties, he would not have walked out with his winings intact.

SUPERANNUATION

The main issues which arise with respect to the assessment of contributions to superannuation are:

1. How to take account of the superannuation of the parties at the commencement of cohabitation?
2. How to take account of contributions to superannuation compared to contributions to non-superannuation during the relationship? The preferred Coghlan approach of separate pools enables contributions to be assessed differently to superannuation and non-superannuation. But should they always be assessed differently?
3. How to assess indirect financial contributions or homemaking and parenting contributions to superannuation? Sometimes they are assumed to be non-existent.

Coghlan

The five member Full Court in Coghlan & Coghlan (2005) FLC 93-220 said as to the interpretation of s 90MC (at p 79,642):

“… superannuation interests are another species of asset which is different from property as defined in s 4(1), and in relation to which orders also can be made in proceedings under s 79”.

The majority considered that s 90MC did no more than confer jurisdiction on the courts to make orders in relation to superannuation. Section 90MC did not mean that superannuation was “treated” exactly the same as “property” as defined in s 4(1). The court did not explain precisely the consequences of superannuation being “another species of asset”. This phrase has not been widely adopted since.

The Full Court majority in Coghlan said that superannuation can be included in one pool with non-superannuation property:

• by agreement, or
• if the court is satisfied that the interest is property within the definition in s 4(1), or
• if the interest is not within that definition, but is of relatively small value in terms of the other assets, or
• there are features about the interest which lead the court to conclude that this is an appropriate approach.

The majority said that the preferred approach was to deal with superannuation separately from property as defined in s 4(1). This approach meant that the direct and indirect contributions by either party to superannuation were more likely to be given proper recognition, and “the real nature” of the superannuation interests taken into account. It was relevant to “the real nature” of a superannuation interest, that an interest “may be no more than a present or future periodic sum, or perhaps a future lump sum, the value of which at date of receipt is unknown” (at p 80,203). All matters in s 79(4)(a)–(c), including the factors in s 75(2), had to be considered in relation to a superannuation interest, regardless of whether or not it was being split.

The majority concluded there was insufficient evidence before it to enable it to re-exercise its discretion, and remitted the case for a rehearing in accordance with the principles it had enunciated.

The two pool approach outlined in Coghlan allows courts to assess contributions differently to superannuation than to non-superannuation. Usually, this is to the disadvantage of the non-member. Sometimes it occurs because one spouse came into the relationship with more superannuation than the other. Sometimes it occurs because the court gives more weight to the direct financial contributions of the member and the member’s employer to the superannuation rather than the indirect financial contributions or homemaking and parenting contributions of the non-member. This approach is contrary to the accepted approach that non-financial or homemaking and parenting contributions are given the same weight as financial contributions (eg Mallet v Mallet (1984) FLC 91-507).

Warnick J and O’Ryan J gave separate minority judgments. They disagreed with the majority’s interpretation of s 90MC and considered that the Full Court was bound by Hickey & Hickey (2003) FLC 93-143. They both said that s 79(4)(a)–(c) did not apply to a superannuation interest if it was not being split.

Prior to the superannuation splitting scheme, superannuation entitlements were usually not property with a defined or ascertainable value, but rather a financial resource which was taken into account as a factor under s 75(2).

Will a splitting order be made and, if so, what order?

Whether superannuation will be split and in what proportions will depend upon the circumstances of the case. Superannuation and non-superannuation need not be divided in the same proportions (Engelbrecht & Moss [2015] FCWA 10). Possibly, relevant factors were set out in such cases as

Levick & Levick (2006) FLC 93-254, BAR & JMR (2005) FLC 93-231 and Coghlan & Coghlan (2005) FLC 93-220. These include:

• whether there are children
• if splitting the superannuation means the primary carer can keep the home
• whether one party has little or no superannuation
• the needs of the parties for cash and saleable assets
• the value of all the property and the proportion of the property pool which is superannuation
• the type of fund
• the ages of the parties
• the length of time before the parties reach a condition of release, and
• tax implications such as whether a party is close to the employment termination payment components. For example, some pre-1983 tax benefits may be lost if the fund is split.

The Full Court confirmed in Doherty & Doherty (2006) FLC 93-256 that the mix of superannuation and non-superannuation was discretionary.

Engelbrecht & Moss

In Engelbrecht & Moss [2015] FCWA 19 Walters J considered whether or not the wife should receive part of her property entitlements in the form of a share of the husband’s superannuation, as proposed by the husband. The wife wanted to retain as much non-superannuation property as possible so she could acquire a home for herself and the children. Neither party would be able to access their superannuation entitlements for at least 15 years in normal circumstances. Walters J said (at para 228) that:

If the wife’s entitlement is 72.5% of the property ‘pool’, then it is at least arguable that she ought to receive 72.5% of the net realisable property and 72.5% of the superannuation entitlements.

However, he went on to say (at para 229):

Justice and equity do not require both ‘types’ of property to be divided in the same way. Clearly, the Court has a wide discretion as to how to structure the proposed property settlement. Put another way, this Court has always had power to allocate individual items of the parties’ property as it sees fit, and in such a way as to achieve what it considers to be an appropriate division of the property as a whole. It is in the course of this process that the structure, style and balance of the actual orders the Court proposed to make are considered. The provisions of s 79(2) permeate this process as they do all other aspects of the property settlement exercise.

Walters J made orders which meant that the wife should retain or receive approximately 84% of the parties’ net realisable assets (which included paid legal fees) and 47.5% of the total value of the parties’ superannuation entitlements. The husband received approximately 58.5% of his overall entitlement in the form of superannuation. The husband was “allocated” about $49,000 over and above his paid legal fees. Some of this was in the form of the husband’s furniture, chattels and effects, his net interest in his motor vehicle and his savings.

Bellenger & Bellenger

In Bellenger & Bellenger [2015] FamCA 645 the husband did not seek a superannuation split. Although the wife considered the fact that she had about $162,000 more superannuation than the husband was reasonable due to her greater superannuation at the commencement of their 10-year relationship (about $78,000 more), she proposed a split in the husband’s favour of about $50,000. Berman J took into account that the wife’s superannuation scheme was more generous than that of the husband. He reflected the wife’s greater initial contribution to superannuation by assessing contributions to the superannuation pool as 60/40 in the wife’s favour but he gave the husband a further 5% on account of s 75(2) factors. Berman J said (at para 151):

“It is however reasonable to consider s 75(2) factors in respect of the disparity in superannuation and in this regard the greater potential for the wife’s financial security arising out of her more generous superannuation entitlement and the likely exponential growth arising out of greater income and higher accrued multiple is such that would warrant an adjustment of 5 per cent in the husband’s favour with an overall outcome of 55/45 per cent.”

This meant that the husband was entitled to a superannuation split of about $54,000. The non-superannuation pool was adjusted 53% to 47% in favour of the husband on the basis of contributions alone as no party sought a s 75(2) adjustment.

Assessment of contributions to SMSFs

The management of investments in an SMSF may also be an issue when contributions are assessed. The Full Court in Kane & Kane (2013) FLC 93-569 dealt with the issue of whether the husband’s contributions to an SMSF were a “special” contribution. The Full Court found that they were not. Although not the decisive factor, all three judges, in two separate judgments, considered that it was relevant that the husband would not have argued that he bear all the losses if his investments had made losses.

Similarly, Benjamin J in Idoni & Idoni [2013] FamCA 874, refused to take into account the husband’s extra contributions to the SMSF or his losses on the investment in the fund in his assessment of the parties’ contributions. The husband had transferred his superannuation entitlements of about $166,000 into the fund and the wife had only transferred $40,000. Over a period of about six years the fund fell from an asset base of between $200,000 and $300,000 to about $22,000. The husband had effective control of the funds and oversaw what Benjamin J described as its “decimation”. Benjamin J said (at para 35):

“The husband could have at any time taken steps to sell the options and reduce the losses. He did not, as he did with the other investments, draw a line in the sand. He stood mute while the fund was reduced to where it is now.”

Benjamin J ordered that the balance of the fund be transferred to the wife. He said (at para 147):

I have considered the superannuation fund both in the context of contribution and s 75(2)(o) factors. As to contribution the husband put aside a relatively large sum and the wife a lesser sum. That arose from the different, but agreed, paths the parties took during their relationship. As indicated earlier I have treated those, as part of a holistic approach, as equal. As to the disastrous post-separation superannuation investments, it was open for the husband to discuss this fund (in which the wife had a significant interest) with her. He did not do so. It was also open for the wife to become involved in the management of the fund, she did not do so. I have not made an adjustment in favour or against either party in the context of contributions. I have included a modest percentage (3 per cent) in the overall adjustment in favour of the wife under the s 75(2) factors.

Out of the total pool of $575,207, the husband received $171,886 or 32%. The parties’ contributions were assessed as equal but the wife received a s 75(2) loading of 15% (including 3% for the husband’s wastage of the fund) plus an adjustment of $12,500 for half of the legal costs drawn down by the husband.

In Courtnay & Courtnay [2015] FamCAFC 108, the Full Court upheld the trial judge’s decision that the husband was partly responsible for the losses to the value of his self-managed superannuation fund. He lost $400,000 from his entitlements of $633,173 over two years. Prior to 2008 when he retired, his superannuation had been in an accumulation fund. The husband did not adequately explain his usage of his entitlements and did not provide disclosure to establish that the losses were attributable to the global financial crisis, which was his verbal explanation for the losses.

Weight given to contributions to superannuation before cohabitation and after separation

Prior to December 2002, when superannuation could not be split, courts and legal practitioners sometimes used formulas to calculate the amount of “extra” non-superannuation assets which the non-member would receive to adjust for the member retaining all of their superannuation.

Under a formula based on West & Green (1993) FLC 92-395, the non-member sometimes received extra non-superannuation calculated on the following formula:

Formula approaches were described as “artificial” by the Full Court in such cases as Tomasetti & Tomasetti (2000) FLC 93-023 and Bartlett & Bartlett (1996) FLC 92-721. Since the commencement of the superannuation splitting regime, the Full Court’s criticisms of a formulaic approach were repeated in M & M (2006) FLC 93-281, which is discussed below.

When used post-December 2002, West & Green is used to calculate the percentage split of superannuation to which the non-member is entitled on the basis that the member’s pre-cohabitation and/or post-separation contributions are quarantined from being divided between the parties. Contributions and s 75(2) factors are not assessed on this quarantined amount.

Example:

• the husband has $300,000 of superannuation at the end of a 10-year relationship and 15 years of employment
• 10 years as a proportion of 15 years is two-thirds
• two-thirds of $300,000 is $200,000
• $200,000 is divided equally between the two parties. Before December 2002 this could only be done notionally. The non-member received their share from non-superannuation assets, and
• the non-member receives $100,000 and the member retains $200,000.

However, if the actual superannuation at the start of a 10-year relationship can be ascertained, this is better evidence than saying, as under the above formula, that after 15 years of employment, one-third of the superannuation was accrued prior to the relationship. Clearly, one-third of the superannuation did not accrue prior to separation. In most cases, contributions in money terms were less in the first five years than in the final five years. There would also have been growth in the fund during the relationship.

In long relationships, pre-cohabitation contributions made to non-superannuation are often of little, if any, significance. Using this formula for superannuation may seem unfair because it gives more weight to pre-cohabitation contributions to superannuation than are often allowed for pre-cohabitation contributions to other property. It also ignores other factors which were referred to by the Full Court in Coghlan & Coghlan (2005) FLC 93-220 at p 79,646:

In the context of a consideration of the matters [in s 79(4), FLA] … the following matters may well be relevant: the relationship between years of fund membership and cohabitation; actual contributions made by the fund member at the commencement of the cohabitation (if applicable), at separation and at the date of hearing; preserved and non-preserved resignation entitlements at those times; and any factors peculiar to the fund or to the spouse’s present and/or future entitlements under the fund.

While over time the “value” of pre-cohabitation contributions to other property usually falls (eg Bremner & Bremner (1995) FLC 92-560; Pierce & Pierce (1999) FLC 92-844), the West & Green formula increases the “value” of pre-cohabitation contributions.

Even where the West & Green formula is not used, family law courts frequently “quarantine” pre-separation contributions to superannuation in a way which they do not usually do with respect to other contributions, such as the equity in a home at the time of cohabitation. For example, in Ritter & Ritter [2014] FCCA 2640, there was unchallenged expert evidence as to the value of the husband’s pension at the commencement of cohabitation. O’Reilly J quarantined this figure and gave the husband full credit for the dollar value of this contribution.

Disputes about the date of valuation of superannuation usually relate to the weight to be given to post-separation contributions. Assets are usually valued as at the date of trial. Post-separation contributions affect the percentage division of the overall pool and any contributions made or assets acquired after separation are not usually “quarantined” at their full value. Usually, if there are children of the marriage, contributions to the family after separation offset contributions by the primary income earner to property, including superannuation after separation. For example, Spiteri & Spiteri (2005) FLC 93-214.

M & M

In M & M (2006) FLC 93-281, the Full Court seemed to be trying to close the door on formula approaches. It considered that the cases in which formulas can be usefully applied to an adjustment of non-superannuation assets, taking into account contributions to superannuation, were rare. Despite this statement, formulaic approaches have continued to be used. Using the West & Green formula to assess the wife’s contributions to the husband’s superannuation, the trial judge in M & M found that the wife made an equal contribution to 13/20ths of it. She was therefore entitled to over $330,000. However, the trial judge only awarded the wife $80,000 from the non-superannuation.

The strength of the Full Court’s criticisms of formulaic approaches was diminished by its finding that it could not order a superannuation split as neither party sought one. It also referred to other advantages for not splitting superannuation in this case. It adjusted for the husband’s pension entitlement by giving the wife a greater share of the non-superannuation. The most the wife could secure for her $330,000 “contribution” to the husband’s superannuation was about $158,000, being the husband’s equity in the home. This was about double the amount ordered by the trial judge and less than 50% of the West & Green formula was used as a rough rule of thumb.

Palmer & Palmer

The Full Court of the Family Court in Palmer & Palmer (2012) FLC 93-514 allowed the wife’s appeal against a decision of a Federal Magistrate on the grounds that he had erred in assessing the wife’s interest in the parties’ superannuation. The Federal Magistrate awarded the wife a figure of $260,000 which, together with her superannuation, gave her $286,988 of superannuation. This represented approximately 32% of the total superannuation of the parties or, disregarding the wife’s superannuation, approximately 30% of the husband’s superannuation. The Federal Magistrate did not explain his reasons for arriving at this figure. The Full Court said that it was impossible to determine what weight the Federal Magistrate gave to the husband’s pre-relationship contributions and how he arrived at the figure of $260,000.

The Federal Magistrate also made an error of fact when he found that some of the husband’s superannuation, valued at $864,386, was attributable to post-separation contributions by the husband. In fact, the husband’s superannuation was valued at the date of separation and there was no evidence as to its value at the time of the hearing two years later.

The husband argued that the value of his superannuation to be included in the pool should be determined at the time of separation so that 62% of the total value of his superannuation of $864,386 was attributable to the relationship, or $535,920. The Full Court said that the husband’s argument was “superficially attractive”. However, the Federal Magistrate had not purported to explain the result on that basis. The Full Court also noted that the Federal Magistrate had a valuation of the husband’s interests in 1993, which was the date of the marriage and about a year after cohabitation commenced. This valuation had been properly prepared and was the only evidence as to pre-cohabitation values. The Full Court said (at para 55) that the proper approach was:

His Honour was obliged to consider the totality of the parties’ contributions to the superannuation and non-superannuation assets, to take account of any relevant factors under s 75(2) and then to consider whether the overall result he arrived at was just and equitable.

Lester & Lester

In Lester & Lester [2014] FamCAFC 209 after an 18 year marriage and four children the pool of almost $1m was divided by the trial judge so that the wife received net assets of about $746,000 including superannuation of $312,000 (being about 77% of the pool including virtually all of the non-superannuation property) and the husband received net assets of about $223,000 of which his remaining superannuation was about $198,000. The husband’s 23% of the pool was overwhelmingly constituted by superannuation. The husband’s appeal was allowed.

The husband sought that the order that his superannuation be split so as to give $158,000 of it to the wife, be set aside and the parties property would, as a consequence, be divided as to approximately 61% to the wife and 39% to him.

The Full Court upheld the finding of the trial judge that the contribution-based entitlements of the parties were 52%/48% in favour of the wife, but found that it could not discern a proper basis upon which it could be determined that an adjustment of 25% in favour of the wife for s 75(2) factors was appropriate. The Full Court found that the appropriate adjustment for s 75(2) factors in favour of the wife was in the range of 8–10%. While the trial judge correctly gave weight to the significant disparity in the parties’ incomes and earning capacities and the wife’s sole responsibility for the day-to-day care of the four children, the husband also paid significant child support.

However, also relevant (at para 80) was:

“Worthy of even greater weight is the fact that the husband will receive his property settlement as superannuation. It will be a number of years before the husband is able to access his superannuation, with the probability being that, whereas the wife has capital assets which are immediately available to her and at least provide her with the comfort of a home (plus superannuation), the husband is left with a modest income and no tangible assets from which he must in effect start again, without there being any clear prospect that he could ever manage to acquire a home of his own.”

Pensions in the payment phase

Pensions in the payment phase pose particular challenges to the Family Law Courts. The parties and the courts wrestle with the concept of giving a lump sum value to an entitlement which may never be commuted into a lump sum. This may be because either:

• once the payment phase of the pension has commenced, the pension cannot be converted to a lump sum
• the particular fund only pays a pension and never pays a lump sum, eg federal judiciary pensions.

In some cases, a splitting order may no longer be ineffective if the non-member dies. Prior to the enactment of the Judges & Governors-General Legislation Amendment (Family Law) Act 2012, the spouse of a judge could obtain an order for a split of the pension but those payments could not commence until the judge retired. The non-member spouse can now have a separate interest benefit created.

Some pensions are referrable to a capital sum which can easily be identified. Other pensions are not. The valuation process gives a capital value to a pension even if the member can never receive a lump sum (Coghlan and Coghlan (2005) FLC 93-220, Edwards & Edwards (2009) FLC 93-409).

Pursuant to s 90MT(2), the valuation under the Family Law (Superannuation) Regulations 2001 must be used if the superannuation is being split by a court order. However, it need not be used if the superannuation is not being split or the split is effected by a financial agreement.

The correctness of many of the cases discussed below which involve the valuation of a pension in the payment phase has been thrown into doubt by the Federal Court in Campbell v Superannuation Complaints Tribunal [2016] FCA 808. Justice Logan heard an appeal from the Superannuation Complaints Tribunal. He held that Mr Campbell’s vested entitlement to an invalidity pension was, for the purposes of the Family Law (Superannuation) Regulations 2001, an “accumulation interest”. Mr Campbell was receiving invalidity benefits under the Military Superannuation Benefits Scheme (MSBS). He applied for information about his superannuation interest under the MSBS under s 90MZB of the Family Law Act 1975 using a superannuation information form. The Commonwealth Superannuation Corporation (CSC) provided two responses: one with respect to his preserved benefit which was in the growth phase and one with respect to the invalidity pension which was in the payment phase.

Mr Campbell objected to receiving information with respect to his invalidity pension and argued that it was not superannuation. The Federal Court accepted that it was superannuation. It was not disputed that MSBS was a superannuation fund within the meaning of the SIS Act and thus, within the definition of s 90MD of an “eligible superannuation plan”. That definition is “an interest that a person has as a member of an eligible superannuation plan”.

However, the Federal Court found that the invalidity pension was not a defined benefit interest as reg 5(2) removed it from the scope of reg 5(1) because the pension was “only payable on invalidity”.

Regulation 5(2) states:

(2) A superannuation interest, or a component of a superannuation interest, is not a defined benefit interest for these Regulations if the only benefits payable in respect of the interest, or the component, that are defined by reference to the amounts or factors mentioned in subregulation (1A) are benefits payable on death or invalidity.

The effect that determination of Mr Campbell’s invalidity pension as an accumulation interest rather than a defined benefit interest on its value was not set out in the judgment. Logan J remitted the matter to the Superannuation Complaints Tribunal.

Craig & Rowlands

The Full Court in Craig & Rowlands (2013) FLC 93-535 considered an appeal by the husband and concluded that appealable error was demonstrated because the Federal Magistrate:

• failed to demonstrate an appreciation of the different character or real nature of the DFRDB in the final stage, together with the necessary assessment of whether the orders were just and equitable.
• double counted the DFRDB by determining the parties’ entitlement to it in one separate pool, then having regard to it again as a s 75(2) factor in the division of the other pool.

Strickland J said in relation to the double counting issue (at para 123):

At the very least, having taken the benefit into account as its capitalised value (and allocating a percentage entitlement to the wife) it was double-dipping to then take it into account under s 75(2) of the Act.

May and Forrest JJ said (at para 70):

The Federal Magistrate correctly used the capital ‘value’ of the DFRDB fund and then discretely decided the entitlement to it by each party and the s 75(2) impact of such a finding in isolation. The Federal Magistrate then took the husband’s DFRDB into account in deciding the s 75(2) considerations which might apply flowing from the property division of the other pool. There was a double count. As importantly, the Federal Magistrate failed to demonstrate an appreciation of the ‘different character’ of the DFRDB in the final stage, together with the necessary assessment of whether the orders were just and equitable.

In both instances, the Full Court concluded that appealable error was demonstrated. See also Semperton & Semperton [2012] FamCAFC 132.

Janos

In Janos & Janos [2013] FamCA 846, the property pool was modest and the husband’s superannuation was the most significant part of it. The husband was aged 58 and in receipt of an invalidity pension of $900 per week. It had been valued at $631,767 for family law purposes. At aged 60, he could commute the whole of his pension entitlement to a lump sum of $225,000 or commute part of it only.

The Family Court accepted that there should be a notional add-back of certain assets to the property pool, as the husband had either wasted assets or given no explanation as to how they had been dissipated. The adjusted property pool, including the add-backs and using the commutation value for the superannuation rather than the family law value, was only $305,640. The Family Court said (at [39]):

Otherwise the valuation obtained is a capitalisation of a future income stream which, if included in the asset pool, would result a distortion in relation to the available assets of the parties for division.

For the wife to receive 60% of the property pool, she was entitled to a superannuation split of 80% of the commuted lump sum. Although that would reduce the husband’s income in circumstances where the wife, aged 49, had an income of $60,000 per annum, the husband was in receipt of workers’ compensation payments of about $28,600 per annum. There was no evidence to support his assertion that he had no capacity for employment following his recovery from heart surgery. He would receive the balance of his superannuation pension indexed for life.

The Family Court, in relying on the commutation value of the pension rather than the family law value, said (at [164]):

The capitalised value of the pension is significantly in excess of its realisable value on commutation.

Russo & Wylie

In Russo & Wylie (2016) FLC 93-747, the Full Court said that the difficulties faced by the trial judge in dealing with the husband’s Military Superannuation Benefit Scheme defined benefit interest (“MSBS benefit”) were compounded by the fact that both parties asked him not to make a splitting order in relation to the benefit and they each took different approaches to dealing with it. The husband sought that it be excluded from the pool but the wife sought that it be included.

The pension was $33,531.16 per annum indexed and had been valued at $416,804 for family law purposes. The Full Court referred favourably to the distinction made between the exercise of the property power under s 79(4) and 75(2) (in this case, as it was a de facto relationship, s 90SM(4) and 90SF(3). The Full Court upheld the trial judge’s approach, which was that:

• the husband’s pension was not property available for distribution (whilst the wife’s was)
• the parties made equal contributions to the pool of $1,554,236
• the wife received 7% ($103,000) for s 90SF(3) factors.

This approach meant that the wife was left with approximately $200,000 more in available assets than the husband.

The Full Court said (at [54]):

Whilst, of course, orders under s 90MT must be made judicially, there is nothing in either s 90MS or s 90MT that evinces an overarching obligation to make orders that are just and equitable regardless of the wishes of the parties. It is to be recalled that it is implicit in the parties’ requests that the court make orders other than superannuation splitting orders that the parties accepted such orders would be just and equitable.

Welch & Abney

In Welch & Abney(2016) FLC 93-756, the Full Court allowed the appeal of the wife against the manner in which the trial judge dealt with her non-commutable Total & Permanent Disability Pension (TPD). The grounds upon which the wife’s appeal succeeded were that the trial judge fell into error in the following respects:

(a) by adopting, as the present value of the TPD pension, the capitalised amount determined pursuant to s 90MT(2) Family Law Act. This value (or, more accurately, “amount”) is mandated solely for the purpose of a splitting order of a superannuation interest being made. No splitting order was made by the trial judge and therefore the trial judge was not required to use that value or amount

(b) by disregarding the evidence of the single expert as to the TPD pension entitlement being considered in a similar manner to earnings from employment, and that expert’s evidence as to the different nature of the TPD pension entitlement from normal superannuation interests

(c) as a consequence of (a) and (b), ignoring the imposition of taxation upon the TPD pension and making orders which left that substantial burden entirely with the wife

(d) as a consequence of (a) and (b), ignoring contingencies operative upon the TPD pension and making orders that left those contingencies entirely with the wife and, conversely, relieved the husband of any impact of them.

The TPD pension was paid to the wife in monthly gross sums liable to taxation. The wife could not commute any part of the pension into a capital lump sum. It was not a guaranteed fixed-term or life-time pension. Its continued receipt was subject to conditions. She was 49 years of age at the time of trial and she might continue to receive the pension until she attained the age of 65 years. However, her continued receipt of the pension was contingent upon her continued survival, and upon medical assessments from time to time confirming her continued incapacity for gainful employment and the wife not in fact undertaking gainful employment. The single expert confirmed that if the wife ceased to be eligible to receive the disability pension “tomorrow”, then his calculation of the disability pension amount would be a “nil” value.

The Full Court followed Semperton & Semperton [2012] FamCAFC 132 and Hayton v Bendall [2010] FamCA 592 where the courts emphasised that it was important to consider the “nature, form and characteristics” of the superannuation interest.

The effect of the trial judge’s orders where the capital value of the TPD pension was ascribed a value of almost $980,000 (or 34.8% of the total of the parties’ combined property interests), was that the wife received net non-superannuation property of $368,608 whilst the husband received $1,119,111. The majority of the wife’s 60% entitlement was constituted by the capital value ascribed to the TPD pension.

The Full Court also found that the trial judge fell into error by not considering the wife’s contributions to the TPD pension. If her pension was to be taken as part of a global assessment of contributions and its value equated to 34.8% of the trial judge’s determination of the overall pool, it was an error for the trial judge to find that the wife’s contributions were only “modestly greater” than those of the husband. The matter was remitted for re-trial.

Goudarzi & Bagheri

In Goudarzi & Bagheri [2016] FamCA 205 the husband was receiving a pension of $3,068 per week. It was valued at $2.03m, which was equivalent to about 14% of the property pool. The court did not deal with it as an asset, but as a financial resource. This was because it was payable over the lifetime of the husband, whatever that period was, and was not presently available as a lump sum. A s 75(2) adjustment of 20% was made in the wife’s favour, the majority of which was on account of the husband’s pension. Her total property entitlements were determined at almost $8m and the husband retained $6.5m of property plus his pension.

Surridge

In Surridge & Surridge [2015] FamCA 493, Foster J adopted a two-pool approach with the wife’s pension being a discrete second pool and the parties’ other superannuation and non-superannuation assets being in the primary pool. The wife was in receipt of a hurt on duty pension under the Police Regulation Superannuation Act 1906 (NSW). She received a pension of $900 net per week increasing to about $1,000 per week net at the time of trial. Foster J referred to the difficulty of assessing contribution-based entitlements to the type of superannuation interest held by the wife and quoted favourably from Watts J in Schmidt & Schmidt [2009] FamCA 1386. In Schmidt, the court assessed the wife’s contribution to the husband’s hurt on duty pension entitlement at 10%. The parties were together for seven and a half years and the husband was in the police force for just over 21 years prior to his retirement.

In Surridge, the wife was aged 46 and her eligible service period commenced in June 1987. They commenced a relationship in 1991 and married in 1996. They separated in August 2012.

Foster J found that the wife was employed prior to cohabitation for nine years with the police force. He seems to have made an error here. They married nine years after she started with the police force but cohabitation commenced about four years after she started with the police force. The value of the wife’s future pension was determined according to fund specific factors at $1,022,821. No lump sum was payable in the future to her but the effect of a splitting order was to allow an immediate lump sum to be paid to the husband or for a rollover of that lump sum to another superannuation fund or a combination of the two. The effect of any spitting order was to commensurately reduce the wife’s pension.

His Honour found that the wife’s contribution-based entitlement to the income stream was overwhelming and it was difficult to find any contribution-based entitlement of the husband. The pension was in effect unearned income, indexed and payable during the wife’s lifetime. The consequence of any splitting order of the pension entitlement was to commensurately reduce the wife’s pension and procure an immediate cash payment to the husband leaving the wife with the reduced periodic income.

His Honour found that a modest adjustment of 5% in relation to the wife’s pension was appropriate in favour of the husband which equated to an approximate lump sum of about $20,000. The outcome of the orders was that the wife had a cash equivalent of about $1,621,250 from the primary pool less an adjustment of $20,000 in favour of the husband from the pension pool leaving a net figure of $1,601,250. She otherwise retained her pension intact. The husband had an entitlement of $993,050 including the $20,000 adjustment of the wife’s pension.

Contributions to the primary pool were assessed as equal. A s 75(2) adjustment of 12½% was made in favour of the wife who had the continuing care of the children aged 16 and 15 with little prospect of financial support from the husband. The s 75(2) adjustment also took into account unexplained funds received and disbursed by the husband of $800,000.

On appeal in Surridge & Surridge (2017) FLC 93-757, the Full Court found that Foster J’s approach to the wife’s hurt on duty pension was erroneous, even though both parties urged him to adopt that approach. Even though no ground of the wife’s appeal referred to the error, their Honours considered it to be “a matter of significance and is productive of injustice. We consider ourselves bound to correct it” (at [13]). The Full Court found that it was not just and equitable to make a splitting order in respect of the wife’s pension and stated (at [34]):

The failure to consider any of these important considerations and, conversely, to take up the gross value of the wife’s pension in the manner in which his Honour did, has resulted in the miscarriage of the trial judge’s discretion leading to orders which are unjust to the wife.

The Full Court found (at [27]) that it was not just and equitable to make a splitting order with respect to the wife’s pension. Indeed, there was “… a compelling case for not doing so”. The reasons for this conclusion were:

1. Importantly, the property and superannuation interests of the parties permitted justice and equity to be achieved without such an order. The wife had only a possible residual capacity for some form of future part-time employment, her pension income of $50,000 per annum was modest and she had the continuing full-time care of two children, one of whom was only 12 and had little prospect of receiving child support or other financial assistance from the husband, although he had a significant earning capacity.
2. Once the trial judge determined not to make a splitting order, there was no requirement to value the interest (s 90MT).
3. The wife could never receive the calculated lump sum amount in specie. Nor could she commute any part of the pension to a lump sum. Her only entitlement was to an income stream for so long as she remained entitled to receive the pension. If no splitting order was to be made but an assessed percentage entitlement was attributed to the lump sum on account of the husband’s contributions (even if those contributions were assessed to be modest as the trial judge considered them to be) the husband was receiving a lump sum entitlement from a lump sum that the wife could never receive.
4. The pension was taxed, but the scheme-specific methodology by which the capital sum was calculated referred to the gross amount of the pension.
5. If the wife’s pension was to be included in the parties’ assets and liabilities, even if part of a separate pool, her very significant contributions to it needed to be considered and the trial judge did not do so.
6. The proper way to deal with the wife’s pension was under s 79(4)(e) as income in the hands of the wife.

There was no actuarial assessment of the “value” of the projected income stream of the husband of $340,000 per annum based on his earning capacity (as he had chosen not to work, his projected income was irrelevant), to compare to the lump sum calculation of the wife’s pension income stream.

The Full Court increased the wife’s entitlements overall to 75% by way of a s 79(4)(e) adjustment of 25%, mainly because of large transactions made by the husband which were unexplained and significantly depleted the pool, although they could not be precisely quantified because of the husband’s attempt to mislead the wife and the court.

Conclusion

It is difficult to reconcile Singerson & Joans with such cases as Eufrosin. Perhaps the answer lies, unsatisfactorily for legal practitioners and clients, in the wide discretion which can be exercised under s 79 as emphasised by the Full Court in Dickons & Dickons and Bolger & Headon quoted earlier in this paper. However, in the future this will hopefully be addressed by the use of “comparable cases” as confirmed by the Full Court in Wallis & Manning (2017) FLC 93-759.

In the world of superannuation, there has recently been a complete turn-around in the manner in which courts deal with pensions in the payment phase. If they cannot be converted to a capitalised sum which can be split, they are now usually viewed as a financial resource and looked on as income rather than property.

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

Jacky Campbell, November 2017

Hot Cases in Family Law 2017

Even before the delivery of the judgment by the High Court in Thorne & Kennedy on 8 November 2017, a financial agreement case, there have been major developments under the Family Law Act 1975 (FLA) in case law in 2017. This paper covers:

1. Wallis & Manning – contributions and comparable cases.
2. Calvin & McTier – property acquired after separation.
3. Surridge & Surridge – hurt on duty pension.
4. Official Trustee in Bankruptcy v Galanis – standing of a trustee in bankruptcy.
5. Bondelmonte & Bondelmonte – High Court parenting case.
6. Bernieres & Dhopal – commercial surrogacy.
7. Thorne v Kennedy – High Court

1. Wallis & Manning (2017) FLC 93-759 – contributions and comparable cases

In university law courses, the importance of precedents is emphasised – ratio decidendi and obiter dicta are prevalent phrases. Bewilderingly, family lawyers advising clients are confronted with the breadth of the court’s seemingly unfettered discretion and unpredictability of outcomes. The Full Court in Wallis & Manning (2017) FLC 93-759 gave some hope that a more consistent approach may be adopted in the future. In addition, the Full Court had to deal with the assessment of contributions where significant contributions were made on behalf of the husband at the beginning of a long marriage.

The law before Wallis & Manning

In cases like Fields & Smith (2015) FLC　93-636, the Full Court seemed to confirm that earlier cases could not be relied on as a guide to decision-making. Bryant CJ and Ainslie-Wallace J said, in relation to the use by the trial judge of a table of comparative cases prepared by the husband’s counsel:

“The problem with the table is that it gives no indication of the relevant facts in the particular cases … With all due respect to his Honour, the table can only form the glibbest of comparisons, and although it may be a seductive tool, it cannot illuminate the valuing and weighing of contributions in this particular case and carries with it the danger, if relied upon, of detracting from the individual requirement to make orders that are just and equitable in an individual case.”

Bryant CJ and Ainslie-Wallace J considered that the apparent reliance on the table by the trial judge may have led him into error and acted as a fetter to the exercise of his discretion. The third member of the bench, May　J, also allowed the appeal, but did not refer to the offending table. She was critical of the trial judge for ignoring the wife’s post-separation contributions.

Professor Patrick Parkinson has written some thought-provoking articles about discretion. For example, in “Why are decisions on family property so inconsistent?” (2016) 90 ALJ 498 at 518, Professor Parkinson said, “the idea that the discretion of the trial judge is so open-ended, and that the exposition of principles and guidelines … would unlawfully fetter the discretion of the judge, is a misunderstanding of the judicial discretion … In the exercise of judicial discretion, the trial judge needs to draw upon principles and standards which find their origin in law, rather than in the objective values of the individual trial judge”.

Professor Parkinson drew upon the High Court in Norbis v Norbis (1986) FLC 91-712 and quoted Mason & Deane JJ, who said (at 75,174):

“With all respect to those who think differently, we believe that the sound development of the law, in this area as in others, is served best by following the tradition of the common law. The genius of the common law is to be found in its case-by-case approach. The decision and reasoning of one case contributes its wisdom to the accumulated wisdom of past cases. The authoritative guidance available to aid in the resolution of the next case lies in that accumulated wisdom. It does not lie in the abstract formulation of principles or guidelines designed to constrain judicial discretion within a predetermined framework. There is no reason to think that the traditional approach, when applied in the family law area, leads to arbitrary and capricious decision-making or that it leads to longer and more complex trials.”

The reference to “arbitrary and capricious decision-making” in Norbis was echoed by the High Court in Stanford v Stanford (2012) FLC 93-518 which referred to the risk of “palm tree justice” and said that the Court has a wide discretion, but that it must be exercised in accordance with the legal principles laid down in the FLA.

Wallis & Manning – the use of comparable cases

In Wallis & Manning, although not conceding that Fields & Smith dictated that comparable cases could not be relied upon, Thackray, Ainslie-Wallace and Murphy JJ relied on Norbis and said:

“While recognising the fact that no two cases are precisely the same, we are of the view that comparable cases can, and perhaps should far more often, be used so as to inform, relevantly, the assessment of contributions within s 79 ….

The word “comparable” is used advisedly. The search is not for “some sort of tariff let alone an appropriate upper and lower end of the range of orders which may be made”. Nor is it a search for the “right” or “correct” result: the very wide discretion inherent in s 79 is antithetical to both. The search is for comparability – for “what has been done in other (more or less) comparable cases” – with consistency as its aim.”

The Full Court analysed a number of cases and compared factors such as the length of the relationship, and the nature, form and characteristics of the contributions made by the parties, including the timing of contributions. The analysis of each case was very detailed and very lengthy. By contrast, the Full Court said that the table in Fields & Smith was inadequate as it only summarised cases by setting out matters such as the length of the relationship, the size of the pool and the number of children post-trial; summarised contributions in single words such as “modest”, “some”, “minor”, “negligible” and “significant”; and gave outcomes in percentage and dollar terms.

It is early days, but hopefully the acceptance of “comparable cases” will bring more predictability to family law property settlements.

Contributions

The parties were married for 27 years and their three children were all adults by the end of the marriage. The net property was about $1.91m, consisting predominantly of three pieces of real property upon which the parties conducted a farming business. The husband’s father gifted to the parties a half share of a farming property two years after marriage, and another farming property one year later. The trial judge assessed contributions 70% / 30% in favour of the husband and gave the wife 10% for s　75(2) factors. Judgment was not delivered until three years after the trial.

The wife appealed, arguing that the trial judge gave excessive weight to the contributions by the husband’s father and insufficient weight to her contributions. The wife argued that it should be inferred from the reasons for judgment that the trial judge wrongly considered that the farming land at Property W was part of the gifts by the husband’s father. This was important because the historical gifts were a central determinant of the contributions assessments. The inordinate delay in the delivery of the judgment strengthened the wife’s arguments.

The Full Court considered there was merit in the wife’s submissions. The trial judge confused the manner of acquisition of the various properties; the extent and timing of the husband’s father’s gifts were erroneously taken into account in assessing contributions, and the inordinate delay in the delivery of judgment impacted upon how the errors expressed under the heading “contributions” were viewed by the Full Court. The Full Court said (at [86]):

“What might otherwise be regarded as, for example, infelicities in expression in a judgment timeously delivered (when the evidence is fresh in the mind of the judge) or, for example, an erroneous transposition of findings earlier made in the judgment, should not safely be subject to the same assumptions when judgment is delivered three years after the hearing. As but one example of the issues that intrude when there is an inordinate delay in the delivery of reasons and omissions are apparent, it is not known whether the “background” component of the reasons was written a long time earlier or later than the “contributions” section of the reasons.”

The Full Court allowed the appeal, provided an opportunity for the parties to provide further submissions, and re-exercised its discretion. It considered in detail a number of comparable cases to which it had been referred by the parties and others which it considered to be comparable. The Full Court assessed contributions as 57.5% / 42.5% in the husband’s favour, being a disparity of 15% or about $294,000. After taking into account s　75(2) factors at 7.5%, the property was divided equally between the parties.

2. Calvin & McTier (2017) FLC 93-791 – property acquired after separation

The husband in Calvin & McTier (2017) FLC 93-785 received a substantial inheritance 4 years after separation. The trial judge dealt with the property globally and divided all the property, including the husband’s inheritance, so that the husband received 65% and the wife 35%.

The husband appealed. He argued that the inheritance should not have been included in the property to be divided, but did not contend that if the inheritance was properly available for division, that the percentage division of 65/35 was erroneous.

The parties had an 8 year relationship and 1 child. The child was cared for equally by the parties on a week about arrangement. The husband brought significantly more assets into that relationship than the wife.

The wife commenced proceedings 3½ years after the divorce and was given leave under s　44(3) to pursue a property settlement claim.

The trial magistrate found that the net value of the assets and resources to be divided between the parties was $1,340,319 of which, in percentage terms, the remaining inheritance of $430,686, accounted for approximately 32%. Contributions during the relationship were found to be equal. The trial magistrate assessed contributions as 75%/25% in the husband’s favour and made a 10% adjustment in favour of the wife for s 75(2) factors to reflect, in particular, the disparity in the parties’ incomes and earning capacities.

One of the grounds of the husband’s appeal was “the degree of ‘connection’ – or, more accurately, the lack of connection – between the inheritance and the parties’ matrimonial relationship”. The Full Court rejected the husband’s argument that the High Court’s judgment in Stanford v Stanford (2012) FLC 93-518 supported Guest J’s dissenting judgment in Farmer & Bramley (2000) FLC 93-060 in which Guest J required that contributions have “fractional contemporaneity”. The Full Court concluded that the Court retained a discretion as to how to approach the treatment of property acquired after separation and could have included the inheritance amongst the property to be divided and　deal with all the property globally, or dealt with it separately but still assess contributions and s　75(2) factors. The appeal was dismissed.

The Full Courts in Holland & Holland [2017] FamCAFC 166 and Widmann & Widmann [2017] FamCAFC 602 approved Calvin & McTier.

3. Surridge & Surridge (2017) FLC 93-757 – hurt on duty pension

In Surridge & Surridge [2015] FamCA 493, Foster J adopted a two-pool approach with the wife’s pension being a discrete second pool and the parties’ other superannuation and non-superannuation assets being in the primary pool. The wife was in receipt of a hurt on duty pension under the Police Regulation Superannuation Act 1906 (NSW). She received a pension of $900 net per week increasing to about $1,000 per week net at the time of trial. Foster J referred to the difficulty of assessing contribution-based entitlements to the type of superannuation interest held by the wife and quoted favourably from Watts J in Schmidt & Schmidt (2009) FamCA 1386. In Schmidt, the court assessed the wife’s contribution to the hurt on duty pension entitlement at 10%. In Schmidt, the parties were together for 7½ years and the husband was in the police force for just over 21 years prior to his retirement.

In Surridge, the wife was aged 46 and her eligible service period commenced in June 1987. The parties commenced a relationship in 1991 and married in 1996. They separated in August 2012. Contributions to the primary pool were assessed as equal. A s 75(2) adjustment of 12½% was made in favour of the wife who had the continuing care of the children aged 16 and 15 with little prospect of financial support from the husband. The s 75(2) adjustment also took into account unexplained funds received and disbursed by the husband of $800,000.

Justice Foster found that the wife was employed for 9 years with the police force prior to cohabitation. He seems to have made an error here. They apparently married nine years after she started with the police force but had 4 years of cohabitation before their marriage.

The value of the wife’s future pension was determined according to fund specific factors at $1,022,821. No lump sum was payable in the future to her but the effect of a splitting order was to allow an immediate lump sum to be paid to the husband or for a rollover of that lump sum to another superannuation fund or a combination of the two. The effect of any spitting order was to commensurately reduce the wife’s pension.

The wife’s contribution-based entitlement to the income stream was found by Foster J to be overwhelming and it was difficult to find any contribution-based entitlement of the husband to it. The pension was in effect unearned income, indexed and payable during the wife’s lifetime. The consequence of any splitting order of the pension entitlement was to commensurately reduce the wife’s pension and procure an immediate cash payment to the husband leaving the wife with the reduced periodic income.

His Honour made a modest adjustment of 5% in relation to the wife’s pension in favour of the husband which equated to an approximate lump sum of about $20,000. The outcome was that the wife had a cash equivalent of about $1,621,250 from the primary pool less an adjustment of $20,000 in favour of the husband from the pension pool leaving a net figure of $1,601,250. She otherwise retained her pension intact. The husband had an entitlement of $993,050 including the $20,000 adjustment of the wife’s pension.

On appeal, in Surridge & Surridge (2017) FLC 93-757, the Full Court found that Foster J’s approach to the wife’s hurt on duty pension was erroneous, even though both parties urged him to adopt that approach. The Full Court considered it (at [13]) to be “a matter of significance and is productive of injustice. We consider ourselves bound to correct it”. The Full Court found that it was not just and equitable to make a splitting order in respect of the wife’s pension. Indeed, there was “… a compelling case for not doing so” (at [27]).

The reasons for this conclusion were:

1. Importantly, the property and superannuation interests of the parties permitted justice and equity to be achieved without such an order. The wife had only a possible residual capacity for some form of future part-time employment, her pension income of $50,000 per annum was modest and she had the continuing full-time care of two children, one of whom was only 12, and had little prospect of receiving child support or other financial assistance from the husband, although he had a significant earning capacity.
2. Once the trial judge determined not to make a splitting order, there was no requirement to value the interest (s 90MT).
3. The wife could never receive the calculated lump sum amount in specie. Nor could she commute any part of the pension to a lump sum. Her only entitlement was to an income stream for so long as she remained entitled to receive the pension. If no splitting order was to be made but an assessed percentage entitlement was attributed to the lump sum on account of the husband’s contributions (even if those contributions were assessed to be modest as the trial judge considered them to be) the husband was receiving a lump sum entitlement from a lump sum that the wife could never receive.
4. The pension was taxed, but the scheme-specific methodology by which the capital sum was calculated referred to the gross amount of the pension.
5. If the wife’s pension was to be included in the parties’ assets and liabilities, even if part of a separate pool, her very significant contributions to it needed to be considered and the trial judge did not do so.
6. The proper way to deal with the wife’s pension was under s 79(4)(e) as income in the hands of the wife.

There was no actuarial assessment of the “value” of the projected income stream of the husband of $340,000 per annum based on his earning capacity (as he had chosen not to work, his projected income was irrelevant), to compare to the lump sum calculation of the wife’s pension income stream.

The Full Court increased the wife’s entitlements overall to 75% by way of a s 79(4)(e) adjustment of 25%, mainly because of large transactions made by the husband which were unexplained and significantly depleted the pool on top of the other s　75(2) factors in the wife’s favour. They could not be precisely quantified because of the husband’s attempts to mislead the wife and the court.

In Goudarzi & Bagheri [2016] FamCA 205 the trial judge dealt with a pension in the payment phase (which was not a hurt on duty pension) as a financial resource. On appeal in Goudarzi & Bagheri (No 2) [2017] FamCAFC 190 the Full Court said this was a permissible, but not the only, approach to pensions in the payment phase. This seems to limit the impact of Surridge to hurt on duty pensions, and possibly particular hurt on duty pensions, or at least make it uncertain as to whether the approach taken in Surridge extends beyond those types of pensions to all pensions in the payment phase.

4. Official Trustee in Bankruptcy v Galanis (2017) FLC 93-760 – standing of trustee in bankruptcy

The ability of a trustee in bankruptcy to set aside a financial agreement after the husband was discharged from bankruptcy was considered by the Family Court in Official Trustee in Bankruptcy & Galanis [2014] FamCA 832 and by the Full Court of the Family Court in Official Trustee in Bankruptcy & Galanis (2017) FLC 93-760; [2017] FamCAFC 20. The Official Trustee was unsuccessful both before the trial judge and on appeal.

The matrimonial cause under consideration was (eab) of s　4 which gives the court power to deal with (eab) “third party proceedings (as defined in s　4A) to set aside a financial agreement.”

The trustee argued that it had standing to bring the proceedings as it was a “government body” within s 4A(1)(b)(iii) which provides:

“(1) For the purposes of paragraph (eab) of the definition of matrimonial cause in subsection 4(1), third party proceedings means proceedings between:

(a) any combination of:

(i) the parties to a financial agreement; and…

(b) any of the following:

(i) a creditor

(iii) a government body acting in the interests of a creditor;

being proceedings for the setting aside of the financial agreement on the ground specified in paragraph 90K(1)(aa).”

Section 90K(1)(aa) enables financial agreements to be set aside because a party entered into the agreement for the purpose (or one of the purposes) of defrauding a creditor or with reckless disregard for that creditor’s interests.

The trial judge, Rees J, found that the Official Trustee was not a government body but a statutory trustee. She also found that it would be completely anomalous if one category of trustee (the Official Trustee) were advantaged by the right to make an application under the FLA where another trustee, who was not the Official Trustee, did not have that right.

The trustee also argued that the matter was a “matrimonial cause” within s 4(1)(cb) being:

“(cb) proceedings between:

(i) a party to a marriage; and

(ii) the bankruptcy trustee of a bankrupt party to the marriage;

with respect to any vested bankruptcy property in relation to the bankrupt party, being proceedings:

(iii) arising out of the marital relationship …”

Although the husband was discharged from bankruptcy under s 149(1) Bankruptcy Act (“BA”) and the bankruptcy had ended, the bankrupt still had some ongoing obligations to the trustee. The trustee retained the right to make claims against the bankrupt in certain circumstances, limited by s　127(1) BA:

“After the expiration of 20 years from the date on which a person became a bankrupt, a claim shall not be made by the trustee in the bankruptcy to any property of the bankrupt, and that property shall, subject to the rights, if any, of a person other than the trustee in respect of the property, be deemed to be vested in the bankrupt, or a person claiming through or under him or her, as the case may be.”

In determining whether a trustee in bankruptcy could initiate proceedings against a discharged bankrupt at any time prior to the expiration of 20 years after bankruptcy, Rees J considered the Explanatory Memorandum to the 2005 amendments to the FLA and the BA and concluded that the term “bankrupt party” in s 4(1)(b) did not mean a party to a marriage who had been discharged from bankruptcy and said (at [49], [52]):

“The emphasis appears to be on closing off the avenue, which may have previously existed, that allowed a debtor to alienate property using a financial agreement so as to make that property unavailable, to his or her trustee in bankruptcy, for the payment of creditors. …

If the legislature intended that the provisions of the Act would apply to give jurisdiction to the Family Court of Australia to deal with proceedings between a party to a marriage and the trustee in bankruptcy of a discharged bankrupt, then those words could have been included.”

Rees J dismissed the trustee’s application and ordered that the trustee pay the wife’s costs on a solicitor/client basis.

The Full Court in Official Trustee in Bankruptcy & Galanis (2017) FLC 93-760 agreed with the trial judge and noted (at [457]):

“As we pointed out at the commencement of these reasons, and as was accepted by the parties, in this case the Official Trustee can pursue its claim against the wife in other courts without any need to set the agreement aside. What is in issue in this case is whether the Court has jurisdiction in determine the trustee’s claim to set the financial agreement aside.”

The Full Court contrasted Australian Securities & Investments Commission (ASIC) with the Official Trustee. ASIC is a Commonwealth entity for the purposes of the Public Governance, Performance & Accountability Act 2013. Section 18AA BA states that the Official Trustee is not a Commonwealth entity.

The Civil Law & Justice Legislation Amendment Bill 2017 includes proposed amendments to the BA, to clarify that the Family Court has bankruptcy jurisdiction when a trustee in bankruptcy applies to set aside a financial agreement.

5. Bondelmonte & Bondelmonte (2017) FLC 93-765 – High Court parenting case

This appeal to the High Court concerned orders made for the return of two boys to Australia from New York, where they remained after the conclusion of a holiday with the father, in breach of a parenting order which had been made by the Family Court of Australia. The father’s appeal was particularly concerned with:

1. The way in which the trial judge had taken into account the children’s wishes;
2. The interim living arrangements for the children upon their return to Australia.

The two boys were aged nearly 17 and nearly 15 at the time the interim orders were made by Watts J on 8 March 2016. Their sister was nearly 12 years of age.

In January 2016, despite the father not providing the period of notice required by the 2014 parenting orders, and under some pressure from him, the mother reluctantly agreed to allow the two boys to travel to New York for a holiday with the father. The girl was not included in the holiday. The boys were flown by the father, business and first class, to New York on 14 January 2016. By 25 January 2016 the father had decided that it was in his financial interests to remain in the United States rather than to return to Australia. On 29 January 2016 his solicitor informed the mother’s solicitor that the father had decided to live indefinitely in the United States and that the boys would remain with him.

The mother filed an application for the return of the boys, in addition to proceedings brought in the United States under the Hague Convention (which did not apply to the elder boy because of his age). The father did not seek any changes to the 2014 parenting orders and sought only to resist the mother’s application.

The evidence of the father was that the boys had each expressed a desire to remain living with him in New York. He wanted the hearing to be adjourned so that an expert in New York could interview the boys and provide a report as to their wishes.

If the primary judge decided that they should return to Australia, a major question was where the boys should live on their return. This question was complicated by a number of factors. The father did not say whether he would return to Australia in the event that orders were made for the boys’ return. It was therefore not known whether the boys could live with him. The elder boy had been living with his father for some time after his parents’ separation and was effectively estranged from the mother, although she had attempted to maintain contact with him. The younger boy was living with the father, although he divided his time between the mother and father; and the daughter remained living with the mother but spent weekends with the father. The evidence was unclear as to the amount of time that the two youngest children were spending with each parent.

Accepting that one or both of the boys might elect not to live with her, the mother advised the Family Court that she would not oppose the boys living with the father’s mother, a course which the ICL appeared to consider acceptable.

The matter could not be resolved on the first hearing date before the trial judge and was adjourned. Counsel for the father filed further evidence of conversations with the father’s mother, to the effect that, due to her frailty, she was unable to care for the boys. The father made no submissions as to alternative possible living arrangements for the boys.

Two further options were considered by the primary judge to meet the contingency that the father did not return to Australia and the boys chose not to live with the mother. They were reflected in the orders made by the trial judge, who ordered that, in the event that the father returned to Australia with the boys, they could continue to live with him. If he did not return, the boys were to live with the mother if they chose to do so, or they could live in accommodation provided by the father together with paid supervision services, to which the mother consented in writing. Alternatively, each of the boys could live separately with the mothers of respective friends of theirs. The boys’ mother had obtained undertakings from the respective mothers, who each agreed to accommodate a boy. Collectively, these orders were referred to as “the interim parenting orders”.

Statutory provisions

The following relevant statutory provisions are in the FLA:

Section 60B(1) – The objects of the Part are to ensure the best interests of children are met by reference to certain criteria, which include ensuring that parents fulfil their duties, and meet their responsibilities, concerning the care, welfare and development of their children.

Section 60B(2) – The principles underlying the objects in s　60B(1) are that children have the right to know and to be cared for by both parents and a right to spend time with both parents on a regular basis.

Section 60CA – “In deciding whether to make a particular parenting order in relation to a child, a court must regard the best interests of the child as the paramount consideration.”

Section 64C – “A parenting order in relation to a child may be made in favour of a parent of the child or some other person.”

Section 65D – “In proceedings for a parenting order, the court may, subject to sections 61DA (presumption of equal shared parental responsibility when making parenting orders) and 65DAB (parenting plans) and this Division, make such parenting orders as it thinks proper.”

Section 60CC　- Section 60CC(1) – Requires the court to consider the matters set out in s 60CC(2) and (3), in determining what is in the child’s best interests.　Section 60CC(2)(a)　relevantly provides that a primary consideration is “the benefit to the child of having a meaningful relationship with both of the child’s parents”.　Section 60CC(3)　provides for additional considerations, which include:

“(a) any views expressed by the child and any factors (such as the child’s maturity or level of understanding) that the court thinks are relevant to the weight it should give to the child’s views”.

Section 60CC(3) states other additional considerations which are relevant:

• the nature of the relationship of the child with each of the parents (s 60CC3(b)(i))
• the likely effect of any changes in the child’s circumstances, including the likely effect on the child of any separation from his or her parents and any other child with whom he or she has been living (s 60CC(3)(d)(i) and (ii))
• whether the practical difficulty and expense of spending time with a parent will substantially affect the child’s right to maintain personal relations and direct contact with both parents on a regular basis (s 60CC(3)(e))

Section 60CD(2) – “The court may inform itself of views expressed by a child:

1. by having regard to anything contained in a report given to the court under s 62G(2); or
2. by making an order under s　68L for the child’s interests in the proceedings to be independently represented by a lawyer; or
3. subject to the applicable Rules of Court, or by such other means as the court thinks appropriate.

Section 60CE – “Nothing in this Part permits the court or any person to require the child to express his or her views in relation to any matter.”

Section 65C – “A parenting order may be applied for by:

(a)  either or both of the child’s parents;

(b)  the child; or

(ba)  the grandparent of the child; or

(c)  any other person concerned with the care, welfare or development of the child.”

The High Court stated (at [29], – [30]) that the issues to be determined were:

• the trial judge wrongly discounted the boys’ views about remaining in New York because he formed an adverse view of the father’s actions
• the trial judge was required to put in train a process by which the boys’ views as to each of the alternative living arrangements, and in particular their possible accommodation with other families, could be ascertained.
• whether parenting orders could be made in favour of strangers to the proceedings who had not made an application for those orders themselves.

In relation to the importance of a child’s views, the High Court said (at [34], [38]):

“The focus placed by the father upon the prescribed consideration stated in s　60CC(3)(a)　tended to elevate the views expressed by a child to something approaching a decisive status. In some cases, it may be right, in the exercise of a primary judge’s discretion, to accord the views expressed by a child such weight, but　s 60CC(3)(a)　does not require that course to be taken. They are but one consideration of a number to be taken into account in the overall assessment of a child’s best interests.

The terms of　s 60CC(3)(a)　itself may be taken to recognise that, whilst a child’s views ought to be given proper consideration, their importance in a given case may depend upon factors such as the child’s age or maturity and level of understanding of what is involved in the choice they have expressed. Children may not, for example, appreciate the long term implications of separation from one parent or the child’s siblings. Section 60CC　requires that attention be given by the court to these matters.”

The Full Court considered that the trial Judge took into account the boys’ views and the effects of the boys’ views and concluded that they were best dealt with through the intervention of the family consultant in Australia, via the mechanism which had already been established by the 2015 orders. The trial judge declined to have a “wishes report” undertaken in New York because he doubted its utility. He considered that the views expressed by the boys had been “contrived” by the father.

The father argued that adverse comments made by the trial judge about him, necessarily detracted from a proper consideration of the boys’ views and the paramount consideration of what was in the boys’ best interests.

The High Court considered that the father’s conduct was relevant to the children’s best interests (at [39]):

“It would have been remarkable if the primary judge had not commented upon the father’s conduct. It involved a breach of the 2014 parenting orders and it had the potential to undermine the possible relationships that family members might have in the future, a matter to which the processes put in place by the 2015 orders had been directed. Furthermore, the father’s flagrant disregard of the parenting orders was a matter relevant to the child’s best interests under　s 60CC(3)(i).　It evinced an attitude towards the responsibilities of parenthood that, if left unchecked, would likely send a poor message to boys who, on the evidence, were highly impressionable.”

However, the High Court rejected the argument that the trial Judge was motivated to give less weight to the boys’ expressed preference to stay in New York because of the father’s actions.

The father submitted that a dispositive parenting order could not be made before the views of the child were known concerning the particular parenting order. The High Court disagreed (at [43], [44]):

“Section 60CC(3)(a), whether or not read in conjunction with the other provisions in　Pt VII, neither expressly nor impliedly requires the court to seek the views of a child. It requires that the views which have been “expressed” by a child be considered. The term “consider” imports an obligation to give proper, genuine and realistic consideration but this cannot affect or alter the terms of the provision so as to require a child’s views to be ascertained.

Section 60CD(2)　provides a mechanism by which the court may inform itself of the views expressed by a child, but it does not do so in terms which would oblige the court to do so in every case. It certainly would not oblige the court to do so in the case of interim, temporary arrangements and in respect of each aspect of a parenting order affecting a child.”

It was relevant that the orders made for where the children would live upon their return from New York were interim orders and the arrangements temporary. Interim orders do not, of course, require as intense examination by the Court as final orders.

The High Court (at [46]) referred to the urgency of the return of the boys to Australia, in part because the boys were due to return to their schooling in Australia. It was not necessary to seek the views of the boys on every aspect of the interim orders affecting them, which, in any event, were hardly likely to assist the Court. It was clear “that the ascertainment of the boys’ views on these matters was not statutorily mandated.”

The trial judge took steps to ascertain the boys’ views, by leaving in place the 2015 orders concerning the family consultant, who could ascertain them after the boys’ return to Australia.

Parenting orders – “any other person”

The other contentions raised by the father were that the Family Court could not make a parenting order in favour of strangers to the proceedings where those people had not made an application and where there was no evidentiary basis to establish that they came within the list of possible applicants in s　65C.

The ICL’s response was that s 65C refers to a person’s standing to bring an application for parenting orders. The persons referred to in the order were not applicants for parenting orders. They were persons in whose favour such orders were made on the application of the mother. Section 64C provided that a parenting order may be made in favour of a parent of the child “or some other person”. The High Court agreed with these submissions.

The father submitted that there was simply not enough known about those persons to justify the making of that parenting order. The High Court rejected this argument and said (at [51]):

“Far from being strangers to the Family Court, the Court had information that the persons were mothers of longstanding friends of the boys; the Court had undertakings from the mothers to offer “nurturing and care” and to implement arrangements for monitoring homework and transport to and from school respectively; and the Court was aware of the proposed sleeping arrangements of the boys. It may be that more information would be desirable before making a long term parenting order in favour of such third parties. But, as has been emphasised, the present case concerned the making of interim orders in circumstances of some urgency. Plainly, in those circumstances, there was sufficient evidence to ground the making of [the] order …”

6. Bernieres & Dhopal (2017) FLC 93-793 – commercial surrogacy

The commissioning parents to a surrogacy arrangement appealed against the trial judge’s failure to make the orders which they had sought, namely:

• declarations of parentage in relation to the child pursuant to s　69VA FLA
• leave to apply for a step-parent adoption pursuant to s　60G.

The Full Court clarified whether declarations of parentage can be made in commercial surrogacy arrangements. There have been different views adopted by single judges in cases such as Dennis and Anor & Pradchpet [2011] FamCA 123, Dudley & Chedi [2011] FamCA 502 and Ellison and Anor & Karnchanit [2012] FamCA 602.

Background

The parties entered into an international commercial surrogacy arrangement. The husband’s sperm was used with ovum donated anonymously. The child’s DNA was matched with the husband’s DNA and a finding of the “relative chance of paternity” of 99.995% was made. The child received an Australian Certificate of Citizenship by Descent and an Australian passport. The birth mother consented to this.

Statutory provisions

60H(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.

60H(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.

60H(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. …

60H(6) In this section:

This Act　includes:

(a) the standard Rules of Court; and
(b) the related Federal Circuit Court Rules

The words “artificial conception procedure” are defined in s 4 of the Act as including:

1. 1. artificial insemination; and
   2. the implantation of an embryo in the body of a woman.

Regulation 12C provides that, for the purpose of s 60H(1)(b)(ii), the　Status of Children Act　is prescribed. In relation to s 60HB(2),　s 14　of that Act is prescribed (reg 12CA). There are no laws prescribed in relation to s 60H(3).

60HB(1) If a court has made an order under a prescribed law of a State or Territory to the effect that:

(a) a child is the child of one or more persons; or
(b) each of one or more persons is a parent of a child;

then, for the purposes of this Act, the child is the child of each of those persons.

Regulation 12CAA of the Regulations sets out the prescribed laws referred to in s 60HB(1), and for Victoria it is again the　Status of Children Act.

The Full Court noted that s 60HB was introduced into the FLA in 2008 at the same time as s 60H was amended by the substitution of a new s 60H(1).

The Revised Supplementary Explanatory Memorandum accompanying the　Amending Act　explains these amendments in terms (quoted at [47]):

“76. This item repeals s　60H(1) and substitutes a new s　60H(1) that deals with both married and opposite and same-sex de facto couples. Opposite-sex de facto couples were previously covered in s　60H(4). This subsection is repealed.

77. These changes will mean that s　60H(1) applies, as well as to married couples, to current or former de facto partners who are of the same-sex and to current or former de facto partners who are of different sexes where children are born as a result of artificial conception procedures. This would mean that female same-sex de facto couples would be recognised as the parents of a child born where the couple consent to the artificial conception procedure and one of them is the birth mother. In addition, genetic material from other than the couple must be used with the relevant donor’s consent. The provision provides that the child is to be the child of the woman giving birth and her de facto partner. …

81. New s　60HB deals with children born under surrogacy arrangements. It provides that where a court order has been made under a prescribed law of a State or Territory relating to the parentage of a child that order will determine the parentage of the child.”

Section 69VA – “As well as deciding, after receiving evidence, the issue of the parentage of a child for the purposes of proceedings, the court may also issue a declaration of parentage that is conclusive evidence of parentage for the purposes of all laws of the Commonwealth.”

The Full Court said in relation to s 69VA (at [50] – [51]):

“This section is in that part of the Act (Part VII) where a number of general provisions dealing with parentage, presumptions and declarations of parentage appear, and the obvious question is whether specific sections such as ss 60HB and 60H prevail over these general provisions where they conflict. The answer to that question is assisted by the rule of statutory construction known as　generalia specialibus non derogant.　That provides that if there is a specific section or sections of the Act that apply, then that section or those sections prevail, particularly where, as here, the specific sections, namely s 60HB and the amended s 60H were enacted after the general (Commissioner of Taxation v Hornibrook　[2006] FCAFC 170;　(2006) 156 FCR 313).

The proposition that ss 60H and 60HB prevail over the general provisions can also be supported by a consideration of the meaning and effect of those two sections. As Chief Judge Thackray explained in　Farnell & Anor and Chanbua　(2016) FLC 93–700 at [143];　[2016] FCWA 17　at　[231]:

“Sections 60H and 60HB, at least to the extent that they expressly determine the status of children coming within their ambit, would be rendered meaningless if they were not interpreted to displace the presumptions in Division 12 [of the Act]. It should also be noted that ss 60H and 60HB appear in Subdivision D of Division 1 of Part VII, which is entitled “Interpretation – how this Act applies to certain children”. I conclude that while the rules of maternity and paternity in ss 60H and 60HB are not expressed as non-rebuttable presumptions, in effect they are, and they therefore trump the rebuttable Division 12 presumptions. (Footnotes omitted)

We agree with that interpretation.”

The Full Court referred to Ryan J in Mason who expressed (at [33]) a:

“preliminary view that for the purposes of the Act, the 2008 amendments evince an intention by Parliament that the parentage of children born as a result of artificial conception procedures or under surrogacy arrangements will be determined by reference to those provisions and not the general parentage provisions. This interpretation achieves, on a state by state (and territory) basis, a uniform system for the determination of parentage.”

Ryan J said that the effect was that unless an order is made in favour of the applicant pursuant to state law, the provisions of the FLA did not permit the Court to make a declaration of parentage in his favour. She agreed with Watts J in　Dudley and Anor & Chedi　[2011] FamCA 502, who determined that ultimately state law will govern the determination of parentage of children born under surrogacy arrangements and that state law will be recognised by federal law.

The Full Court agreed with Ryan J’s preliminary view, and said (at [53]):

“Significantly this interpretation does not leave it open to find that where, as in Victoria, the relevant State legislation does not apply to the particular circumstances of the case, that lacuna can be filled by recourse to　s 69VA.　That is the approach though that Johns J in Green-Wilson & Bishop　[[2014] FamCA 1031] where her Honour reasoned as follows (at [44]):

“In circumstances where the state legislation is silent with respect to the determination of parentage of children born of commercial surrogacy procedures (which are not prohibited in Victoria), I am satisfied that it is appropriate to make a declaration with respect to a child born of such procedures who is now living in Victoria. To do otherwise would be to elevate public policy considerations (as to the efficacy or otherwise of commercial surrogacy arrangements) above a consideration of the welfare of children born of such arrangements. In my view, the interests of the child must outweigh such public policy considerations.”

The Full Court said (at [54]):

“In our view it is not possible to discard the plain meaning of legislation where public policy considerations may not be seen to be in the best interests of the children affected.”

In relation to s 60H, the Full Court said (at [57]) that although “theoretically　s 60H　could apply to a surrogacy arrangement, a close consideration of the section reveals otherwise”. On its plain meaning, s　60H(1) did not make the commissioning parties the parents of the child. It was designed to cover conventional artificial conception arrangements where the birth mother and her partner were to be the parents of the child.

The commissioning parents argued that the words “the other intended parent” in　s 60H(1)　must be “read down so as to require the other person (being the ‘other intended parent’) to intend to be the parent of the relevant child”. In other words, interpreting that phrase as a substantive provision rather than a definitional provision. This approach was rejected by Watts J in　Re　Michael: surrogacy arrangements　[2009] FamCA 691. The use of those words in　s 60H(1)　was considered in extenso (at full length) by Thackray CJ in　Farnell who, after examining the debates in Hansard when the　Amending Act　was introduced into Parliament in 2008 concluded (at [220]):

“Hansard provides no support for the proposition that Parliament countenanced the possibility that a man and woman who commissioned the birth of a child, whether in Australia or overseas, would be afforded the status of a parent of that child without a court order made under state surrogacy laws. It is equally untenable to suggest that Parliament, in referring to “intended parent” in s 60H(1), had in mind the husband or partner of a woman who had agreed to be a surrogate mother.”

The Full Court concluded (at [62] – [65]) that s 60HB specifically addresses the position of children born under surrogacy arrangements, leaving s 60H to address the status of children born by means of conventional artificial conception procedures. The plain intention of s　60HB is to leave it to each of the States and Territories to regulate the status of children born under surrogacy arrangements, and for that to be recognised for the purposes of the Act. In other words, s　60HB covered that field. As a result, s　69VA was not available because s　60HB covered the field, and s　60H did not apply. The unfortunate result was that the parentage of the child was in doubt. No order had been made under the relevant State legislation (and nor could there be). There was no question that the father was the child’s biological father, but that did not translate into him being a parent for the purposes of the FLA. Further, the mother was not the biological mother, and thus was even less likely to be the “legal parent.”

In relation to s 69VA the trial judge considered that reliance upon s 69VA for the declaration was of no assistance as it was not an independent source of power.

The Full Court (at [69]) agreed with the approach of the trial Judge and also Johns J in　Green-Wilson & Bishop [2014] FamCA 1031. It was “not open to fill the legislative vacuum identified by Johns J by judicial interpretation; it could only be done by legislation.”

In the alternative, the appellants sought a declaration under s 67ZC that each of them was a parent.

67ZC(1) “In addition to the jurisdiction that a court has under this Part in relation to children, the court also has jurisdiction to make orders relating to the welfare of children.”

67ZC(2) “In deciding whether to make an order under subsection (1) in relation to a child, a court must regard the best interests of the child as the paramount consideration.”

The Full Court said (at [703]) that “the literal meaning of s 69ZH(2) of the Act is that for s 67ZC to apply the child must be ‘a child of a marriage’.”

The definition of “child of a marriage” is in s 60F(1):

60F(1) “A reference in this Act to a child of a marriage includes, subject to subsection (3), a reference to each of the following children:

(a) a child adopted since the marriage by the husband and wife or by either of them with the consent of the other;
(b) a child of the husband and wife born before the marriage;
(c) a child who is, under subsection 60H(1) or section 60HB, the child of the husband and wife.

Importantly, s 60F(4A) provides:

“To avoid doubt, for the purposes of this Act, a child of a marriage is a child of the husband and of the wife in the marriage.”

Therefore, the child in this case was not within the definition in s 60F(1). The commissioning parents argued that the definition in s　60F(1) was not exhaustive and could be extended such that s　67ZC could apply where it was necessary to ensure the welfare of the child.

Whilst the Full Court accept that the definition in s　60F(1) was not exhaustive, it was not apparent how s 67ZC could be utilised to expand that definition that the child could be found to be a child of a marriage.

Although a number of judges at first instance could have applied s 67ZC to advance the welfare of children who were not children of a marriage (e.g. Re Alex (Hormonal Treatment for Gender Dysphoria)　(2004) FLC 93–175;　Re Lucy (gender dysphoria)　[2013] FamCA 518), as

Re　Lucy　demonstrated, the application of s 67ZC to children other than children of a marriage was not without controversy. The Full Court distinguished these cases (at [79]):

“However, we have found that in relation to children born under surrogacy arrangements, the intent of the legislature is that s 60HB covers the field, and is the operative provision in the Act concerning parentage of those children. The effect of this is that even if in some respects s 67ZC could arguably apply to the child here, in relation to parentage, this general provision could not prevail over the specific provision, namely s 60HB. Moreover, the application of s 67ZC is not at large; if it were, there would be no need for s 60H, s 60HB, or even s 69VA.”

A further impediment was that the appeal was conducted without a contradictor. It was therefore (at [80]):

“not the vehicle to address the larger question of whether s 67ZC could permissibly be applied to a child who is not a child of a marriage.”

The Full Court concluded that s 67ZC could not be utilised to make a declaration of parentage, but for different reasons than the primary judge who had proceeded on the basis that s　67ZC only applies where the child is a child of a marriage, whereas the Full Court’s finding was based on the circumstance that s 60HB covers the field. Although his Honour was correct in concluding that s　67ZC could not be utilised to make a parenting declaration, the outcome was correct for reasons other than his Honour expressed.

Leave to adopt

The commissioning parents also submitted that the primary judge erred in failing to find it was in the best interest of the child for them to be given leave to adopt.

The relevant provision is s　60G of the FLA, which provides:

60G(1) “Subject to subsection (2), the Family Court, the Supreme Court of the Northern Territory or the Family Court of a State may grant leave for proceedings to be commenced for the adoption of a child by a prescribed adopting parent.”

60G(2) “In proceedings for leave under subsection (1), the court must consider whether granting leave would be in the child’s best interests, having regard to the effect of paragraph 60F(4)(a), or paragraph 60HA(3)(a), and of sections 61E and 65J.”

The commissioning parents sought leave to apply for a step-parent adoption, but complained that the trial judge failed to address that application. The Full Court agreed that the judge did not address the question in the balance of his reasons for judgment, after identifying it earlier as an issue before the court.

Prima facie, there was merit in this ground of appeal. However, the transcript revealed a different story. The primary judge only needed to address　s 60G　if there was a declaration of parentage in favour of the commissioning father, but not in favour of the commissioning mother. As a declaration was not made in favour of either party, on the commissioning parents’ own case the primary judge was not obliged to address the application pursuant to　s 60G.

In any event, for　s 60G　to apply there must be a “prescribed adopting parent”. In　s 4(1)　a “prescribed adopting parent”, in relation to a child, is defined as:

“a. a parent of the child, or

b. the spouse of, or a person in a de facto relationship with, a parent of the child; or

c. a parent of the child and either his or her spouse or a person in a de facto relationship with the parent.”

Neither party came within that definition.

Following the hearing of the appeal, and pursuant to orders allowing them to do so the commissioning parents provided written submissions addressing the question of whether the commissioning father was a “parent” for the purposes of s 60G. The commissioning parents conceded that under the Status of Children Act he was not a parent but suggested he was a parent for the purposes of the Adoption Act 1974 (Vic) or the dictionary definition of “parent” applied by the Full Court in　Tobin & Tobin　(1999) FLC　92–848 could be utilised.

The Full Court could not discern a definition of a “parent” for the purposes of the Adoption Act, and using the dictionary definition of a “parent” overlooked that what needed to be addressed was whether the commissioning parent was a “parent” within s 60G. Not only was the dictionary definition of no assistance, but also the meaning of “parent” under the Adoption Act, if it could be discerned, was of no assistance.

Whilst the Full Court has now clarified the law with respect to making parenting orders with respect to overseas surrogacy arrangements, it has conceded that there is a lacuna – a legislative gap – for these children. Effectively, they are left without any legal parents.

7. Thorne & Kennedy [2017] HCA 49; (2017) FLC 93-807 – Duress, undue influence, unconscionability and a “bad bargain”

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. The plurality also set them aside for undue influence. It was unnecessary to decide whether there was duress.

This paper was not intended to cover that decision, which was handed down 7 days before this presentation, but it is certainly a “Hot Case” of 2017. A more detailed explanation of the decision is given in my article, “Thorne v Kennedy – Has the High Court hung financial agreements out to dry?” which can be accessed from http://www.wolterskluwercentral.com.au/category/legal/family-law/

The wife’s lack of free choice, which gave rise to the plurality upholding the trial judge’s finding of undue influence, was based on the following findings of the trial judge:

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.

In relation to unconscionable conduct, the plurality (and the other 2 judges separately in minority judgments) referred favourably to the trial judge s’ findings 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.

For the purposes of this paper, perhaps the most important aspect of the judgment is the attitude of the High Court to “a bad bargain”. Whilst the Full Court of the Family Court has, in relation to s　90G(1A) said that parties are free to enter into “a bad bargain”, the High Court did not agree that in relation to s　90K “a bad bargain” will always be upheld, and considered that a bad bargain may contribute to it being set aside. The terms of the agreement were so unfavourable to the wife – a bad bargain – and 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 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.

The decision raises many questions.

Conclusion

Until Thorne v Kennedy, perhaps the most important case delivered in family law this year was Wallis & Manning. It is comforting that the Full Court is reflecting on and trying to improve the predictability of judgments and put some constraints around the breadth of judicial discretion.

Most of the cases dealt with in this paper lead to more questions than they answer. Even in Bernieres & Dhopal, in which the Full Court was quite decisive in its dismissal of the commissioning parents attempt to be the child’s legal parents, as the Full Court said, there was “a　legislative vacuum” with respect to the child’s parentage.

The breadth of the impact of Surridge is unresolved. The assessment of initial contributions and post-separation contributions is, as determined in Calvin & McTier and Wallis & Manning, still discretionary. The standing of a trustee in bankruptcy to set aside a financial agreement was stated clearly to be not under the FLA, but under the BA – a rather unsatisfactory outcome given the aims of the 2005 amendments to harmonise bankruptcy and family law. Bondelmonte is perhaps the only case which gives clear guidance.

A detailed analysis of Thorne & Kennedy, is beyond the scope of this paper. However, legal practitioners are likely to be more wary of advising client entering into financial agreements where there is unequal bargaining power and it is a “bad bargain” for one of the parties.

© 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

Escaping tax debts? Is this the brave new world of Pt VIIIAA Family Law Act?

Minimising tax paid, if not actively evading tax, is considered by many family law clients to be a justifiable activity or even a national sport. The power of the Family Law Courts to use Pt VIIIA Family Law Act 1975 (“FLA”) to assign a taxation debt owed by one party to a relationship to the other party was considered by 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. In Tomaras, the Full Court agreed 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 of Taxation’s argument that Pt VIIIAA did not bind the Crown failed. Does this mean that the floodgates have opened to a new way to avoid paying tax?

Facts

The background facts can be explained fairly simply in a short chronology:

The orders sought by the wife included:

“8.   Pursuant to s 90AE(1)(b) of the FLA in respect of the applicant wife’s indebtedness to the Commissioner of Taxation for the Commonwealth of Australia taxation related liabilities in the amount of $256,078.32 as at 9 August 2016 plus General Interest Charge (GIC), the respondent husband be substituted for the applicant wife as the debtor and the respondent husband be solely liable to the Commissioner of Taxation for the said debt.”

The Federal Circuit Court judge, Purdon-Sully J, stated a case for the opinion of the Full Court in the following terms:

“Does s 90AE(1)-(2) of the FLA (Cth) grant the court power to make order 8 of the final orders sought in the amended initiating application of the wife?”

A case stated involves a court seeking the opinion of another court as to questions of law based on agreed facts.

Relevant legislation

The wife sought to rely on Pt VIIIAA of the 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 change the debtor or debtors. 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) and (4) set out the requirements for making an order under s 90AE(1) and (2).

“(3) 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).

(4)   The matters are as follows:

(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.”

There is very little case law where s 90AE has been successfully used although it commenced operation in 2004. For example, it was unsuccessfully relied on in Stephens & Stephens & Anor [2005] FamCA 118 and B Pty Ltd & K and Anor and Ors [2008] FamCAFC 113. In Rand & Ors and Rand [2008] FamCAFC 50 the Full Court found that the trial judge provided inadequate reasons. Manichaeus & Manichaeus and Ors [2010] FamCA 397 was a rare example where s 90AE was used to re-assign liability for a debt, but the court expressed confidence that the husband would be able to pay the debt in full. The creditor bank had been a party to the proceedings earlier, but had elected not to be a party at trial. The bank was given procedural fairness before the final orders were made.

Presumption with respect to binding the Crown

The presumption that the statutory provisions expressed in general terms do not bind the Crown was considered by the High Court in Bropho v State of Western Australia [1990] HCA 24; (1990) 171 CLR 1. In Tomaras, Thackray and Strickland JJ discussed this case and noted that the presumption does not apply to provisions which, properly construed, confer a benefit on the Crown (Madras Electricity Supply Corporation v Boarland [1955] AC 667; McGraw-Hinds (Aust) Pty Ltd v Smith [1979] HCA 19; (1979) 144 CLR 633 at 656). They said (at [17]) that it could be reasonably argued that s 90AE can only impose a benefit on the Crown since:

“(a) instead of an impecunious taxpayer being responsible for a tax liability, his or her more wealthy spouse may be made solely responsible pursuant to s 90AE(1)(a), thereby increasing the prospects of recovery;

(b)   instead of one spouse being responsible for a tax liability, both spouses may be made liable pursuant to s 90AE(1)(b), thereby providing a remedy for recovery that otherwise would have been unavailable;

(c)   whilst an order might be made leaving the less wealthy spouse to meet a tax debt, such an order could not be made if it was foreseeable that the order would result in the debt not being paid (s 90AE(3)(b)); and

(d)   the legislation permits the court to make such order as it considers just for the payment of the reasonable expenses of the creditor incurred as a necessary result of the order (s 90AJ(2)).”

Section 90AE could therefore only operate to the detriment of the Crown if the court, in making an order (at [18]):

“(a) relieved a spouse of their obligation to pay tax which they would have paid if the order had not been made; and

(b)   instead imposed the obligation on a spouse who, although appearing at the time able to meet the liability in full, ultimately was unable to do so for some unforeseeable reason.”

Of course, as noted by Thackray and Strickland JJ, the Commissioner would be on notice that an order under s 90AE was sought and was entitled to be heard as required by s 90AE(3)(b) and 4(e) on the issue of the foreseeability of the tax not being paid if one party were to be substituted for the other. They concluded (at [20]):

“that the possibility of the Commissioner being adversely affected by an order under s 90AE does not arise by operation of the Act but only by the happening of an event that could not have been reasonably anticipated.” There was therefore no place for the presumption that statutory provisions are not binding on the Crown in relation to s 90AE.”

Although finding that the presumption did not apply, Thackray and Strickland JJ went on to consider the Commissioner’s arguments which were based on the view that the presumption did apply.

Taxation debts are not connected with particular assets

The Commissioner argued that a substitution order could only be made if a debt was associated with a specific item of property. Otherwise, it could not be seen as “reasonably necessary” or “appropriate and adopted” in order “to effect a division of property (s 90AE(3)(a)). Thackray and Strickland JJ were not convinced that there “was any sound basis for construing the provision so narrowly” (at [27]) and then said (at [28]):

“In any event, this argument goes only to the exercise of the power, rather than the existence of the power. It would always be open to the Commissioner to argue in a particular case that a proposed order was not “reasonably necessary, or reasonably appropriate and adopted, to effect a division of property.”

Commissioner’s other grounds

The Commissioner had other arguments which were rejected by the Full Court. These included:

• There was no express statement in s 90AE that the section bound the Crown
• There were alternative provisions in the FLA to deal with the circumstances where it was appropriate for one spouse to be responsible for a taxation liability incurred by the other spouse. In particular, s 80(1)(f) FLA gives the court the power to make an “order that payments be made … to a public authority for the benefit of a party to the marriage”.
• Permitting tax debts to be transferred between spouses would create absurdities in the application of the tax scheme because objection, review and appeal rights associated with the tax debt could not be transferred.
• The Explanatory Memoranda to the Bill which amended the FLA to include Pt VIIIAA did not refer to tax debts or other liabilities owed to government agencies.

Use of the word “creditor”

The wife argued that as the Commissioner was a “creditor” for the purposes of s 79 and s 79A of the FLA, it was also a “creditor” for the purposes of s 90AE.

Thackray and Strickland JJ found that there was an express link between s 79 and s 90AE and it would be surprising if different meanings were given to the word in the two linked sections. They said (at [55]):

“Had Parliament intended to exclude the Commissioner as a “creditor” when expanding the existing powers of the court, it would have readily done so in precisely the same way that it excluded a species of property from the ambit of the section when enacting s 90ACA, which is in these terms…”

Minority judgment

Aldridge J agreed generally with the majority and the orders made, but made two further points. He expressed a “tentative” view that s 90AE could not be regarded as beneficial to the Crown. He also considered that in relation to the rights to object and appeal in relation to a taxation liability, the original creditor could still exercise these rights even if one spouse was substituted for another and, perhaps a more complete answer was that an order was unlikely to be made if there was a genuine dispute as to the debt.

Outcome

The Full Court answered the case stated in the affirmative, but with the proviso that s 90AE(1) confers power only to make an order that the Commissioner be directed to substitute the first respondent for the applicant in relation to the debt owed by the applicant to the Commissioner of Taxation. The words “and the respondent Husband be solely liable to the Commissioner for the said debt” were omitted. The reason for the omission was that otherwise there was (at [60])

“… the potential to create the impression that whatever rights the applicant may have had to challenge the debt (which senior counsel for the Commissioner acknowledged might still exist) are extinguished by the making of the order. For the reasons given earlier, we are not entirely persuaded that such rights would be extinguished by an order under s 90AE”.

What next?

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 on the face of the judgment unlikely that the court would order that the taxation debt be borne solely by the husband as this would mean, contrary to s 90AE(3)(b) and (4)(e), that the debt was not likely to be paid.

Rather than opening the flood gates, the Full Court emphasised that s 90AE(3) requirements had to be satisfied before one party could be substituted for another party in relation to a debt as the Full Court has now clarified that s 90AE can bind the Commissioner of Taxation, so there may be other cases where one party can be substituted for another in relation to a tax debt, although the court will need to be satisfied that it is not foreseeable that the debt will not be paid in full if the order for substitution is 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, August 2018

Section 79A – setting aside property settlement orders: Procedural courtroom challenges in Family Law

Introduction

There has been much hype around the setting aside of financial agreements, particularly following Thorne v Kennedy (2017) FLC 93-807. Additional uncertainty arises as to whether financial agreements are binding or can be “saved”. Consent orders are the fall-back and perhaps less risky option to settle property matters following a separation and provide some protection from spousal maintenance claims. Court orders can, however, still be set aside on grounds which partially overlap with the grounds for setting aside financial agreements. The vitiating factors considered in Thorne v Kennedy – duress, undue influence and unconscionable conduct – are relevant to the setting aside of property settlement orders. This paper is an overview of the main grounds for setting aside property settlement orders and an update on recent cases.

Relevant legislation – Section 79A/s 90N

A court can vary or set aside a s 79 order under s 79A (or a s 90SM order under s 90SN) either:

• in contested proceedings under s 79A(1) or s 90SN(1), or
• by consent under s 79A(1A) or s 90SN(2).

Under s 79A(1), any person affected by an order made by a court under s 79 may apply to have that order varied or set aside in the following circumstances:

(a)     Where there has been a miscarriage of justice by reason of fraud, duress, suppression of evidence (including failure to disclose relevant information), the giving of false evidence or any other circumstance;

(b)     Where circumstances have arisen since the order was made whereby it is impracticable for the whole or part of the order to be carried out;

(c)     Where a person has defaulted in carrying out an obligation imposed upon him or her by the order, and in the circumstances that have arisen as a result of the default, it is just and equitable either to vary the order or to set the order aside and make another order in substitution for it;

(d)     Where, in the circumstances that have arisen since the making of the order, being circumstances of an exceptional nature, relating to the care, welfare and development of a child of the marriage, the child, or where the applicant has caring responsibility for the child (as defined in s 79A(1AA)) the applicant, will suffer hardship if the court does not vary the order or set the order aside and make another order in substitution for the order;

(e)     A proceeds of crime order has been made covering property of the parties to the marriage or either of them, or a proceeds of crime order has been made against a party to the marriage. Even if the ground is established, the court has a discretion as to whether to set aside the order, vary the order or leave the order intact.­

This paper will deal with s 79A(1)(a), (b), (c) and (d), but not with s 79A(1)(e) or s 79A(1A). The focus is primarily on s 79A(1)(a).

Important matters to note about s 79A (and s 90SN) applications include:

1. Section 79A is a remedial section intended to “overcome miscarriages of justice and certain other specific difficulties, and should be construed liberally to effect its intended purpose” (Gilbert & Estate of the late Gilbert (1990) FLC 92-125 at 77,838). At the same time, it “cannot be used to circumvent the basic principle that there can only be one property settlement between the parties” (Kowalski & Kowalski (1993) FLC 92-342). If it is too easy to succeed in a s 79A application, this would enable and encourage parties to apply to set aside orders opportunistically.
2. Generally, the s 79A application and any consequential s 79 application should be heard at the same time (Oastler & Oastler (1993) FLC 92-390; Patching & Patching (1995) FLC 92-585). This is not a blanket rule but it is a general rule that is departed from only where the circumstances are sufficiently exceptional to justify it. It may, for example, be convenient to have separate hearings where the financial circumstances of the parties are complex. The Full Court in Lancer & Lancer [2008] FamCAFC 112 upheld the decision of the trial judge that the case was an exception to the general principle. The trial judge’s reasons were:

• the trial with respect to s 79A would not be lengthy
• determination of the s 79A issue would only require an assessment by a judge of the evidence raised in the affidavits already filed
• the costs of the parties would be significantly less
• further witnesses and greater disclosure would be required if the matter was not simply determined on the s 79A issue
• if the order was made to set aside the consent orders the parties would be able to negotiate a settlement of their respective claims for a property settlement. Without a determination of the s 79A issue first, a settlement of the balance of the matter was highly unlikely to occur.

In the recent decision of Trustee of the Bankrupt Estate & Hicks and Anor (2018) FLC 93-824, the Full Court of the Family Court discussed the difficulties which arose because of the decision of the trial judge to bifurcate the proceedings.

3. If a s 79 order is set aside under s 79A, the fresh order is determined according to the facts and law at the date of the hearing and not at the date the original orders were made (Fickling & Fickling (1996) FLC 92-664).
4. Proceedings under s 79A, at least insofar as they seek to set aside existing property orders, are interlocutory in nature and leave to appeal is required (Ebner & Pappas (2014) FLC 93-619 at [33]).
5. It is important to distinguish between when it is appropriate to apply to set property settlement orders aside and when to appeal or to seek a review of a registrar’s decision. Badawi & Badawi [2017] FamCAFC 129 was an example of where an appeal may have been appropriate. The original property settlement orders were made in 2009. The Federal Magistrate only had before him the wife’s financial statement and the consent orders. He did not ask for any further information from the parties. The husband argued that the orders were merely “rubber stamped” and that on the limited material before him, the Federal Magistrate could not have formed any opinion as to the appropriateness of the proposed orders or whether they were just and equitable. These matters could not be dealt with in a s 79A application. To raise them, the husband needed to seek leave to appeal out of time. The s 79A proceeding could not deal with alleged errors on the part of the Federal Magistrate.

Third Parties

Third parties are relevant to the exercise of the s 79A power in two ways:

1. In exercising the powers to set aside or vary an order under s 79A/s 90SN, the court must have regard to the interests of, and shall make any order proper for the protection of, a bona fide purchaser or other person interested (s 79A(2)/s 90SN(6)). A “person interested” includes:

• a creditor, if the creditor is unable to recover their debt, because the order has been made (s 79A(4) and 90SN(7))
• a bankruptcy trustee, if either:

• when the order was made the party was a bankrupt, or
• after the order was made, the party became a bankrupt (s 79A(5))

• the trustee of a personal insolvency agreement, if a party is the debtor subject to personal insolvency agreement (s 79A(7) and 90SN(10))
• a bankruptcy trustee, if a party to a marriage is a bankrupt and a s 79 order has been made with respect to the vested bankruptcy property (s 79A(6) and 90SN(9)).

2. The application to set aside a s 79A order can be made by “a person affected” by the order.

Process for determining a s 79A(1)(a) application

Section 79A(1)(a) is a broad and commonly relied upon ground covering duress, fraud and other matters. The process under s 79A(1)(a) is a three-part enquiry:

1. The facts must be established to prove that fraud, duress etc occurred;
2. If the facts are established, it must be determined whether this was a miscarriage of justice. There may, for example, have been fraud, but this may not have resulted in a miscarriage of justice;
3. If there was a miscarriage of justice, the court has a discretion as to whether to set aside the order and make another order, vary the order, or leave the order intact.

See Suiker & Suiker (1993) FLC 92-436 and Lane & Lane (2016) FLC 93-699.

Section 79A(1)(a) contains a list of grounds followed by the phrase “and any other circumstance”. It might seem that the phrase “and any other circumstance” is limited by the preceding words so that the phrase is read down ejusdem generis (where general words follow an enumeration of things with a particular or specific meaning, the general words are not to be construed to their widest extent, but apply only to things of the same kind or class as those specifically mentioned). This reading of s 79A(1)(a) has been expressly ruled out by the Full Court – e.g. Gebert & Gebert (1990) FLC 92-137 and Suiker & Suiker (1993) FLC 92-436. In Gebert, the Full Court said (at 77,935-6):

“We consider that the words ‘any other circumstance’ appearing in s 79A(1)(a) whilst not to be read ejusdem generis with fraud duress suppression of evidence [sic] or the giving of false evidence, are intended to cover other situations where, for one reason or another, a miscarriage of justice has occurred … The important matter that must be established for an application under this part of the section to succeed is that there has been a miscarriage of justice. It is, we think, clear as counsel for the appellant argued that the words ‘miscarriage of justice’ should not be given a restrictive meaning, particularly when coupled with the words ‘any other circumstance’ and that justice means justice according to law ….” [footnotes removed]

Meaning of “miscarriage of justice”

Under s 79A(1)(a) or 90SN(1)(a) a court can vary or set aside an order made under s 79 or 90SM only if it is satisfied that there has been a “miscarriage of justice”.

The court has treated the expression “miscarriage of justice” as meaning simply that an order has been unjustly obtained. In Holland & Holland (1982) FLC 91-243, the Full Court of the Family Court approved this meaning when it agreed (at p 77,339) with the trial judge that the expression “miscarriage of justice” in what is now s 79A(1)(a) is not limited to a vitiating element in the procedure followed by the court but extends to any situation “which sufficiently indicates that the decree or order was obtained contrary to the justice of the case”.

The Full Court in Barker & Barker [2007] FamCA 13 (at 675), relying on Suiker, was quoted by the Full Court in Lane & Lane (2016) FLC 93-699:

“that the words ‘miscarriage of justice’ should not be construed narrowly and the phrase ‘integrity of the judicial process’ should not be taken only to refer to the hearing in the court, the circumstances creating the miscarriage must nevertheless have been such as to have had an influence on the outcome of the litigation.”

The Full Court in Lane also quoted from Holland & Holland (1982) FLC 91-243 (at 239), where the Full Court said:

“To succeed in an application under s 79A, the wife must show some circumstance leading to a miscarriage of justice. Agreement to a consent order which may not adequately reflect a party’s entitlements under s 79 does not, of itself, show that there has been a miscarriage of justice. There may be cases where the order consented to is so far outside the ambit of what is just and equitable that the Court may infer that a party has acted under duress, in ignorance or as a result of incompetent advice.”

The above passage is particularly pertinent, when read in the light of the approach taken by the High Court in Thorne v Kennedy (2017) FLC 93-807 to a bad bargain; a bad bargain may be an indicator of undue influence. The High Court plurality said (at [56]):

“However despite the usual financial imbalance in agreements of that nature, it can be an indication of undue influence if a pre-nuptial agreement is signed despite being known to be grossly unreasonable even for agreements of this nature.”

Justice O’Leary in Simpson & Simpson (1983) FLC 91-349 (at p 78,351) said:

“The term itself, of course, means no more than that, in a particular case, justice has miscarried, that there has been a failure by a Court to attain justice. But ‘justice’ means ‘justice according to law’ … And so there are imported into the expression ‘miscarriage of justice’ all those concepts and principles of law and equity, of natural justice and of proper judicial procedures which our law regards as essential for the doing of justice between parties.”

In Gebert & Gebert (1990) FLC 92-137 (at p 77,935–6), the Full Court accepted the proposition that “miscarriage of justice” should not be interpreted narrowly, saying:

“The important matter that must be established for an application under this part of the section to succeed is that there has been a miscarriage of justice. It is, we think, clear as counsel for the appellant argued that the words ‘miscarriage of justice’ should not be given a restrictive meaning, particularly when coupled with the words ‘any other circumstance’ and that justice means justice according to law.”

Suppression of evidence and fraud

Suppression of evidence and fraud are different concepts, but overlap to some extent. The meaning of “suppression of evidence” is assisted by the words which follow in brackets “including failure to disclose relevant information”.

The expression “fraud” has a very wide meaning. A helpful explanation was given by Cronin J in the context of setting aside financial agreements (where any failure to disclose must be “material”, not simply “relevant” (as is the requirement for property settlement orders) in Jeeves & Jeeves (No 3) [2010] FamCA 488 (at [485]):

“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.”

Justice Cronin emphasised that establishing fraud was not of itself sufficient. He asked (at [488]):

“Did the wife enter into the financial agreement on the basis of an inducement that what she was presented with was a true and accurate representation of the parties’ financial circumstances? Again, the wife faces the problem of her own evidence that she did not believe the husband to be truthful.”

The wife unsuccessfully appealed against the dismissal of her s 79A application and application to set aside a financial agreement in Jeeves & Jeeves [2011] FamCAFC 94. Of relevance was that the source documents were available to the wife’s valuers and it was not established that the husband failed to disclose relevant material or misled the wife. The evidence did not conclusively establish whether or not the husband had disclosed his improved trading result, or that if there was non-disclosure that it was, or could reasonably have been, material to the wife’s consent.

Under the Family Law Act the commonly accepted definition of “fraud” is that relied on in Green & Kwiatek (1982) FLC 91-259. The Full Court of the Family Court adopted the classic common law definition of Lord Herschell LC in Derry v Peek (1889) 14 AC 337 (at p 374):

“Fraud in this context consists of a false statement of fact which is made by one party to a transaction to the other knowingly, or without belief in its truth, or recklessly, without caring whether it be true or false, with the intent that it should be acted upon by the other party and which was in fact so acted upon.”

In Ebner & Pappas (2014) FLC 93-619, the Full Court said (at [64]) that for orders to be set aside or varied under s 79A(1)(a), there needed to be not only a suppression of evidence, but also miscarriage of justice by reason of that suppression. The husband’s appeal against the dismissal of his s 79A application was dismissed. Although the wife had failed to disclose assets in a particular court document and in statements to the court, the husband was aware when he entered into the consent orders from earlier disclosure by the wife of the wife’s assets and he had evidence as to their value.

In Lane & Lane (2016) FLC 93-699, the wife unsuccessfully appealed against an order dismissing her application pursuant to s 79A(1)(a) in which she sought to set aside property settlement orders that had been made by consent in 2003. The wife claimed that the husband suppressed evidence from the court and from her of the value of his interest as a beneficiary of a family trust, which was of considerable value, resulting in a miscarriage of justice. Justice Murphy (at [116]) noted that the trial judge was correct in finding that the wife had not established suppression of evidence by the husband and correct in finding that there was no miscarriage of justice within the meaning of s 79A.

Justice Murphy held that the parties were able to conclude their agreement on the basis that the value of the trust was not known. The wife had not established that the husband had any information as to the value of the trust which he did not disclose.

There are numerous Full Court authorities on the duty of parties to make a full and frank disclosure of their financial affairs. One example is the Full Court decision of Morrison & Morrison (1995) FLC 92-573. In looking at miscarriage of justice, the Full Court said (at p 81,665):

“1. In order for there to be a just and equitable and an appropriate order altering interests of parties in property, there must be a full and frank disclosure between them of all circumstances which may be relevant to the determination of their true financial position both presently and in the foreseeable future.

2. The obligation to make full and frank disclosure is regarded as so crucial that the deliberate failure by one party to meet that obligation may result in the court drawing adverse inferences against the non-disclosing party where there is material by which such inferences can be based.

3. The failure of the husband to disclose the true position robbed the wife of the opportunity of litigating the issue of the true value of the license. The non-disclosure was of such magnitude that it amounted to miscarriage of justice.”

The facts of Morrison are a good illustration of suppression of evidence. The parties married in 1964 and separated in 1984. There were four adult children of the marriage. The husband commenced working as an abalone diver in Port Lincoln in 1965. The relevant department had a policy under which only owners of abalone fishing licences could dive for abalone, except by way of specific arrangements under the Regulations.

In 1985 the husband, who was suffering from significant ill-health, arranged for D to work as a relief diver. In March 1985 they executed a document transferring the husband’s licence to D on a share fishing basis for $150,000 payable on 30 April 1986. They also executed a second agreement providing that D would sell the licence back to the husband on that date for the same amount.

In July 1985 the wife commenced property proceedings. She was not then aware of the agreements and valued the husband’s licence at $250,000, although she referred in her material to higher prices received for other licences.

In April 1986 the husband and D executed a further agreement under which D could use the licence provided he paid to the husband $30,000 per year plus approximately 50% of the gross proceeds until 1990/91. The three documents were brought to the attention of the wife’s solicitors. The wife was suspicious of the ownership of the licence and requested further investigations. The husband and D swore affidavits that D was the owner of the licence and that there was no private agreement between them. The wife was advised to accept the circumstance that the licence had been transferred to D.

In 1987 the parties settled the proceedings on the basis that the licence was valued at $250,000 and was the notional property of the husband. The wife received 20% of the pool.

In 1988, a year later, the husband received approximately $800,000 from the sale of the licence. The wife became aware of this shortly afterwards and sought legal advice which wasn’t favourable. She didn’t institute proceedings to set aside the property orders for three years, until 1991.

The trial Judge found that the third agreement was, in effect, a sham and the husband and D always regarded the husband as the owner of the licence. Her Honour concluded that those circumstances amounted to a “suppression of evidence” or “any other circumstance” and amounted to a miscarriage of justice in the making of the consent orders and set those orders aside under s 79A. The wife wasn’t penalised for her delay in instituting the proceedings.

The Full Court upheld the decision on appeal.

In Pearce & Pearce [2016] FamCAFC 14, the Full Court upheld the trial judge’s decision to set s 79 orders aside on the ground of the husband’s failure to make full and frank disclosure in five respects. The trial judge found that the husband failed to disclose to the wife significant information concerning the negotiations and proposals concerning the husband’s acquisition of a substantial interest in a business and a real property. He failed to disclose shares and the representation that he made to a bank of the value of the D Street property. He did not disclose his expectation of greater income, and asserted to the wife that his income would be lower, thus justifying a delay of 12 months before a payment of $15,000 could be made to the wife. The trial judge found that the wife would have made further inquiries before consenting to the property settlement order if she had been aware of the matters the husband failed to disclose.

The effect of the variation of the s 79 order was that the husband was required to pay to the wife just under $2 million more than under the original orders.

On appeal, the husband did not deny that he had failed to disclose relevant financial information.

The Full Court summarised the impact of the husband’s failure to disclose to the wife his representation to the bank (at [21]):

“The impugning of ‘the integrity of the judicial process’ which, as her Honour recognised, lies at the heart of s 79A’s requisite miscarriage of justice occurred here not because the property may or may not have had a particular value, but because the wife’s consent was not a fully-informed consent. The integrity of the judicial process in respect of orders by consent demands full and frank disclosure in and about the orders and their antecedent negotiations because the integrity of that process depends upon each party giving a free and fully-informed consent to the orders.”

One of the husband’s grounds of appeal related to whether it was open to the trial judge to arrive at a conclusion as to the materiality of the non-disclosure without assessing the worth of what the wife received by reference to the value of the property dealt with by the orders. The Full Court disagreed and said (at [33]):

“We consider that senior counsel for the wife put it correctly when he submitted that the process contended for by the husband may be relevant but is not essential to the finding. The maintenance of the integrity of the judicial process through the measure of miscarriage of justice is not necessarily connected with a comparison of what the orders provide compared with what a party might have received from a court, had consent not been given. As will be seen, we do not consider that they are connected in this case.”

In relation to the nature of the “consent” in consent orders, the Full Court said (at [35], [36]):

“… the requisite miscarriage of justice derives from a party’s consent not being a ‘free and informed consent’; where there is a failure to disclose matters relevant to the decision to enter the consent orders that are ‘… peculiarly within [the] knowledge’ of that party or omissions which knowingly engendered, or permitted, a mistaken understanding on the part of the other party.

Facts and circumstances as to value might inform the application of those principles in a particular case but, equally, facts and circumstances independent of value might do so.” [footnotes removed]

The Full Court found (at [20]) that if the wife knew about the representation by the husband to the bank that the value of the D Street property was $700,000, not the agreed value in the notations to the orders of $550,000:

“… the wife would have been put on notice of the discrepancy between that representation as to value and the significantly different representation as to value made relatively contemporaneously in the consent orders. She was denied that knowledge, and the consequent opportunity to make such further or other enquiries as she might choose, as a consequence. She was also denied the opportunity to negotiate a settlement whose terms may have reflected that difference.”

Official Trustee in Bankruptcy & Bryan and The Estate of Christine Ann Gatenby (Deceased) (2006) FLC 93-258 concerned a husband and a wife who wilfully failed to disclose to the court the existence of two creditors in an application under s 79 for consent orders in 1992. The consent orders provided, inter alia, for the transfer of joint property from the husband to the wife. The Official Trustee in Bankruptcy applied under s 79A(1)(a) for the orders to be set aside.

Justice Young found that the failure by the husband and the wife to disclose the existence of the creditors to the court at the time they applied for consent orders amounted to suppression of evidence and deceitful conduct and consequently, a miscarriage of justice. The orders relating to the transfer of the property were set aside and no s 79 order was made in their stead. See also Costello & Condi [2012] FamCA 355.

In Waterman & Waterman (2017) FLC 93-762, the Full Court found that there had been a failure to disclose by the husband. The husband had not disclosed the nature, extent or value of the assets and liabilities of the parties. The proposed terms were not discussed between the parties before the wife attended the office of the husband’s solicitor. There was no discussion as to how the terms of the proposed settlement might reflect a just and equitable outcome by reference to known assets and resources with estimates of values. Due to the husband’s manipulations after the orders were made, the wife only received slightly more than half of her entitlements under the orders. Justice Murphy concluded (at [65]):

“Taken together, in my view, the wife’s lack of literacy; the husband’s failure to disclose; the lack of prior discussion as to the proper entitlements and division of the proceeds of the home; the wife’s self-representation at the time the husband’s solicitor ‘told’ the wife of the proposed orders; the circumstances in which that occurred at the husband’s solicitor’s office; the fact that the orders were read to her only once in those circumstances and that she did not have them read to her again; and the fact that she was not advised as to entitlements, all, in my view, amount to a miscarriage of justice in and about the making of the orders.

It will, I would have thought, be a highly unusual case where the factual determination and miscarriage of justice and the discretionary determination of whether the order should be set aside or varied can be successfully bifurcated from the discretionary issue of what order if any should be made if the orders are set aside or varied.”

In Pendleton & Pendleton [2017] FamCAFC 108 the Full Court agreed with the husband that he had no obligation to explain the documents to the wife, who was legally represented at all times. The Full Court did not, however, accept the husband’s argument that the trial judge who set aside the orders under s 79A had found that he had that obligation.

The agreed list of assets of $622,000 made no reference to a significant payment of about $44,500 received by the husband shortly prior to the making of the consent orders and 2 payments totalling about $46,800 several months later. He also received a redundancy of an amount not specified in the judgment and $55,950 from the sale of shares. There was also an unexplained bank account of a company incorporated by the husband after the orders were made, which had a balance of US$180,000. In relation to whether the husband’s disclosure of his employment contract was sufficient, the Full Court said (at [59]) that:

“The husband had to be frank so as to place the wife in possession of the information he had, which would in turn, allow the wife to form her own view of the likelihood of him receiving benefits under the contract.”

Some of the payments were made pursuant to the husband’s contract of employment, but others were not. The husband argued that there was no contractual right to a redundancy and therefore he had no obligation to disclose it. However, even if, as the husband said, he did not have the documentation to evidence the planned payment to him, he was on notice that he was to receive a payment and the disclosure rules required him to make whatever enquiry was necessary in order to inform the wife of what he was receiving.

The husband’s appeal against the orders being varied by the trial judge rather than there being a fresh hearing and full consideration of s 79 was successful. The magnitude of the change to the consent orders (increasing the payment to the wife of $140,000 to $440,000) went beyond mere variation and required the order to be set aside and a new s 79 order to be made giving full consideration to the matters arising under s 79(4) and considering the present financial circumstances of the parties.

Does establishing a “miscarriage of justice” mean an order must be varied or set aside?

“Section 79A confers a discretion to vary or set aside an order and make a fresh order if there has been a miscarriage of justice in the relevant sense. The mere fact that there has been a miscarriage of justice does not seem … to mean that the Court must vary the order or set it aside.”

This statement by Strauss J at first instance was approved by the Full Court in Prowse & Prowse (1995) FLC 92-557; [1994] FamCAFC 91. The Full Court said (at [50]):

“an applicant for an order under s 79A(1) bears the onus of satisfying the Court that the original orders should be set aside or varied, and that includes the onus of satisfying the Court not just that there has been a ‘miscarriage of justice’ but also that the appropriate exercise of the discretion is to so order.”

Examples of what circumstances may justify the exercise of the discretion under s 79A were identified by Strauss J (quoted at [35] by the Full Court) as:

“lack of any or any proper representation or advice, concealment by the husband or ignorance by the wife of relevant financial matters, pressure on or undue persuasion of her, or unequal bargaining power on her part, and no doubt there may be many other such circumstances.”

The importance of the discretion was emphasised by Mason J (with whom Aickin J agreed) in Taylor v Taylor (1979) FLC 90-674; [1979] HCA 38 (at p 78,595):

“What s 79A(1) does is to give the court a discretion to set aside an order when it has been obtained by false evidence. In such a case the court will be extremely reluctant to exercise its discretion in favour of setting aside the order unless something more appears than that false evidence has been given and has procured the making of the order. The importance of bringing an end to litigation and the evil of allowing cases to be retried on the same evidence are powerful deterrents against setting aside a judgment whenever it appears that it has been obtained by false evidence without more.”

The Full Court in Scribe & Scribe [2006] FamCA 1318 quoted the above passage, making the emphasis in bold, and held it was still good law despite later amendments to s 79A. The Full Court in Scribe also quoted Gee J in Rohde & Rohde (1984) FLC 91-592, who said (at 79,770):

“It is in the public interest, that parties who have been the primary contributors to their own financial troubles in the way the husband has been in the case, should not be allowed to relitigate matters with a view to getting themselves out of those troubles.”

The Full Court in Scribe applied this principle (at [84]):

“to support the conclusion that the wife should not have been permitted to rely on her own apparently unexplained failure to seek proper and full independent legal advice. Had the wife had such advice, the misleading information may not have been put before the Court.”

In relation to the importance of independent legal advice, the trial judge said (at [42]), and quoted (at [27]) by the Full Court:

“I am more than satisfied the wife did not receive proper or detailed legal advice. It is not a requirement of law that she receive legal advice before entering into valid consent orders. The wife must take responsibility for the fact that the brief legal advice she did receive, she was advised not to sign. I accept she was also informed by [the husband’s solicitor] that:

(a) she should seek independent legal advice; and

(b) that it was likely she would be entitled to more.”
The court will not help parties who have been the primary contributors to their own financial troubles and let them re-litigate. In Scribe the wife could not explain why she had not sought proper and full independent legal advice.

The husband’s appeal against the trial judge’s decision to set aside the orders was upheld. Following Thorne v Kennedy, the outcome in Scribe is probably still good law. The wife would need to establish undue influence or another vitiating factor which affected her decision not to follow the advice she received.

In Morrison the discretion was exercised in favour of setting aside the orders because of factors which included:

• The wife’s entitlement pursuant to the orders was only a small cash sum because of a unilateral instruction of the husband to solicitors holding monies for the parties to deduct an amount not provided for in the orders – so a post-order manipulation reduced the wife’s entitlements further;
• Neither the wife when the orders were made, nor the court looking at the matter again, were able to ascertain from anything disclosed by the husband the values of any property or superannuation dealt with in the orders;
• Superannuation interests were susceptible to splitting orders at the time of the s 79A application, whereas they were not at the time of the orders; and
• The orders purported to deal with s 79 considerations by reference to a period of cohabitation of about 15 years, but the parties ultimately cohabitated for nearly 30 years.

In Trustee of the Bankrupt Estate of Hicks & Hicks [2016] FamCA 462, the court was satisfied that there was had been non-disclosure by the husband of his assets and liabilities in the Application for Consent Orders. No notice had been given of the proposed consent orders to a third party engaged in litigation with the husband. The court was satisfied that there had been a miscarriage of justice, however, the court declined to exercise its discretion in favour of the husband’s trustee in bankruptcy. The wife had no liability for the debt to the creditor and any s 79 order was unlikely to be more favourable to the trustee than the order already made. The wife argued that the existing order only gave her 51.37% of the net pool and that her entitlements were 60%. There was also uncertainty and a lack of information as to the overseas assets and liabilities of the husband. This would hinder the ability of the court to make an alternative order that was just and equitable if the existing order was set aside.

An appeal by the trustee was allowed in Trustee of the Bankrupt Estate of Hicks & Hicks [2018] FamCAFC 37. The matter was remitted for re-hearing.

Justice Austin dissenting, dismissed the appeal on the basis that the trustee chose not to engage with the separate argument of whether the discretion should be exercised. This was a separate step to the finding of a miscarriage of justice.

“Duress … or any other circumstance”

Under s 79A(1)(a), a s 79 order may be set aside for “duress … or any other circumstance”. Most of the reported cases were decided before the High Court delivered judgment in Thorne v Kennedy (2017) FLC 93-807, in which the concepts of duress, undue influence and unconscionable conduct were considered in relation to the setting aside of financial agreements.

The concepts of undue influence and unconscionable conduct are likely to be captured by “duress … or any other circumstance” provided they amount to a “miscarriage of justice”.

Many of the cases decided under s 79A which discuss duress might be better considered as cases in which there may have been undue influence, e.g. Scribe & Scribe (2006) FLC 93-302 (considerable pressure by the husband when the wife was in a fragile emotional state) and Dunnett & Dunnett [2013] FamCA 529 (threat not to pay the substantial mortgage). The s 79A cases on duress and undue influence therefore need to be read carefully in the light of the High Court plurality in Thorne v Kennedy pointing out that the trial judge in that case had confused the concepts. It appears that the confusion is common in both s 79A and financial agreement cases.

Requirements for undue influence

The High Court plurality referred (at [30]) to “the difficulty of defining undue influence” noting that “the boundaries, particularly between undue influence and duress, are blurred”. Undue influence occurs when a party is “deprived … of ‘free agency’”. [footnotes removed]. The quality of the consent is different to duress – with undue influence the weaker party is influenced into willing acceptance.

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.

There are 3 alternative ways of establishing undue influence:

1. Establish actual undue influence by direct evidence of the circumstances of the particular transaction. This was the approach relied upon by the trial judge and the High Court. The pressure need not be illegal or even improper;
2. Certain relationships can give rise to a presumption of undue influence. These relationships include solicitor and client and parent and child, which are relationships inapplicable to financial agreements. The plurality in Thorne v Kennedy rejected the proposition that there was a presumption of undue influence because of the relationship of fiancé and fiancée, saying that presumption no longer existed;
3. A relationship where one party places such trust and confidence in the other that the relationship is found to be one where a presumption of undue influence arises.

If there is a relationship which gives rise to a presumption of undue influence, the presumption of undue influence must be rebutted by the stronger party.

The trial judge in Kennedy & Thorne [2015] FCCA 484 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 (at [93] of trial judgment) “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 (at [93] of the trial judgment and quoted at [47] by the High Court):

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 6 matters were the basis for what the plurality described as the “vivid” description by the trial judge (at [91]-[92] of the trial judgment and quoted at [47] by the High Court) 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.”

The trial judge’s 6 factors and the plurality’s summation of the wife’s position, demonstrate that in contrast to duress, the assessment of undue influence looks at the position of the weaker party, and the actual conduct of the stronger party is of less importance. It doesn’t matter how the stronger party’s conduct is characterised, it is the impact on the weaker party which is important.

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. These questions helped lead to the finding of undue influence.

The plurality set out 6 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, and probably duress and unconscionable conduct as well. The “take it or leave the relationship” type of agreement which is signed when one party has little time for careful reflection is likely to be doomed. More time will probably be needed for “careful reflection” where the agreement is unfair and unreasonable, and the education, English literacy, business acumen, family support and/or the financial position of the weaker party are low. These same matters are likely to be relevant to consent property settlement orders.

The plurality said that it was open to the trial judge to conclude that Ms Thorne considered that she had no choice or was powerless other than to enter into the agreements. In other words, the extent to which she was unable to make (at [59]) “clear, calm or rational decisions” was so significant that she could not aptly be described as a free agent.

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 High Court plurality agreed with this analysis.

The plurality concluded (at [59]):

“The primary judge’s conclusions were open to her on the evidence. Each of the factors which the primary judge considered was a relevant circumstance in the overall evaluation of whether Ms Thorne had been the subject of undue influence in her entry into the agreements. In combination, it was open to the primary judge to conclude that Ms Thorne considered that she had no choice or was powerless other than to enter the agreements. In other words, the extent to which she was unable to make “clear, calm or rational decisions” was so significant that she could not aptly be described as a free agent.”

One of the most commonly referred to Australian cases on undue influence is Johnson v Buttress (1936) 56 CLR 113 at 134; [1936] HCA 41. Justice Dixon 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 in Thorne v Kennedy 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 facts of Johnson v Buttress illustrate the characterisation by a court of a lack of free will sufficient to amount to undue influence. Mr Buttress was 67 years old, illiterate, not very intelligent and with little or no experience or capacity in business. His wife had died a few months earlier and he was much affected by her death. He transferred his only property, which was his only means of livelihood, to a relative of his wife upon whom he relied heavily for advice. The trial judge found that Mr Buttress did not understand the nature of the transaction and that he had parted with the land irrevocably. After his death, his estate’s administrator applied to set aside the transfer. The trial judge set aside the transfer on the basis of undue influence and this was upheld by the High Court.

The majority in Johnson v Buttress found that there was a relationship of undue influence arising from the trust and confidence the deceased put in the defendant. Justice McTiernan said:

“There can be no doubt that when the transfer was made the relationship in which she stood to Buttress would enable her to acquire great influence over him. It is unreasonable to suppose that very considerable influence was not in fact acquired by her over Buttress. The relationship which was in fact established between the donor and the donee and the immoderate nature of the gift brings the case within the range of the principle upon which equity sets aside a voluntary gift upon the presumption that the gift was obtained by abuse of the relationship, unless the donee can prove that the gift is a free exercise of the donor’s will.”

The High Court in Thorne v Kennedy ­pointed out that Starke J in Johnson v Buttress concluded that it was open on the facts to find that undue influence arose without any presumption. Starke J said (at p.126):

“But the age and capacity of the deceased, the improvident and unfair nature of the transaction, the want of proper advice, the retention of the rents of the property transferred, the various testamentary dispositions, and the other circumstances mentioned, afford evidence from which the learned judge might justly infer that the transfer was not the result of the free and deliberate judgment of the deceased, but the result of unfair and undue pressure on the part of the appellant.”

Requirements for unconscionable conduct

The law of unconscionable conduct is well developed in Australia, both in its statutory contexts and in equity. In general terms, the conduct must be so harsh or unreasonable that it goes against good conscience. No informed person would agree to enter the contract.

A finding of unconscionable conduct requires that:

1. The innocent party is subject to a special disadvantage (at [38]) “which seriously affects the ability of the innocent party to make a judgment as to [the innocent party’s] own best interests”.
2. The other party must unconscientiously take advantage of that special disadvantage.
3. The other party must have known or ought to have known of the existence and effect of the special disadvantage.

A useful illustration of the application of the principle is Blomley v Ryan [1948] HCA 20; (1948) 76 CLR 646. The defendant took advantage of the plaintiff’s alcoholism to induce him to enter a transfer when his judgement was seriously affected by alcohol. Justice Fullagar, in discussing the circumstances which might be considered in determining whether there had been unconscionable conduct, said (at [405]):

“The circumstances adversely affecting a party, which may induce a court of equity either to refuse its aid or to set a transaction aside, are of great variety and can hardly be satisfactorily classified. Among them are poverty or need of any kind, sickness, age, sex, infirmity of body or mind, drunkenness, illiteracy, or lack of education, lack of assistance or explanation where assistance or explanation is necessary. The common characteristic seems to be that they have the effect of placing one party at a serious disadvantage vis-à-vis the other.”

An example of duress and unconscionable conduct was Pompidou & Pompidou [2007] FamCA 879. Justice Brown set aside property orders on both grounds in circumstances where the wife signed the consent orders because she feared the husband would carry out his express threat to kill and the implied threat contained in his threat to arrange the biggest siege that the regional Victorian city had ever seen.

An extensive examination of the principles of undue influence and unconscionable conduct in relation to s 79A was done by Brereton J in the Supreme Court of New South Wales in Grace v Grace [2012] NSWSC 976. He found there had been both, and set aside a s 79 order.

Lawful act duress debate

Part of the problem with defining duress arises from the debate over whether lawful act duress exists. If the test for duress is that there must be threatened or actual illegitimate pressure, in the sense of an illegal act, the distinction between duress and undue influence is much easier. On a strict interpretation, an illegal act requires conduct which is unlawful in the criminal sense (e.g. blackmail, threat to kill, assault), or the civil sense (e.g. breach of contract, breach of court order). Alternatively, duress could simply require illegitimate pressure in the sense of improper or unreasonable conduct, which may be lawful.

The plurality in Thorne v Kennedy did not find it necessary to determine the question (at [27]) of “whether duress should be based on any unlawful threat or conduct or, alternatively, whether other illegitimate or improper yet lawful threats or conduct might suffice”. The focus was (at [29]) on “Ms Thorne’s lack of free choice (in the sense used in undue influence cases) rather than whether Mr Kennedy was the source of all the relevant pressure, or whether the impropriety or illegitimacy of Mr Kennedy’s lawful actions might suffice to constitute duress”.

As a result of the way the case was put, the plurality held that it was unnecessary for it to decide whether the NSW Court of Appeal case of ANZ Bank v Karam [2005] NSWCA 344; (2005) 64 NSWLR 149 should be followed as to whether duress at common law encompasses threatened or actual lawful act duress.

The plurality also noted that under the approach taken by the New South Wales Court of Appeal in ANZ Bank v Karam (but also in Crescendo Management – although this was not stated), lawful act duress added nothing to duress because unconscionable conduct (and undue influence) could be relied on where there was improper rather than illegal pressure.

Whilst the issue of the existence of lawful act duress remains unresolved, any “gap” left if a lawful act is insufficient to establish duress is likely to be filled by the principles of undue influence and unconscionable conduct. If so, the debate may only be of academic interest rather than having any practical impact.

What is meant by “impracticable” in s 79A(1)(b)

There is no doubt that the term “impracticable” does not mean “impossible”. Justice Gee made this quite clear in Rohde & Rohde (1984) FLC 91-592 at p 79,768. He relied on dictionary definitions of “not practicable”, including “that cannot be carried out or done”, “practically impossible”, “unmanageable” and “intractable”.

In La Rocca & La Rocca (1991) FLC 92-222, Kay J gave a rather different interpretation of the term “impracticable”, allying it to the doctrine of frustration in contract. In particular, he said (at p 78,538):

“My own view is that the concept of impracticability, as referred to in this section, is akin to the application of the doctrine of frustration in contractual matters. What the Parliament is concerned with and what ought to be concerning the Court is the happening of events which cannot be reasonably foreseen, which will have the effect of causing an injustice to one of the parties if the happening of such events is not given effect to …

Now, in my view, what the appropriate application of s 79A(1)(b) ought to be is that circumstances that have arisen in which it becomes impracticable to carry out the orders are circumstances that could not reasonably have been contemplated and that in such circumstances, whilst impossibility is not the test and impracticability is, it may then become just and equitable to change the orders.”

In Gaudry & Gaudry (No 1) (2004) FLC 93-202, Scarlett FM set aside a s 79 order and substituted a new order which gave the wife an increased amount from the net proceeds of sale of the home. After the original orders were made the husband demolished the residence, thereby reducing its value by $35,000. The orders were varied under s 79A(1)(b) to compensate the wife for this, because the husband had caused the impracticability.

In Sanger & Sanger (2011) FLC 93-489 the Full Court upheld the trial judge’s decision not to set aside a financial agreement for impracticability. The failure of an agreement to deliver to a party the outcome they hoped for did not render the agreement impracticable. The order was varied under s 79A to extend the time for compliance.

Default under s 79A(1)(c)

Under s 79A(1)(c) or s 90SN(1)(c), where a court is satisfied that a person has defaulted in carrying out an obligation imposed upon the person by an order made under s 79 or s 90SM and, in the circumstances that have arisen as a result of that default, it is just and equitable to vary the order or to set it aside and make another order in substitution for the order, the court may, in its discretion, vary the order or set the order aside and, if it thinks fit, make another order under s 79 in substitution for the order set aside.

There are two necessary conditions:

1. A person must have defaulted in carrying out an obligation imposed upon them by the original property settlement order;
2. In the circumstances that have arisen as a result of that default, it must be just and equitable to vary the original property settlement order or set it aside.

A party cannot seek an order under s 79A(1) as a result of their own default unless such default was due to circumstances beyond that party’s control.

In Blackwell & Scott (2017) FLC 93-775, the husband unsuccessfully appealed against the wife’s successful application to set aside consent orders under s 90SN(1)(c). The orders were intended to effect an equal division of the property, with the husband to retain a real property and pay the wife $130,000 within 90 days. The husband failed to pay and the sum was not paid until 13 months after the due date for payment. The wife issued proceedings and the husband paid 9 months after she did so. The husband paid interest as required under the Family Law Rules, but not until 5 months after he paid the principal sum.

Justice Kent said (at [38]) in relation to the husband’s argument that the orders should not be set aside:

“Whilst the husband acknowledges the wife to be “a person affected by an order” within the meaning of the subsection and that the husband was in “default”, the essence of the husband’s contention is that the substantial increase in the value of the Suburb K property is not causally related to the husband’s default. The husband contends that the wife had to prove a cause and effect between the default on the one hand, and the increase in property value on the other, for the subsection to have operation. It is thus contended that the trial judge was in error in giving operation to the subsection absent the causation contended for by the husband. This is the specific question of interpretation raised.”

Justice Kent concluded (at [58], [60]):

“The relevant ‘circumstances’ when the subject consent orders of 24 February 2014 were made, included that the orders were intended and designed to effect an equal division of the parties’ net assets. The adoption of $130,000 as the cash sum to be paid to the wife was plainly not arbitrarily selected, but was adopted to effect an equal division given, relevantly, the value of the Suburb K property at the time at $600,000 to $650,000. However, the orders could only ever effect an equal division, or any approximation of an equal division (given the 90 day period allowed for the payment) if the payment of $130,000, when made to the wife, secured her receipt of an equal division or approximately equal division relative to the then worth of the Suburb K property…

In contrast, the critically important circumstances arising upon and from the husband’s continuing default over the 13 month period referred to, included that when the wife finally received the payment of $130,000, even with the subsequent payment of interest, she was not then receiving an equal division by reference to the worth of the Suburb K property at the time of receipt.”

An example of a successful application for variation of an order under s 79A(1)(c) is Dudonova & Duransky [2015] FamCA 935. The husband’s intervening death meant that the transfer of the husband’s interest in a property contemporaneously with a payment by the wife to the husband was unable to occur. The order was varied to extend the time for the estate to comply.

Exceptional circumstances in s 79A(1)(d)

Under s 79A(1)(d) and 90SN(1)(d), where the court is satisfied that exceptional circumstances relating to the welfare of a child have arisen since the making of an order under s 79 or 90SM, and either the child or (where the applicant has the caring responsibility of that child) the applicant will suffer hardship if the court does not vary the order or set aside the order and make another order in substitution for it, the court may, in its discretion, vary the order or set the order aside and, if it thinks fit, make another order under s 79 in substitution for the order set aside.

A person has the “caring responsibility” for a child if:

• the person is a parent of the child with whom the child lives, or
• the person has a residence order in relation to a child, or
• the person has a specific issues order in relation to the child under which the person is responsible for the child’s long-term or day-to-day care, welfare and development (s 79A(1AA) or 90SN(3)).

In Liu & Liu (1984) FLC 91-572, Nygh J observed (at p 79,624) that the “exceptional circumstances” referred to in para (d) need not themselves relate to the original property order. He gave the example of a serious chronic illness of a child which causes a need for a remodelling of the house in which the child lives, which cannot be met out of increased maintenance but only out of an increased share of capital.

What amounts to “exceptional circumstances” is a matter of fact and degree in every case. In Simpson & Hamlin (1984) FLC 91-576 (at p 79,658), the Full Court agreed that a simple change to the custody arrangements for a child after the making of a property order would not constitute “exceptional circumstances”, unless the change in arrangements “was so exceptional as to take it out of the normal vicissitudes of life”. The test appears to be whether the change in care arrangements was within the reasonable contemplation of the parties at the time the original property order was made.

The Full Court allowed the wife’s appeal against a decision to set aside property orders under s 79A(1)(d) in Garden & Gavin (No 2) [2010] FamCAFC 125. The Full Court considered the approach taken in Simpson & Hamlin to be correct and also relevant was that the hardship was not that of the applicant, as required under the section, but of the children. The children had moved from the comfortable former matrimonial home, in which the wife still resided, to the husband’s two bedroom apartment.

The Full Court in Garden & Gavin (No 2) agreed with the Full Court in Y & Y [1995] FamCA 102 where it was said:

“We do not think the Full Court intended to limit the test of exceptional circumstances to circumstances which cannot reasonably be expected to arise.

This was made clear when the Court said:

‘What amounts to exceptional circumstances is very much a question of fact and degree.’”

The Full Court in Garden continued:

“With respect, we agree. The Court should not limit itself to matters relevant only to expectations. It should consider all relevant facts and matters when deciding whether there have been circumstances of exceptional nature.”

In Marras & Marras (1985) FLC 91-635, Purdy J held that persistent refusal by a husband to pay child maintenance in accordance with a court order could constitute exceptional circumstances relating to the welfare of a child sufficient to enable a property order to be set aside and another made in substitution for it.

In Public Trustee (as executor of the estate of Gilbert) v Gilbert (1991) FLC 92-211, the Full Court of the Family Court agreed that the premature death of a party to a marriage soon after the making of property orders could constitute “circumstances of an exceptional nature” (though in this case they were found not to relate to the welfare of a child).

Conclusion

There is no doubt that the growth area in applications to set aside property settlement orders will continue to be under s 79A(1)(a), with respect to non-disclosure but also undue influence and probably unconscionable conduct. The decision of the High Court in Thorne v Kennedy means that more lawyers are aware that undue influence and unconscionable conduct are easier to establish than “duress” which is expressly referred to in s 79A(1)(a). With these types of applications, it is vital to remember that it is necessary to establish not only the vitiating factor, but also that it has led to a miscarriage of justice.

With respect to all applications under s 79A, the court retains a discretion, so that even if the ground is established, the order may not be varied or set aside. The evidence and submissions must address all aspects of s 79A.

Jacky Campbell, April 2017

High Court to rule on financial agreements

How do the concepts of duress, undue influence and unconscionability apply to the setting aside of financial agreements? Are they alternative arguments or overlapping? Does the giving of legal advice mean that a financial agreement cannot be set aside for duress? These are the types of questions which may be addressed in a forthcoming decision of the High Court.

Brief litigation history

The Federal Circuit Court in Thorne & Kennedy [2015] FCCA 484 decided that a financial agreement signed shortly before the wedding and a second agreement signed shortly after their wedding were not binding and should be set aside because of duress. The Full Court of the Family Court in Kennedy & Thorne (2016) FLC 90-737 upheld an appeal by the husband’s deceased estate. The Full Court found that the two agreements were not signed under duress and allowed the husband’s appeal.

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.

Basis for special leave application

The wife’s counsel said the central question of the application for special leave was whether the High Court should give authoritative guidance on the principles of law and equity for setting aside financial agreements. The controversy reflected the “longstanding tension between the common law’s enthusiasm for the sanctity of freedom of contract and equity’s concern to prevent unconscientious misuse of bargaining power” (quoting Brereton J in “Binding or Bound to Fail? Equitable Remedies and Rectification of Financial Agreements” Australian Family Lawyer, Vol. 23, No 2.). The main equitable principle relied upon by the wife was duress but her alternative grounds were undue influence and unconscionability.

Counsel for the wife said that this is “an area that cries out for some guidance”, particularly as these principles were now usually dealt with in the context of consumer legislation. He contended that the facts of the case made it “a particularly good vehicle” and “a golden opportunity” for the High Court to examine the application of principles such as duress to financial agreements because:

“It is difficult to contemplate a starker set of circumstances – no job, no home, no visa, her parents brought out from Romania. Four days before the wedding she is put in a position of ‘sign the agreement or the wedding is off’.”

Another issue raised before the High Court was whether an agreement entered into after a marriage is tainted by the circumstances of an agreement entered into before the marriage.

Opposition to granting of special leave

The husband’s counsel, opposing the granting of special leave to appeal, argued that the principles of law and equity that should govern the court’s approach, were set out in s 90KA Family Law Act 1975 which provides that the court will apply “the principles of law and equity that are applicable in determining the validity, enforceability and effect of contracts and purported contracts”, and specifically that the court “has the same powers, may grant the same remedies and must have the same regard to the rights of third parties as the High Court has.”

Justice Edelman was not certain that s 90KA was adequate for the task, asking:

“are there not large issues such as whether lawful actual duress is sufficient to set aside a contract, what is meant by the presumption of undue influence, whether the limited circumstances of a relationship is sufficient for setting aside a contract on the basis of undue influence or duress, what amounts to a sufficiently special disadvantage?”

His Honour noted that there was limited Australian authority on lawful act duress and conflicting authority in England.

The husband’s counsel contended that the law of duress was clear as ANZ Bank v Karam [2005] NSWCA 344 said that the act must be unlawful. Edelman J referred to the conflicting Privy Council authority of R v Attorney-General [2003] UKPC 22, an appeal from New Zealand.

The husband’s counsel also argued that the legal advice requirement for financial agreements under the Family Law Act removes the parties from the category of any special disadvantage. He relied on the plain reading of s 90G(1), rather than any case authority.

Justice Keane said that compliance with s 90G(1) did not ensure that there had not been unconscionability:

“These provisions are directed to ensuring that the parties know what they are doing. They cannot guarantee that there has not been the unconscionable exercise of a superiority of bargaining power by one of the parties.”

There was a discussion as to whether there was anything special about marriage which affected the operation of the principles of unconscionability, duress and undue influence compared to their operation in relation to commercial contracts. Keane J noted that a marital relationship “necessarily involves mutual support and maintenance” but then went on to say that “the marriage relationship which for centuries has recognised as one of its fundamental elements the obligations of mutual support – ‘With all my worldly goods I thee endow’, except that now we do not endow anybody with anything apparently.”

The husband’s counsel argued that at the time the financial agreements were signed the wife was unconcerned about her entitlements under the financial agreement in the event of a separation (and only concerned about the testamentary provisions) so it was inappropriate for her to “subsequently, when the matter turns out in a fashion that she does not intend, come back and complain about that particular agreement”. She got the bargain that she wanted, so there was no question of compulsion, duress or unconscionability. He also submitted that it was not an appropriate case for the High Court to examine the principles.

Special leave granted

The High Court granted special leave to the wife to appeal. At this stage, written submissions and other documents are due to be filed by 24 May 2017.

Cases mentioned in the special leave hearing which may be looked at by the High Court to examine their applicability to financial agreements include Commonwealth Bank of Australia v Amadio (1983) 151 CLR 447; Yerkey v Jones [1939] HCA 3; (1939) 63 CLR 649; Johnson v Buttress [1936] HCA 41; (1936) 56 CLR 113; Louth v Diprose [1992] HCA 61; (1992) 175 CLR 621; and Bridgewater v Leahy [1998] HCA 66; 194 CLR 457.

What can we expect?

The legal difficulties which may be addressed in the appeal include:

• The distinctions between duress, undue influence and unconscionable conduct but particularly duress. Some Family Law Court judges and family lawyers have found it difficult to apply them and to distinguish between them.
• Whether a different test applies to marital relationships than to commercial relationships.
• Whether duress requires “illegitimate pressure” or there can be “lawful act” duress.
• Whether the giving of legal advice as required by s 90G(1) means that there cannot be a finding of duress (or perhaps undue influence or unconscionable conduct).
• Whether an agreement signed after marriage is tainted by problems associated with an agreement signed prior to marriage.

This High Court appeal is “a golden opportunity” for Family Law Courts and family lawyers to receive some guidance, not only about the application of duress to financial agreements (and perhaps undue influence and unconscionable conduct as well) but also the interaction of s 90G(1) and s 90KA. It is over 16 years since financial agreements were introduced into the Family Law Act. Some guidance on these issues from the High Court is well overdue.

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

Jacky Campbell, April 2016

Bankruptcy, financial agreements and the rights of creditors

The Full Court of the Family Court of Australia in Grainger & Bloomfield^[1]  considered the standing of a creditor to apply to set aside a financial agreement after the debtor spouse became a bankrupt. Shortly prior to the bankruptcy, the bankrupt spouse transferred her legal title in the home to her husband, which left the creditor unable to recover as there were little or no assets in the bankrupt estate.

Background Facts

Mrs Grainger purchased an unencumbered property at E in Queensland in 2007 with funds provided by her husband, Mr Grainger. From 2008, Mrs Grainger borrowed amounts totalling $2.6 million from a bank. The loan was secured by a mortgage over the E property.

As a result of proceedings in the Queensland Supreme Court between Mrs Grainger and Ms Bloomfield (arising out of business arrangements between them), Mrs Grainger became a judgment debtor to Ms Bloomfield for $2,100,000 in late 2011. On or about 14 October 2012 a bankruptcy notice was served on Mrs Grainger in respect of that judgment debt.

On 1 November 2012 Mr and Mrs Grainger entered into a financial agreement under s 90C (during marriage) of the Family Law Act 1975 (“FLA”). Under the agreement, Mrs Grainger transferred her interest in the E property to Mr Grainger subject to the mortgage.

Mrs Grainger was served with a creditor’s petition in December 2012. She became a bankrupt on a debtor’s petition in January 2013. Ms Bloomfield lodged a proof of debt in respect of her judgment debt with Mrs Grainger’s trustee in bankruptcy.

Applications

In January 2014 Ms Bloomfield filed an initiating application in the Federal Circuit Court naming Mr and Mrs Grainger as respondents and seeking orders under s 90K of the FLA to the effect that:

• under s 90K(1)(aa)(i), the financial agreement between Mr and Mrs Grainger be set aside;
• under s 90K(3), Mr Grainger transfer the E property (free of the mortgage) to the bankrupt estate of Mrs Grainger, or alternatively pay to that estate a sum equal to the market value of the property as at the date of transfer.

Ms Bloomfield also sought a declaration to the effect that the agreement was not binding under s90G of the FLA.

Mr Grainger sought that all, or parts, of the statement of claim filed by Ms Bloomfield in support of her initiating application be struck out, or alternatively that the proceedings be dismissed (in whole or in part).

Neither Mrs Grainger or her trustee in bankruptcy took any part in the proceedings before Judge Cassidy or before the Full Court.

Proceedings before the trial judge

On 24 September 2014, Judge Cassidy of the Federal Circuit Court made orders striking out:

• certain paragraphs of the statement of claim (being those in support of the claim for the declaration that the financial agreement was not binding).
• the paragraph of the initiating application in which that declaration was sought.

Ms Bloomfield’s application, to the extent that it sought orders under s 90K(1)(aa) and s 90K(3), remained on foot. Judge Cassidy also ordered a transfer to the Family Court.

The appeals and leave to appeal

The Full Court of the Family Court granted both parties leave to appeal against the interim orders. Mr Grainger said that three questions were raised. Ms Bloomfield phrased the three questions differently, but they were similar in substance. Mr Grainger’s questions were:

Q1  Where a party to a financial agreement has become bankrupt, does a creditor of the bankrupt have standing to apply to set aside a financial agreement or seek relief under s 90K(3)?

Q2  Does the power in s 90K(3) to make orders adjusting the rights of persons extend to adjustments other than for the purpose of substantially restoring the position existing before the financial agreement?

Q3  In seeking to set aside a financial agreement under s 90K may a creditor rely on any grounds other than the ground specified in s 90K(1)(aa)?

The trial judge answered Q1 as yes, Q3 as no and refused to determine Q2.

Relevant statutory provisions

Section 90K(1) sets out the grounds for setting aside a financial agreement. The relevant subsections relied upon by Ms Bloomfield were:

“A court may make an order setting aside a financial agreement … if, and only if, the court is satisfied that:

(a)     the agreement was obtained by fraud (including nondisclosure 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 …”

A “creditor” for the purposes of s 90K(1)(aa) is defined in s 90K(1A) to include “… a person who could reasonably have been foreseen by the party as being reasonably likely to become a creditor of the party”.

Also relevant was s 90K(3), which deals with the rights of a party or “any other interested person” in the event that a financial agreement is set aside:

“A court may, on an application by a person who was a party to the financial agreement that has been set aside, or by any other interested person, make such order or orders (including an order for the transfer of property) as it considers just and equitable for the purpose of preserving or adjusting the rights of persons who were parties to that financial agreement and any other interested persons”.

Jurisdiction in relation to married or formerly married persons is conferred under the “matrimonial causes”.^[2] The definition of “matrimonial cause” is in s 4(1). The definition includes:

“(eab)  third party proceedings (as defined in section 4A) to set aside a financial agreement;”

The definition of “third party proceedings” in s 4A for the purposes of paragraph (eab) is proceedings between:

“(a)    any combination of:

(i)    the parties to a financial agreement; and

(ii)   the legal personal representatives of any of those parties who have died;

(including a combination consisting solely of parties or consisting solely of representatives); and

(b)    any of the following:

(i)    a creditor;

(ii)   if a creditor is an individual who has died—the legal personal representative of the creditor;

(iii)  a government body acting in the interests of a creditor;

being proceedings for the setting aside of the financial agreement on the ground specified in paragraph 90K(1)(aa) …”

For the purposes of s 4A, a “creditor” is:

“(a)    a creditor of a party to the financial agreement; or

(b)    a person who, at the commencement of the proceedings, could reasonably have been foreseen by the court as being reasonably likely to become a creditor of a party to the financial agreement.”

and a government body is:

“(a)    the Commonwealth, a State or a Territory; or

(b)    an official or authority of the Commonwealth, a State or a Territory.”

Therefore, for a court to have jurisdiction in proceedings to set aside the agreement under s 90K(1)(aa), the proceedings must be between the parties to the agreement and either a creditor of one of those parties or “a government body acting in the interests of a creditor”. It was not contended before the Full Court that a trustee in bankruptcy was within the definition of “a government body” in s 4A.

The FLA was amended in 2003 to give a creditor standing to apply to set aside a financial agreement. Sections 90K(1)(aa) and 90K(3) (and related s 4A and new paragraph (eab) of the definition of “matrimonial cause” in s 4(1)) were inserted into the FLA. These amendments were intended to overcome the problems raised in ASIC and Rich & Rich,^[3] by clarifying the rights of a creditor to apply to set aside a financial agreement.

Significant amendments were made to both the FLA and the Bankruptcy Act 1966 (“the BA”) in 2005. Two of the three objectives of the amendments, according to the Explanatory Memorandum, were to:

“(a)    address longstanding issues concerning the interaction between family law and bankruptcy; and

(b)    prevent the misuse of financial agreements as a means of avoiding payment to creditors …”.

The amendments included:

• giving the Family Law Courts the power to make orders with respect to vested bankruptcy property in relation to a bankrupt party to a marriage;
• allowing a trustee in bankruptcy to be a party to s 79 proceedings;
• introducing a new act of bankruptcy where a party became involved as a result of a transfer of property pursuant to a financial agreement.

The appeal

Question 1: Does a creditor of a bankrupt have standing under s 90K(1)(aa) or s 90K(3)?

The first, and apparently novel question was whether a creditor of a bankrupt party remained “a creditor” for the purpose of s 90K(1)(aa) or an “interested person” for the purpose of s 90K(3), and thus could apply for relief under those sub-sections. It was accepted by the parties that if a person had standing as a creditor to apply to set aside an agreement under s 90K(1)(aa), that person was also an “interested person” entitled to apply for orders under s 90K(3).

Ms Bloomfield phrased this question as whether a “creditor” entitled to commence a third party proceeding was a “creditor” in the broad or ordinary meaning of that word, or whether it was limited to a creditor before a sequestration order was made against that party.

Mr Grainger argued that on Mrs Grainger’s bankruptcy, Ms Bloomfield ceased to be a “creditor” within the meaning of s 4A or an “interested person” within the meaning of s 90K(3), and accordingly ceased to have standing for the purposes of an application under either s 90K(1)(aa) or s 90K(3). Mr Grainger relied on the specific provisions of the BA, and the public policy considerations underlying it, for his essential submission that once bankruptcy intervened, no action could be taken by a creditor against the debtor to enforce the creditor’s debt. The creditor’s rights were confined to proving the debt in the bankruptcy, to sharing in the distribution of the bankrupt’s estate, and to ensuring the proper administration of the estate by the trustee. It was for the trustee to take action, where appropriate, to recover property the bankrupt disposed of prior to the bankruptcy. The creditor was not an “interested person” for the purposes of s 90K(3), because any relief that might be obtained on the setting aside of the agreement benefited the whole of the bankrupt estate, not just as an individual creditor.

Although not discussed in detail in the judgment, orders are rarely made allowing creditors to be or continue as parties to, proceedings (under the FLA or otherwise), or to remain parties, following the bankruptcy of one of the parties for the purposes associated with the recovery of the debt. Generally, as envisaged by s 58 and s 60 BA, fresh proceedings cannot be commenced against the bankrupt and existing proceedings are stayed. Section 58(3) provides:

“Except as provided by this Act, after a debtor has become a bankrupt, it is not competent for a creditor:

(a)   to enforce any remedy against the person or the property of the bankrupt in respect of a provable debt; or

(b)   except with the leave of the Court and on such terms as the Court thinks fit, to commence any legal proceeding in respect of a provable debt or take any fresh step in such a proceeding.”

Section 60(1) provides:

“The Court may, at any time after the presentation of a petition, upon such terms and conditions as it thinks fit: …

(b)   stay any legal process, whether civil or criminal and whether instituted before or after the commencement of this subsection, against the person or property of the debtor:

(i)    in respect of the non-payment of a provable debt or of a pecuniary penalty payable in consequence of the non-payment of a provable debt ….”

Leave to continue or commence proceedings against a bankrupt can only be given to the creditor by a court exercising bankruptcy jurisdiction under s 27(1) BA. There is, therefore, an absolute bar on the enforcement of a remedy under s 58(3)(a) BA except as otherwise provided in the BA.^[4] The meaning of the proviso, which is the only “out” for the creditor, do not appear to have been tested despite there being a significant number of cases on the meaning of s 58(3)(b) where the reliance on any exception could have been pleaded in the alternative. For example, in Fraser v Commissioner of Taxation & Official Trustee^[5] the creditor succeeded in her application under s 58(3)(b) because her s 79A application under the FLA was characterised as a “legal proceeding” not “the enforcement of a remedy”.

The application of Fraser was not discussed in Grainger, although it was referred to briefly.

Ms Bloomfield argued that on the bankruptcy of the debtor the status of a creditor as a creditor did not change; rather only the remedies available to the creditor to enforce the debt change by virtue of the provisions of the BA. A creditor remained a creditor for purposes of s 90K(1)(aa) and an “interested person” for the purposes of s 90K(3) of the FLA.

The Full Court said that the definitions of “creditor” in s 4A(2) and in s 90K(1A) did not assist it to answer the question. The Full Court referred to the revised Explanatory Memorandum to the Bankruptcy and Family Law Legislation Amendment Act 2005 and said that s 79(10A) qualified the operation of s 79(10) so that a creditor could not be a party to property settlement proceedings if a party to the proceedings was a bankrupt (to the extent to which the creditor’s debt was a provable debt under the BA) or was a debtor subject to a personal insolvency agreement (to the extent to which the creditor’s debt is covered by the personal insolvency agreement). The amendments aimed to ensure that the trustee in bankruptcy represented the interests of all creditors in property settlement proceedings.

When Pt VIIIAB, which concerns financial matters relating to de facto relationships, was inserted into the FLA by the Family Law Amendment (De Facto Financial Matters and Other Measures Act) 2008 (Cth), it contained similar provisions in s 90SM to s 79(10) and s 79(10A). Pt VIIIAB also provided for financial agreements between persons in de facto relationships, which were of virtually identical effect to the provisions of Pt VIIIA, including s 90UM which provides for the setting aside of financial agreements in identical circumstances to those in s 90K in relation to creditors. The Full Court concluded:

“Given these various legislative initiatives, the better view must be that it is the legislative intention that, unlike the position of a creditor in relation to property settlement proceedings, the entitlement of a creditor to apply to set aside a financial agreement under s 90K(1)(aa) or s 90UM(1)(b) does not cease on the bankruptcy of the debtor, who is a party to the agreement”^[6]

The Full Court found support for the conclusion that it was possible for a creditor to commence or continue proceedings against a bankrupt in respect of a provable debt in s 58(3) of the BA which provides:

“Except as provided by this Act, after a debtor has become a bankrupt, it is not competent for a creditor …

(b)   except with the leave of the Court and on such terms as the Court thinks fit, to commence any legal proceeding in respect of a provable debt or take any fresh step in such a proceeding.”

The Full Court recognised that the court’s leave was necessary for a creditor to commence proceedings to set aside a financial agreement under s 90K(1)(aa) (or s 90UM(1)(b)), but that did not detract from the conclusion that the BA itself envisaged a creditor commencing or continuing litigation against a bankrupt in respect of a provable debt.

The Full Court concluded that Ms Bloomfield had standing as a creditor to apply under s 90K(1)(aa) of the FLA to set aside the agreement, and also under s 90K(3) of the FLA to seek ancillary orders (subject to a grant of leave under s 58(3)(b) of the BA).

Question 2: The extent of the power in s 90K(3)

The second question related to the extent of the power under s 90K(3) of the FLA which

provides:

“A court may, on an application by a person who was a party to the financial agreement that has been set aside, or by any other interested person, make such order or orders (including an order for the transfer of property) as it considers just and equitable for the purpose of preserving or adjusting the rights of persons who were parties to that financial agreement and any other interested persons.”

Mr Grainger contended that the power in s 90K(3) “is consequential on the setting aside of a financial agreement, in order to reverse transactions affected under that agreement, or to make adjustments to achieve a restoration in substance” and it did not permit a creditor to prosecute other causes of action as between the husband and wife or third parties.

Ms Bloomfield contended that the power in s 90K(3) was a power “to make such orders as it considers just and equitable for the purpose of preserving or adjusting the rights of the parties to the financial agreement or other interested persons” and was not limited in the way the appellant contended.

In support of the more restrictive interpretation of s 90K(3), Mr Grainger relied on the decision of Burnett FM (as his Honour then was) in Reamy & Milne.^[7] In Reamy, judgment creditors of a party to a de facto relationship sought to set aside a financial agreement between the parties to the de facto relationship (entered into at the time of the trial which resulted in the judgment debt) pursuant to s 90UM(1)(b) of the FLA. Section 90UM(1)(b) is in virtually identical terms to s 90K(1)(aa). Similarly, s 90UM(6) is in virtually identical terms to s 90K(3).

Burnett FM refused the application of the parties to the de facto relationship for summary dismissal of the creditors’ application saying:

“In conclusion I consider s 90UM gives rise to a discretion in that the relief contended for cannot be automatically provided upon satisfaction of the requisite intention. From the material it appears that the applicants have demonstrated a prima facie case and sufficiently strong to resist an application for summary dismissal. The evidence however is not sufficient to warrant the relief contended for although further inquiry may establish such other facts as are necessary to support the inference.”^[8]

Mr Grainger contended that his Honour held, correctly in his opinion, that the power in s 90UM(6) was a “discretionary power for restoring the parties to the former status quo”, while Ms Bloomfield contended that if his Honour did so hold, he was wrong in law and his decision should be overturned.

At trial, Judge Cassidy appeared to depart from the approach taken by Burnett FM in Reamy. Mr Grainger submitted that setting aside the agreement would return the parties to a status quo where the wife’s trustee in bankruptcy would take the E property encumbered with a mortgage and that the utility of proceeding was not obvious in terms of a remedy for the creditor. Ms Bloomfield argued that s 90K(3) was broader. Cassidy J considered that while Burnett FM’s reasoning was attractive and, unless it was clearly wrong, it was likely to be applied by other judges in relation to s 90UM(6), the section under consideration was s 90K(3). It was unclear why he distinguished s 90K(3) from s 90UM(6), as the wording is in virtually identical terms. He found that the analysis in Reamy was not determinative of the issues in Grainger. It was an issue that should be taken to a hearing to fully explore submissions on the extent of the power under s 90K(3).

Furthermore, the trustee in bankruptcy was still a party to the proceeding even though he had elected not to participate in that part of the proceeding. Cassidy J did not consider that she could give summary judgment on the basis that s 90K(3) was a power limited to returning the parties to their positions prior to the agreement and therefore the orders the applicant sought would not be available. Ms Bloomfield was entitled to argue the breadth of the s 90K(3) power at the trial.

To the extent that Cassidy J considered that there was some difference between s 90UM(6) and s 90K(3), the Full Court pointed out that she was in error. Otherwise, Cassidy J did not err in the approach she took to s 90K(3). The Full Court said, therefore, that the trial judge was not wrong in permitting, in the exercise of her discretion, the s 90K(3) issue to go to trial.

The Full Court thought it might be useful for it to make observations about s 90K(3) (and its counterpart s 90UM(6)) given that it appeared “that to date there has been no decision of any court in relation to the scope of the powers in s 90J(3)”.^[9] The Full Court observed that s 90K(3) had some similarities to s 87(9)(b) of the FLA, which was concerned with a court’s powers when it revokes an approval by a court of a s 87 maintenance agreement. Section 87(9) provides:

“Where the approval of a maintenance agreement under this section is revoked by a court:

(a)   the agreement ceases, for all purposes, to be in force; and

(b)   the court may, in proceedings for the revocation of the approval or on application by a party to the agreement or any other interested person, make such order or orders (including an order for the transfer of property) as it considers just and equitable for the purpose of preserving or adjusting the rights of the parties to the agreement and any other interested persons;

and, in exercising its powers under paragraph (b), the court shall have regard to the ground on which it revoked the approval of the agreement”.

The Full Court noted there had been little exploration of s 87(9), with the only authority it could find of any assistance being Re Chemaisse; Federal Commissioner of Taxation (Intervener)^[10] where the Full Court observed that it was unnecessary and inappropriate to consider the wider questions raised by senior counsel for the wife relating to the interpretation of s 87(9)(b).^[11] The facts involved a fraud perpetrated upon the Court and whatever may be the appropriate exercise of the discretion in other cases, there was really no other proper exercise of the discretion open to the trial judge as s 87(9)(b) specifically required the court to have regard to the ground of revocation.

The Full Court in Grainger considered that the “observations of the Full Court in Chemaisse can be read as cautioning against an over-expansive application of a provision such as s 87(9)(b) or s 90K(3). But they also suggest that the application of such a provision will depend on the particular facts of the case in which the provision is to be applied”.^[12]

As the facts in Grainger had yet to be found, the Full Court did not consider it appropriate to say more regarding the operation of s 90K(3) in the context of this appeal against a refusal of a summary dismissal order. The Full Court agreed that the primary judge was correct in refusing in the context of a summary dismissal application, to determine the scope of the preservation and adjustment powers in s 90K(3).

Question 3: In seeking to set aside a financial agreement is a creditor limited to the s 90K(1)(aa) ground?

Ms Bloomfield contended that once she had invoked the court’s jurisdiction pursuant to s 90K(1)(aa) to set aside the financial agreement, she was entitled to rely on other grounds in s 90K(1) as a basis for her application to set aside the agreement, in particular the ground contained in s 90K(1)(b), being that “the agreement is void, voidable or unenforceable”. She claimed that the agreement was “unenforceable” pursuant to s 90K(1)(b) as it did not comply with the requirement in s 90G(1)(b) of the FLA for each party to the agreement to have had independent legal advice about certain matters before entering the agreement, because of an alleged lack of independence on the part of a solicitor, Mr P, who provided advice to Mrs Grainger before she entered into the agreement. This was, in any event, a broader view of s 90K(1)(b) as agreements which do not comply with s 90G(1)(b) are found not to be binding under s 90G(1)(b), rather than set aside under s 90K(1)(b).

However, Ms Bloomfield’s status in the proceedings, if she had status, was to seek orders under s 90K(1), not under s 90G(1).

Mr Grainger contended that a creditor can only challenge a financial agreement on the ground set out in s 90K(1)(aa), because of the content of the definition of “third party proceedings” in s 4A of the FLA and the reference to that definition in paragraph (eab) of the definition of “matrimonial cause” in s 4(1) of the Act. The trial judge accepted this.

The Full Court agreed and said:

“It will be seen that an essential element of the definition of ‘third party proceedings’ …. We can only say that we are at a loss to understand how it can be asserted in circumstances where the statute permits a creditor of a party to a financial agreement to apply to set aside the financial agreement on one specified ground, that the accrued jurisdiction (or indeed, the associated jurisdiction which was also pressed, albeit faintly, before us) would permit the creditor to apply to set aside the financial agreement on any other ground provided in the Act.

Put simply, the purpose of the accrued jurisdiction is to permit a party, or parties, to obtain all remedies available to that party, or parties, in the one proceeding in relation to a particular matter. It cannot confer on a party additional remedies under a statute that are not otherwise conferred by that statute on that party.”^[13]

The cross appeal was also dismissed.

Conclusion

In Grainger & Bloomfield the right of a creditor to apply to set aside a financial agreement after the bankruptcy of the creditor spouse was confirmed. However, the creditor was limited to arguing the s 90K(1)(aa) ground in applying to set the agreement aside and was unable to rely on s 90G(1) and argue that it was not binding as being void, voidable or unenforceable under s 90K(1)(b).

This decision has significant impact for creditors and for couples where one spouse is bankrupt. The rights of a creditor to apply to set aside a financial agreement have been confirmed by the Full Court of the Family Court to survive a spouse’s bankruptcy.

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

Jacky Campbell, June 2016

Two recent cases on setting aside financial agreements

Introduction

There are complex legal principles involved in drafting a financial agreement which will stand up to court scrutiny. There are two main risks:

1. The agreement is found not to be binding because it does not meet the technical requirements; and
2. The agreement is set aside.

Two recent cases illustrate the problems. In Saintclaire & Saintclaire^[1] the Full Court over-turned the trial judge’s decision that the agreement was not binding for technical deficiencies and should also be set aside for undue influence and unconscionable conduct . In Parke & Parke^[2] provisions in an agreement were void for uncertainty, the agreement was set aside for non-disclosure and because the husband had breached essential terms of the contract. The latter case, although only a decision of the Federal Circuit Court, is under appeal and the hearing of the appeal has been expedited due to the husband’s ill-health.

Legal basics

Financial agreements can be made before, during or after a marriage or before, during or after a de facto relationship. The traditional view has been that an agreement cannot be both a pre-nuptial agreement and an agreement entered in not during a de facto relationship. The main problem is ensuring compliance with the advice requirements of each (which are different), but there is also the problem that an agreement made during a de facto relationship terminates on marriage. In a recent case, Piper & Mueller^[3] however, the Full Court suggested that it is possible to have a combined agreement, although it only needed to find that the agreement was binding during a de facto relationship, not that it was binding after the parties were married. It is, therefore, probably safer to have two separate agreements until there is greater clarity about this.

There are two broad grounds on which agreements can be found by a court not to be binding, valid or enforceable:

1. Not binding because of a failure to comply with technical requirements, which for agreements before, during or after a marriage are:

(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^[4].

An agreement which is found not to meet the above requirements may, in some circumstances, be “saved” if the court is satisfied, “that it would be unjust and inequitable if the agreement were not binding on the spouse parties to the agreement^[5].

2. Set aside on such grounds as:

(a) fraud (including non-disclosure of a material matter);

(b) the agreement was entered into for the purpose of, or for purposes which included, defrauding or defeating a creditor or creditors or with reckless disregard of the interests of a creditor or creditors;

(c) common law and equitable principles such as duress, undue influence, unconscionable conduct, uncertainty, incompleteness, breach, mistake and misrepresentation;

(d) material change in circumstances relating to the care, welfare and development of a child;

(e) impracticability^[6].

Saintclaire

On appeal, in Saintclaire & Saintclaire^[7], the husband was successful in arguing that the agreement was binding and also that it should not be set aside for undue influence and unconscionable conduct. The trial Judge had found against him.

There were errors in the certificates of independent legal advice which the trial judge said meant that the agreement was not binding. The Full Court found the errors were a mutual mistake and that the true intention of the parties was plainly evident. The agreement was intended to be a s 90C agreement – which is made during a marriage – but instead it was described in the certificates and the recitals as a s 90B agreement – which is made before a marriage. The Full Court distinguished other cases where the Full Court had found that this type of error in a certificate could not be rectified, so there is inconsistency in the case law in this area.

The Full Court was also satisfied that the intention of the parties was plainly evident and that the reference to s 90B in the recitals should be read as a reference to s 90C.

The wife’s postnatal depression had resolved about 11 months prior to the agreement being executed and so it was no longer an issue relevant to the wife’s argument that there had been undue influence. In addition, the Full Court found that the husband had an intimate knowledge of the stresses under which the wife laboured but those “stresses” (such as her indebtedness) did not amount to a “special disadvantage” and nothing about his negotiating with knowledge of them amounted to unconscionable conduct.

The Full Court found that the trial judge was in error in not distinguishing between “actual undue influence” and “unconscionable conduct”.

Parke

Howard J found in Parke & Parke,^[8] that the husband had breached the financial agreement and by his actions (in particular by dissipating the wife’s superannuation entitlements), he had repudiated the contract. He evinced “an intention no longer to be bound by the contract”. He showed that he intended “to fulfil the contract only in a manner substantially inconsistent with his obligations and not in any other way”. The wife, who was the innocent party, was entitled to accept the repudiation thereby discharging herself from further performance.

The husband had breached an essential term of the contract which entitled the wife to rescind the contract. This was the dissipation of the wife’s entitlements in a self-managed superannuation fund. Although the wife did not know that she had the entitlements and they were dissipated before separation, the wording of the agreement was such that she was entitled to retain them.

With respect to other breaches the wife had waived her right to rescind the agreement on the basis of the applicant’s non-compliance. These were:

• The applicant was required to pay to the wife the sum of $25,000 prior to the marriage. The sum was not paid in full but the wife proceeded with the marriage. She could not rely on that breach 14 years later;
• The husband stopped paying the sum of $200 per week to the wife about one year after the marriage. She sought legal advice during the marriage but decided not to pursue the matter;
• The husband was obliged not to engage in physical, emotional and financial abuse of the wife but did so. It was too late for the wife to rescind the agreement on this basis after the end of the marriage.

Howard J was satisfied that the wife would not have entered into the agreement unless she had been assured of strict performance by the husband with the clause regarding abuse. Substantial performance was insufficient. This clause is arguably a lifestyle clause which are rarely, if ever, enforced in Australia.

In 2008 the wife had $120,000 in a self-managed superannuation fund. In 2011, her entitlements were reduced to nil. The parties separated in 2013. The agreement was entered into in 2001.

The financial agreement was 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 Parke Super Fund of which both parties were members although the wife did not know of the existence of the fund or even that she had a member’s account.

The misrepresentation was false, rather than unintentional, and this finding was strengthened by the husband’s conduct in the financial agreement proceedings where he had provided no disclosure of the fund and its existence was only discovered by the wife as a result of a subpoena to the husband’s accountant.

However, there was not an actionable misrepresentation or fraud. The trial Judge found that it was more likely than not, that even if the wife had been told with certainty that the husband had failed to provide a full list of his own assets, she would nonetheless, have still gone ahead and entered into the contract. The wife knew that she and the husband were shareholders of a company with assets of approximately $170,000 but failed to insist that these assets be included in the schedules to the agreement. She was also warned by her lawyers that there was a “high likelihood” that the husband had not made complete disclosure of his assets but she gave “adamant instructions” that she wanted to proceed with the marriage and with the agreement. She was not induced by the misrepresentations.

There were two clauses in the 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 she was required to transfer her 50% share to the parties’ son X within 60 days of a separation. In addition, 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 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. They could not be severed from the agreement.

Very few reported cases deal with impracticability in relation to financial agreements. The impracticability in this case arose in relation to two matters:

1. The wife was required by the agreement to transfer her interest in three properties to the parties’ adult son, X. X refused to accept the transfers and the agreement was silent as to a default provision.
2. The husband had dissipated the wife’s superannuation. The agreement was silent about the wife’s superannuation entitlements. The wife did not know that she had superannuation entitlements. The agreement which was entered into by the parties in 2001 purported to deal with the parties’ “property and financial resources” at the date of this agreement, or at a later time.

Conclusion

The case law on financial agreements is continuing to develop. At the time of writing, a Federal election had been called while the Family Law Amendment (Fincaial Agreements and Other Measures) Bill 2015, about which there were hopes that many of the technical problems with agreements could be rectified, still languished in the Senate at the Committee stage.

The next stage in the development of law in this area is likely to be further case law, such as the Full Court decision in Parke.

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

Jacky Campbell, April 2018

Battling over Benji – contributions or best interests?

Recently, the Family Court declined to make interim property orders about a dog, leaving the parties to wait for a final hearing to determine the issue. This article looks at whether that was the right decision and what other options are available for parties to resolve disputes about “pet custody”.

The distress and trauma for parties and children involved in a relationship breakdown can be exacerbated by the loss of a pet or the uncertainty awaiting an outcome. In some circumstances parties are able to negotiate a compromise, such as a week and week about arrangement, or the pet travelling between the parents’ households with the children, or buying another pet. For other parties, litigation seems to be the only option.

Unfortunately, the Family Law Courts have many cases to deal with and not enough judges. The delay until a final hearing can be up to 2 years, which is a long time for the parties and the children, and an even more significant proportion of a pet’s lifespan.

Downey & Beale – principles for final orders

A pet is not a child, but “property”, so the decision about who retains it is decided by the application of the principles in s 79 (or s 90SM for de facto couples).

The matters relevant to the exercise of the discretion to alter property interests in pets were discussed by Judge Harman in Downey & Beale [2017] FCCA 316. Judge Harman confirmed that the dog was a chattel and that its ownership was to be determined according to property settlement principles. He expressed empathy with the parties and noted the importance of the animal to them which, although considered under the law to be a chattel (at [13]) was a “living being”. Rather than making an order altering property interests under s 79, he made a declaration of the dog’s ownership under s 78 and consequential orders. That case is discussed here.

Under Judge Harman’s orders, the dog did not change “residence”, but its ownership was determined at an early stage of the proceedings. The parties having separated in March 2016, the proceedings were filed in September 2016 and final orders were made 5 months later. The parties – and the dog – were fortunate that a final determination could be made so quickly.

Gaynor & Tseh – interim orders

The parties in Gaynor & Tseh [2018] FamCA 164 asked the Family Court to make an interim property order about the dog – an order ending a final hearing. Justice Cronin, like Judge Harman, recognised the importance of the dog to the parties who were seeking interim orders about it. He said this was clearly illustrated by one party devoting 22 paragraphs of his affidavit to the issue and the other party devoting 15 paragraphs. Both parties asserted “emotional attachment” to the dog. There was clearly “much angst” about whether the dog was being treated properly.

Given the pressures on their time, if a judge is faced with the choice of spending time writing a judgment on where a dog should live or where a child should live, the proper choice is obviously to devote scarce judicial resources to the decision about the child.

Faced with this dilemma, Cronin J, whilst recognising the important of the issue to the parties, held that the decision could be deferred to the final hearing.

Interestingly, the dog’s name was anonymised in the judgment as “B” as if it was a child anonymised for the purpose of avoiding being identified in contravention of s 121 of the FLA.

When can an interim order be made?

The Family Law Courts frequently makes interim property orders. The applicable principles were set out by the Full Court in Strahan & Strahan (interim property orders) (2011) FLC 93-466. In summary, the steps required are:

1. Resolve whether to exercise the power before a final hearing including determining whether the court has the jurisdiction to make the orders sought? In Gaynor & Tseh both parties agreed that the dog was property, so the Court had jurisdiction under Pt VIIIAA of the FLA to make an order altering property interests under s 79 (or as Judge Harman did in Downey & Beale, to declare the title and rights of the parties in the dog under s 78).
2. If it is resolved to exercise the power, the second step involves the exercise of that power by considering the relevant factors under s 79 or s 90SM of the FLA.

The test was articulated by the Full Court in Strahan (at [132]) and repeated by Cronin J:

“In relation to the first stage, in our view, when considering whether to exercise the power under s 79 and s 80(1)(h) of the Act to make an interim property order, the “overarching consideration” is the interest of justice. It is not necessary to establish compelling circumstances. All that is required is that in the circumstances it is appropriate to exercise the power. In exercising the wide and unfettered discretion conferred by the power to make such an order, regard should be had to the fact that the usual order pursuant to s 79 is a once and for all order made after a final hearing.”

Justice Cronin held (at [11]) that there was nothing to indicate that there was “some overarching consideration here warranting the intervention of the court on an interim basis”. In deciding that it was inappropriate to make an interim property order, Cronin J considered:

• There were significant factual disputes at play;
• The dog had been in the possession of the respondent for some time; and
• There was no urgency for the court to intervene to protect property.

Although Cronin J referred only briefly to the evidence given by the parties, the evidence appeared to cover some of the factors discussed by Harman J in Downey & Beale. The parties referred to matters relevant to establishing who had ownership of the dog and the contributions made by the parties such as:

• the registration of the dog;
• who took the dog to the vet;
• who did other tasks for the dog.

Although in both cases the dog was treated by the court as a chattel, the arguments about contributions (financial and non-financial) made by the parties to the dog seem to also be relevant to an assessment of the outcome which is in the best interests of the dog. The nature and quality of the contributions clearly impact on the relationship the dog has with each of the parties.

What other options are available?

Parties faced with a dispute about the interim possession and/or ownership of a dog cannot rely upon the Family Law Courts to give their dispute priority over, for example, disputes about arrangements for children. So, what other options are do the parties have? Possibilities include:

1. Mediation;
2. Arbitration;
3. Assessment by a specialist in pet behaviour.

The last of these options involves the parties asking an expert to help resolve the dispute: a “Pet Report” rather than a “Family Report”.

One such specialist is Daniel Mannix of the Victorian Dog Training Academy. He has qualifications in dog psychology, behaviour and training. Mr Mannix said that if he was asked to make an assessment he would be able to make a clear recommendation as to with whom the dog should live. He would take into account who has put the most time in building a relationship with the dog, which is typically obvious. He would not recommend someone who is contributing to or enabling behaviours in the dog that could develop to be problematic for the dog in the long term. He would also look at how appropriate the proposed dwelling is for the dog’s individual needs.

The matters Mr Mannix would take into account, sound suspiciously like “best interest” factors. However they are described, a judge with a busy duty list might find it easier to make an interim decision about “pet custody” with the assistance of a report from an expert which resolves the factual disputes set out in competing affidavits. And if the judge cannot make a determination because of time constraints or because the Strahan test is not satisfied, having a Pet Report might help the parties to resolve the dispute themselves.

Conclusion

There is no question that a pet is property and that disputes about the ownership of a pet are decided in accordance with property settlement principles. However, that does not prevent parties from seeking expert guidance as to the correct decision, taking into account the nature and quality of the past contributions made by each party and the likely arrangement which is in the best interests of the dog. That expert guidance may help the court to reach a decision or, better still, help the parties to resolve the dispute faster and more cheaply than through the court processes.

© 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

Introduction to Wolters Kluwer Australian Family Law Act 1975 book

Introduction

Foreshadowed major legislative changes to financial agreements and other aspects of the Family Law Act 1975 did not eventuate in the past 12 months, but the changes to that Act and the Family Law Rules 2004 were sufficient to mean that there have been many changes to this Book. The most significant amendments relate to the Rules regarding subpoenas in the Family Court and the section of the Act which deal with the structure and administration of the Family Court.

Administration of the Court

The Courts Administration Legislation Amendment Act 2016 designated the Federal Court of Australia (including the National Native Title Tribunal), the Family Court of Australia and the Federal Circuit Court of Australia as a single administrative entity under the Public Governance, Performance and Accountability Act 2013 and a single statutory agency under the Public Service Act 1999.

In summary, this Act:

• established shared corporate services functions for the 3 courts;
• maintained the responsibility of the heads of jurisdictions in relation to the business and administrative affairs of their respective courts;
• provided for a Chief Executive Officer (CEO) for each head of jurisdiction to assist with the management of administrative affairs;
• provided that the CEOs also hold the position of Principal Registrar;
• provided for the Federal Court CEO to have responsibility for managing the shared corporate services, with the requirement for consultation;
• provided that the Federal Court CEO is the accountable authority for the administrative entity and the agency head for the statutory agency.

Most changes took effect from 1 July 2016 but giving the CEO the position of Principal Registrar will commence on 1 July 2018.

The Explanatory Memorandum to the bill states that the measure “formed part of the package of reforms aimed at streamlining and improving the financial sustainability of the Federal Courts”. The objective was to “generate efficiencies through the establishment of shared corporate services functions for the courts to reduce unnecessary duplication”. The administrative burden on each court was reduced by consolidating finance, human resources, information technology, property and operations arrangements. The Act was not intended to “affect the substantive rights of court users”. Each head of jurisdiction maintains responsibility in relation to the business of the courts and managing the administrative affairs of their respective courts, with administrative affairs defined to exclude corporate services.

The corporate services of the Family Court and the Federal Circuit Court which were merged for 1 July 2016 are defined in s 38A(1B) Family Law Act and s 89(1)(2A) Federal Circuit Court of Australia Act 1999 as

(a)     communications;

(b)     finance;

(c)     human resources;

(d)     information technology;

(e)     libraries;

(f)      procurement and contract management;

(g)     property;

(h)     risk oversight and management;

(i)      statistics;

(j)      any other matter prescribed by a determination under subsection (5).

Consequential amendments were also made to the Family Law Rules as the Chief Executive Of