Setting Aside Unfair Financial Agreements

Background

The wife was successful in setting aside a financial agreement on the basis of undue influence and unconscionability.

At the time of the Appeal, the Husband was 88 years old, and the wife was 53. The parties did not have children together, but had adult children from previous relationships.

The Wife came to Australia in 2009 on a student guardian visa, to allow one of her sons to study in Australia. The Husband had been living in Australia for more than 68 years, having migrated when he was 20 years old.

In December 2009, the parties met and formed a de facto relationship soon after, commencing living together in May 2010.

The wife had limited command of the English language.

The husband wanted a financial agreement, presumably to protect his assets. The wife signed the agreement on 31 March 2011. The agreement was in English, was not translated, and the explanation of its terms were also in English.

In essence, the agreement provided that if the relationship between the husband and the wife came to an end, the wife would not be entitled to make any claim on the assets which the husband brought into the relationship (or vice versa), no matter for how long the relationship between them continued, or what contributions either of them made during it.

On 6 November 2014, the husband executed a will providing for the wife to have the use of the house at Suburb L for 12 months after his death, and a payment of $3 million.

The relationship ended in May 2016, being a total period of cohabitation of about 6.5 years.

The wife brought an application to set aside the financial agreement, which was granted by the trial judge.

Trial Judgement

The trial Judge found that:

1. The wife could not converse in English in 2009 and, by the time the agreement was signed in March 2011, the Wife was still not proficient in English.
2. In the period leading up to the wife signing the financial agreement, the wife did not have an interpreter, despite the wife’s solicitor requesting one.
3. The wife’s solicitor advised that the agreement was unfair and put a counter proposal, which would allow payments to be made to the wife on a varying scale, depending on the length of the cohabitation, but the husband rejected this.
4. The husband knew that the wife was dependent on him to obtain permanent residence in Australia, and that the wife could be deported because she was not living with her son per the student guardian visa requirements.
5. The execution of the agreement by the wife was not the product of her free will, particularly because of how unfair it was. The exact words used by the trial judge was ‘the stark improvidence of the transaction’.

Full Court Decision

The Full Court, on the husband’s appeal, found that:

1. As per the High Court decision in Thorne v Kennedy [2017] HCA 49, ‘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….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’.
2. The fact that the wife was advised against signing the BFA, but did so anyway, may be an “indicium of undue influence” as was held to be the case by the High Court in Thorne v Kennedy. We agree with this submission.
3. There are different ways to prove the existence of undue influence.
   1. One method of proof is by direct evidence of the circumstances of the particular transaction.
   2. Another way in which undue influence can be proved is by presumption by the recognised categories including parent and child, guardian and ward, trustee and beneficiary, solicitor and client, physician and patient, and cases of religious influence.
   3. Outside recognised categories, the presumption can also be raised by proof that the history of the particular relationship involved one party occupying a similar position of ascendency or influence, and the other a corresponding position of dependency or trust.
4. Upon such a finding of ascendancy/dependency in the relationship, the onus is then on the dominant party to demonstrate that the transaction was the product of the weaker party’s free will.
5. In the case of unconscionable conduct, the onus is cast upon the stronger party to show that the transaction was fair, just and reasonable.
6. The husband took unconscientious advantage of the wife’s special disadvantage.

Take Home Points

Whilst there is no express mandate for financial agreements to be fair, just or equitable, if the agreements are manifestly unfair to one party, and that party is able to demonstrate that they were in a position of dependency or had some other special weakness, there is a strong possibility that the financial agreement may be set aside.

In this case, the Husband’s agreement was set aside, and he had to pay the wife’s legal costs of $82,275.36.

On top of that, the parties were then in a position as if the agreement had never been entered, meaning that they would still need to litigate over the final property settlement that each would receive.

It is therefore imperative to ensure that when an agreement is being drafted, or signed by the other party, the agreement is not manifestly unfair to the party in the weaker bargaining position. Understanding the consequences of poor drafting of the agreement and possible claims to set agreements aside are crucial to ensuring the financial agreement is, in fact, binding.

JosephDavid Lawyers are Accredited Specialist Family Lawyers, with specialist knowledge of financial agreements and we are able to assist in drafting and negotiating effective financial agreements.

We charge a fixed-price cost for drafting and reviewing financial agreements: https://josephdavidlawyers.com.au/practice/prenups/