Archive for March, 2017

Does a Pre-Nup have to be fair?

It is now more than 10 years since the Family Law Act was changed to allow Australians to enter into pre-nuptial agreements (known as Financial Agreements or Binding Financial Agreements).

Under the Act, the Court does not have to approve a Financial Agreement for it to be binding. That is, the Family Law Act allows parties to enter into a bad or grossly unfair pre-nuptial or other sort of Financial Agreement. However, that does not necessarily mean that all Financial Agreements will necessarily be binding.

The Court’s attitude to BFAs

There is a widely held belief among family lawyers that the Family Court judges were not happy that the Family Law Act was changed to allow people to enter into pre-nuptial style agreements without the Court’s oversight. Throughout the last decade or so, the Court has used various technical legal difficulties to find that certain Financial Agreements were not binding, even though the Agreements had been signed by the husband and the wife, both of whom had received independent legal advice.

The government then changed the law again, to make it more difficult for judges to rely on legal technicalities to overturn a Financial Agreement. But some judges were still not happy that they couldn’t impose their version of fairness on an Agreement the parties had made.

Pre-Agreement conduct

Having been thwarted in their efforts to overturn Financial Agreements on the basis of legal technicalities, some judges started to turn their attention to the conduct of the parties prior to entering into the Agreement, in an attempt to find a way to undo a Financial Agreement that the judge didn’t think was fair.

That is what occurred in the first instance hearing in a case called Saintclaire & Saintclaire. In her Judgment, the trial judge expressed her view that there was “no doubt that [the] transaction should not have proceeded”, because of her view of its perceived unfairness to the wife.

However, as the Act does not allow the Court to overturn a Financial Agreement just because the judge considers it to be unfavourable to one party, her Honour had to find another way to undo the Agreement the parties had signed. To do that, she turned to the law of undue influence and unconscionable conduct.

The facts of the case

The parties, then aged in their mid – to late-thirties, moved in together in 2005 or 2006. They were both educated professionals, earning good incomes. They had two children, born in late 2006 and early 2008. The wife suffered some post-natal depression after the children’s births; which had resolved by about October 2008. The parties were otherwise in good health.

In 2007, they entered into a de facto relationship agreement, by which they each agreed to make no claim on the other party for property settlement or “spouse” maintenance in the event their relationship ended.

Sometime later, the parties decided to marry. They agreed to enter into a pre-nuptial agreement on essentially the same terms as their de facto relationship agreement. Through their lawyers, they commenced negotiations for that agreement in March 2009. They married the following month, without having finalised or signed their pre-nuptial agreement.

Negotiations for the now post-nuptial agreement re-commenced in June 2009 and continued for the succeeding four months, during which time the husband agreed to various amendments to the agreement proposed by and beneficial to the wife.

One of those amendments required the husband to pay $100,000 to the wife so that she could discharge her credit card debts, of which the husband had previously been unaware. The Financial Agreement was ultimately signed in late September 2009.

Sadly, the parties separated less than 12 months later. By then, the wife’s financial circumstances had worsened and she wanted to get out of the Financial Agreement.

The trial judge’s decision

At first instance, the wife argued that as a result of her post-natal depression, the husband’s violence and the wife’s difficult financial circumstances, the Agreement should be set aside on the basis of either undue influence or unconscionable conduct. The trial judge agreed, notwithstanding that the post-natal depression had resolved itself 11 months before the Agreement was signed, the husband’s alleged violence consisted of two disputed incidents some eleven and five months prior to the signing of the Agreement, and the wife, herself a financial planner, was the author of her own financial difficulties.

In agreeing with the wife, it seems that the trial judge was swayed more by her view of the unfairness of the Agreement than by the law of unconscionability and undue influence.

The Appeal Court’s decision

The Appeal Court disagreed with the trial judge. It found that she had been confused and mistaken as to the law relating to undue influence and unconscionable conduct. Specifically, the Appeal Court reiterated that the Family Law Act allows parties to enter into Financial Agreements which will be binding, notwithstanding that the Agreement might seem to be unfair or unjust to one of the parties.

Conclusion

It is clear from both the Family Law Act and the Appeal Court’s decision in Saintclaire & Saintclaire that a Financial Agreement can be binding on both parties, even if one of them or the Court thinks it is unfair. While there may be other avenues available to a party to try to get out of a Financial Agreement that he or she has signed, the perceived unfairness of that Agreement is not, of itself, a good enough reason. This applies to all Financial Agreements, whether entered into before, during or after a marriage or de facto relationship.

If you or someone you know wants more information or needs help or advice, please contact us on 02 6372 3388 or email richard@richardwisesolicitor.com.au.

Extension of the unfair contracts regime to small businesses

The Federal Government has enacted legislation extending the unfair contract term protections of the Competition and Consumer Act 2010 (Cth) and the Australian Securities and Investments Commission Act 2001 (Cth) to the small business sector.

Under the new laws, a Court is able to declare that a term of a standard form small business contract is void if the term is unfair.

The laws are an extension of existing provisions which have been available to consumers since 1 July 2010.

The intent of the legislation is to level the playing field and prevent “take it or leave it” standard form contracts, which are commonly one-sided, from including unfair terms. The amendments are based on the assumption that small businesses, like consumers, often lack the resources or skills to understand and negotiate contract terms and are vulnerable to the inclusion of unfair terms.

Agreements which could be caught by the provisions include retail leases, supply agreements, franchise agreements and finance contracts.

In this article, we look at what the new regime will mean for your business.

 

What transactions will be captured by the new regime?

The amendments extend the unfair contract term protection laws to contracts that are defined as a “small business contract”. A small business contract is one where:

  • the contract is for the supply of goods, services or a sale or grant of an interest in land;
  • at the time at which the contract is entered into, at least one party to the contract is a business that employs fewer than 20 persons; and
  • the upfront price payable on the contract is no more than $300,000 (or $1 million if the duration of the contract is more than 12 months).

The protections only apply to standard form contracts. Although there is no express definition of a standard form contract, a standard form contract generally includes situations where:

  • one party has all or most of the bargaining power relating to the transaction;
  • one party prepared the contract before discussions between the parties;
  • one party was required to either accept or reject the contract as presented;
  • one party was not given the opportunity to negotiate; or
  • the terms of the contract are not specific to one party or the particular transaction.

A contract will be presumed to be a standard form contract unless a party proves otherwise.

The regime will not only apply to new small business contracts, but also pre-existing small business contracts which are renewed and to the terms of pre-existing contracts which are varied.

 

What is an unfair contract term?

A term of a contract is unfair if it:

  • would cause a significant imbalance in the parties’ rights and obligations arising under the contract;
  • is not reasonably necessary to protect the legitimate interests of the party who would be advantaged by the term; and
  • would cause detriment (financial or otherwise) to a party if it were to be applied.

The legislation sets out some examples of unfair contract terms, including terms that:

  • allow one party to unilaterally vary, renew or terminate the contract;
  • penalise one party for a breach or termination of the contract;
  • allow one party to vary the upfront price under the contract without the right of the other party to terminate the contract; and
  • allow one party to unilaterally determine whether the contract has been breached.

 

Enforcement of the new provisions

If a party considers that a term of a small business contract is unfair, it can apply to the Federal Court seeking a declaration that the term is void and unenforceable. The remainder of the contract will bind the parties if it is capable of operating without the unfair term. Once a term is declared unfair, the party could also seek an injunction preventing the other party from relying on the unfair term.

There are no specific penalties or offences associated with a contract term being held to be “unfair”.

Applications to the Court can be made by a small business, the ACCC or by State regulators. The ACCC has been provided with $1.4 million in funding to assist in the implementation of and compliance with the new legislation.

 

What can your business do going forward?

The new laws will apply to contracts entered into or varied from 12 November 2016, which means that any business that uses a standard form contract when dealing with a small business will then have to comply with the new regime.

Companies which deal with small businesses should review their standard terms of trade to ensure that they do not include unfair terms. This might include:

  • examining whether the company utilises standard form contracts;
  • assessing the extent to which standard form contracts are entered into with businesses which employ less than 20 people and which fall within the upfront price thresholds;
  • identifying existing contracts which might be renewed after the commencement of the new regime; and
  • reviewing any standard form contracts to identify terms which might be deemed “unfair” and considering whether they should be amended.

 

Conclusion

The new legislation will affect a large number of industries which rely on standard form contracts. Businesses should review their standard form contracts immediately to minimise the risk of key contractual terms being found unenforceable.

If you or someone you know wants more information or needs help or advice, please contact us on 02 6372 3388 or email richard@richardwisesolicitor.com.au.

 

Strata Law Reforms NSW

In 2015 the New South Wales Parliament passed the Strata Scheme Management Bill 2015 and the Strata Scheme Development Bill 2015, with more than 90 law changes. The new pieces of legislation set out comprehensive reforms of NSW strata laws modernising the law to reflect the reality of living in a strata townhouse or apartment today.

The changes are aimed at improving strata living and providing greater opportunity for strata redevelopment. The new strata laws commenced operation on 30 November 2016.

Before the new laws commenced research and community consultation was undertaken:

  • new regulations were developed setting out how the laws will operate;
  • key information was developed and released for strata schemes; and
  • a public awareness campaign took place.

We examine some of the more significant reforms set out in the new legislation below.

Collective sale of a strata scheme

Previously, a strata scheme could only be ended or “collapsed” with the unanimous support from all owners in a strata scheme. The new provisions allow for the collective sale or redevelopment of a strata scheme by a 75% majority of lot holders. The rights of the owners are protected by the inclusion of certain checks and balances. For example, if a strata sale is agreed to, the owners are to receive the market value of their lot plus an extra amount to cover costs associated with moving.

The purpose of the amendment is to prevent individual owners from blocking redevelopment of aging and high-maintenance unit blocks.

Proxy Voting

The number of proxies a member of a strata scheme can hold is now limited to:

  • one proxy vote only for schemes with less than 20 lots; and
  • 5% for schemes with more than 20 lots.

The intention is to restrict “proxy farming”, whereby members gather up the votes of uninterested or absent members in the strata scheme to enable them to pursue their own agenda.

Inspection reports

In relation to all future strata developments, a developer must appoint an independent building inspector to provide both an interim building report (identifying any defective building work) and a final report on completion of the building work.

Building defects

A developer of a high rise strata building is required to place a bond of 2% of the contract price of the building work, to cover potential defects identified after completion and those which are set out in the final inspection report. The building bond must be claimed or realised 2 years after completion of the building work or within 60 days after the final report is given.

The reforms are aimed at protecting buyers of new units, encouraging early identification and rectification of defects and helping improve the standard of building construction.

Other notable changes

The new legislation also includes provisions which:

  • make it easier for owners to complete cosmetic and minor renovations to their units;
  • address issues of parking, pets and smoke drift;
  • allow an owner’s corporations some flexibility in deciding when their general meetings will be held and allowing more modern forms of communication to be used to attend meetings, such as video and teleconferencing.

What about the other states and territories?

NSW is not the only state turning its attention to strata law reform. In Queensland, discussion papers for similar reforms were prepared in 2014 at the request of the previous State Government. Similarly, in Western Australia a Strata Reform Project Team has been tasked with undertaking research into strata reform to ensure Western Australia has a modern Strata Titles Act. Victoria’s last round of reforms of owner’s corporation legislation took place in October 2014.

Conclusion

The reforms are intended to promote redevelopment of strata apartment buildings, assist in urban renewal and increase housing supply. Apartment owners are encouraged to make themselves aware of the strata reforms and consider the impact the changes may have on their strata living.

If you or someone you know wants more information or needs help or advice, please contact us on 02 6372 3388 or email richard@richardwisesolicitor.com.au.