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Putting a Hoult to archived file destruction Binding Financial Agreements

Feature Articles

Cite as: September 2012 86 (09) LIJ, p.34.

Archived file records may be critical in protecting solicitors when clients claim failure to properly advise them about the effects of binding financial agreements.

By Anna Parker

Much has been written about the risks for solicitors advising parties in relation to financial agreements (commonly known as Binding Financial Agreements or BFAs) made under the Family Law Act 1975 (Cth) (the Act).1 In particular, courts exercising jurisdiction under the Act may refuse to uphold BFAs that fail to comply with a list of technical requirements set out in the Act: s90G in relation to parties who are married, or s90UJ in relation to de facto relationships. A party who incurs loss as a result of a solicitor’s failure to ensure that a BFA complies with these requirements is likely to seek to recover that loss from the solicitor.

The Federal Justice System Amendment (Efficiency Measures) Act (No. 1) 2009 (Cth) (the Amending Act), which came into force in January 2010, was designed to overcome the strict approach to compliance with the technical requirements of s90G taken by the Full Court of the Family Court in Black and Black.2 The Amending Act enables the courts to uphold BFAs, notwithstanding failure to comply with the technical requirements for financial agreements to be binding as set out in ss90G and 90UJ of the Act, where it would be unjust and inequitable not to do so.3

While the amending legislation made it less likely that the courts would refuse to uphold BFAs where an act or omission on the part of a solicitor acting for a party to the agreement led to a failure to comply with the technical requirements in ss90G and 90UJ, there have continued to be cases in which this has occurred.4 The December 2011 decision of Murphy J in Hoult and Hoult5 is an example of this. In this case, a BFA was held not to be binding in the absence of evidence that the wife had been provided with legal advice in relation to the matters set out in s90G(1)(b), despite the fact that the agreement had annexed to it a certificate executed by the wife’s solicitor confirming that the advice had been provided.

The applicable legislation

The question to be determined in Hoult was whether an agreement entered into between the husband and the wife prior to their marriage pursuant to s90B of the Act was binding in accordance with the requirements of s90G(1)(b), as amended.

The current version of s90G(1)(b) provides that, in order for a BFA to be binding, before signing the agreement each spouse party be 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 is provided, to that party of making the agreement. Section 90G(1)(c) requires that, either before or after signing the agreement, each spouse party be provided with a signed statement by the legal practitioner stating that the advice was provided to that party (whether or not the statement is annexed to the agreement).

This differs from the version of s90G that was in force in December 2004, when the BFA in Hoult was entered into. The earlier version required that the agreement contain a statement to the effect that each party had been provided, before they signed the agreement, as certified in an annexure to the agreement, with independent legal advice from a legal practitioner as to the effect of the agreement on the rights of that party and the advantages and disadvantages, at the time the advice was provided, to the party of making the agreement. The previous version of s90G also required that a certificate stating that independent legal advice had been provided, signed by the person providing the advice, be annexed to the agreement.

The crucial distinction between the two versions of s90G for the purposes of the decision in Hoult is that the current version requires that the specified legal advice actually be given, while the earlier version did not. The Amending Act was retrospective. Although two different versions of s90G could be applied to a BFA made at the time of the agreement in Hoult, as a result of the retrospective amendments they both require that before signing the agreement each spouse party actually be given independent legal advice, including advice as to the effect of the agreement on the rights of the party and the advantages and disadvantages to the party of entering into the agreement.

Hoult and Hoult

The agreement in Hoult had annexed to it, in relation to each party, a certificate of independent legal advice that complied with the requirements of s90G as in force at the time the agreement was entered into. The wife asserted that despite the fact that her solicitor had executed the certificate, she had not in fact been given legal advice in relation to either the effect of the agreement on her rights or the advantages and disadvantages to her of entering into the agreement. She sought that the agreement be held not to be binding.

The wife’s solicitor gave evidence in the proceedings to the effect that she had provided the wife with the requisite legal advice. The solicitor said that she had provided the advice verbally and had intended to write a letter to the wife confirming the advice she had provided to her after the agreement had been signed by both parties but had not got around to doing so.

The solicitor’s evidence was found by the Court to be unsatisfactory. In particular, the solicitor was unable to produce any file notes, correspondence or other documentary evidence to support her assertion that she had provided the wife with the requisite advice. Although such things are not specifically required by the terms of s90G, Murphy J commented on the prudence of maintaining records such as a comprehensive file note or a contemporaneous letter of advice. His Honour described the solicitor’s failure to have done so as “extraordinary – not least because of the necessity dictated by s90G for the solicitor to provide a signed statement as to the giving of the required advice and the litigation which has surrounded Part VIIIA of the Act (and s90G in particular) and the potential for consequences for the solicitor personally” (at [43]).

Although Murphy J did not consider the solicitor’s evidence to be untruthful, his Honour expressed concerns (at [47]) about her “significantly impaired” recall of a consultation that had taken place a number of years ago, and the fact that she was not able to provide details of the specific advice she had provided to the wife. The solicitor was unable, for example, to recall exactly what she had told the wife in relation to the disadvantages to her of entering into the agreement and was only able to give speculative evidence as to what she “would have” said to the wife (at [81]). His Honour noted that the wife’s solicitor had been unable to give any evidence that would enable the Court to arrive at its own conclusions as to whether such advice as was given might meet the requirements of s90G (at p92]).

His Honour further observed that “whatever might be in the contemplation of s90G as being advice that meets the required criteria, what is plain is that, if the agreement is to be binding, the section requires reliable evidence as to that which is said to have been the advice given which meets the criteria” (at [74]).

Importantly, although counsel for the husband sought to rely on the certificate of independent legal advice executed by the wife’s solicitor as evidence that the requirements of s90G had been met, Murphy J was not prepared to accept the existence of the certificate of legal advice executed by the solicitor as conclusive proof that the advice referred to therein had in fact been given. His Honour said, “I do not consider that the certificate is of itself sufficient to remedy what I otherwise regard as a significant deficiency in the evidence as to what advice, if any, was given, and, if given, whether its contents would satisfy s90G(1)(b)” (at [93]), and held that “the evidence as a whole, including the certificate, provides an insufficient evidentiary foundation for a finding that advice was given about the advantages and disadvantages of the agreement for the wife at the time that the agreement was made” (at [94]).

His Honour held that the agreement did not comply with the requirements of s90G, and made a declaration that it was not binding. This was arguably wholly as a result of the failure of the wife’s solicitor either to advise the wife in accordance with her obligations under s90G or to retain an adequate record of having done so.

Warning for practitioners

Prudence and the basic requirements of good practice dictate that whenever advice is provided to a client in relation to a BFA, a careful record of that advice, and preferably a copy of the written advice provided, be retained on the file. It is submitted that most experienced practitioners take these steps as a matter of course, and it would be quite unusual for a solicitor with expertise in family law matters to find themselves in the position of the solicitor in Hoult.

However, the decision in Hoult raises a slightly different risk. It is not difficult to imagine that solicitors with policies allowing the destruction of archived files after they have been held in storage for a certain period of time, or solicitors who do not have mechanisms in place to ensure that BFA files are retained indefinitely, could find themselves in a similar situation to that of the wife’s solicitor in Hoult.

The nature of BFAs, particularly those entered into by parties contemplating marriage or a de facto relationship, means that the testing of whether these agreements are binding may occur many years or decades after the date on which the agreement is entered into. In most cases, this will be because the parties will not separate for a number of years after entering into the agreement, and no dispute will arise in relation to the agreement until their marriage or relationship breaks down. However, it is also possible that parties to agreements entered into on the breakdown of their marriage or de facto relationship will seek to challenge the validity of those agreements some time after they are entered into, particularly if their circumstances change and they become dissatisfied with the outcomes provided for in their agreements.

Clearly, the longer the period of time between the agreement being entered into and a dispute arising as to whether it is binding, the greater the chance that a solicitor who acted for one of the parties at the time the agreement was entered into will have forgotten the specific advice provided and will be unable to recall, without the assistance of contemporaneous file notes or copies of correspondence, anything that would enable them to give evidence in more certain terms than an assertion that if they executed the statement or certificate, then they must have provided the advice.

Following the decision in Hoult, the current legal position is that the mere existence of a certificate or statement executed by a solicitor confirming that legal advice has been given in accordance with the requirements of ss90G and 90UJ of the Act, combined with vague evidence from the solicitor to the effect that the advice must have been given, is not sufficient proof to satisfy the courts that the advice has in fact been given.

It is therefore crucial that solicitors representing parties who enter into BFAs not only ensure that they make proper records of the advice they provide, but also ensure that their files, including all relevant file notes and correspondence, are retained indefinitely so that, should the need arise in the future, conclusive evidence of compliance with the requirements of the Act can be given.



ANNA PARKER is a senior associate with Westminster Lawyers, an accredited family law specialist and a member of the LIV Family Law Section Executive.

Numbers in square brackets in the article refer to paragraph numbers in the judgment discussed.

1. See, for example, LPLC, “For better, for worse” (2007) 81(1&2) LIJ p84; LPLC, “State of play for BFAs” (2011) 85(3) LIJ p74; Jason Lopes, “Lessons in Black and Black” (2009) 83(11) LIJ p48; Jacqueline Campbell, “Financial agreements: More law, less certainty” (2012) 86(7) LIJ p46.

2. (2008) FLC 93-357.

3. Family Law Act 1975 (Cth), ss90G(1A), 90UJ(1A).

4. See, for example, Senior and Anderson [2011] FamCA 802; Parker and Parker [2010] FamCA 664 (though note that this decision has been successfully appealed and is awaiting rehearing).

5. [2011] FamCA 1023.

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