Challenging a Binding Financial Agreement

In the recent decision of Salvage & Fosse [2020] FamCAFC 144 (Salvage) made on 12 June 2020 the Full Court considered a Part VIIIAB financial agreement made during a de facto relationship.

At the first hearing, the wife asked the Court to set aside the financial agreement on the ground of unconscionable conduct or undue influence. The wife alleged that the agreement was presented to her as non-negotiable; she was pressured and berated prior to signing; she was given no opportunity to reflect on the legal advice provided to her; and her English language skills were limited.

The wife argued that an interim costs order could be made by the Court so that she could fund her legal challenge. She also argued that a spousal maintenance order could be made as the parties’ financial agreement did not stop the Court from making a maintenance order because when the agreement came into effect she was “unable to support herself without an income tested pension, allowance or benefit”.

The trial judge ordered the de facto husband to pay the de facto wife $100,000 as interim litigation funding order and interim spousal maintenance of approximately $500 a week. That was despite their financial agreement barring her from making a property or spousal maintenance claim. The husband appealed.

The Full Court allowed the husband’s appeal in relation to the litigation funding order and set aside the trial judge’s order that the husband pay the wife $100,000. The majority of the Full Court found that:

• The trial judge should have evaluated the nature and quality of the wife’s claim to set aside the financial agreement.
• The trial judge needed to consider the likely division of property if the financial agreement was set aside, as well as the legal costs of pursuing that outcome, saying:
  “…there would be no point in interim costs orders if the ultimate likely orders in the property settlement proceedings did not justify the level of expenditure”.
• The financial effect of the litigation funding order on the husband was significant as it required him to draw on capital to pay the wife; capital which generated income for the husband to live. The trial judge had not taken that into account when making the litigation funding order.

Why might that matter to me?

Proceedings to set aside a financial agreement can be costly. If you are seeking to set aside a financial agreement, and you have minimal financial resources, you may think twice about pursuing Court action, especially if the risks of potential failure are high.

The perils of a party receiving payments prior to a final determination of a matter has made the Court hesitant to make interim litigation funding orders, just in case the amount ordered to be paid to a party is more than what they are eventually entitled to. For example, in Chatterjee & Woodby-Chatterjee & Anor [2016] FamCA 486 (Chatterjee) an order was made to sell the family home and payment of $50,000 was made to the wife from the proceeds of sale. A later order in 2017 paid the wife $70,000 by way of litigation funding. At trial in 2018 it was found that the wife’s entitlement to the property pool was less than the payments already made to her, and given she now had substantial debts, could not be recovered. The outcome in Chatterjee highlights the risks in making litigating funding orders.

Salvage is important because it reiterates that:

• The Court can make a litigation funding order, as long as it considers the likely success of the applicant’s case to set aside the agreement, the likely division of the property if the agreement is set aside and the effect of the litigation funding order on the other party.
• Pending determination of the proceedings to set aside the order, the Court can order that spousal maintenance be paid to a party, if that party is unable to support themselves without government assistance.

If you require assistance to challenge the validity of a financial agreement (or, make sure your financial agreement stands) or you would like to discuss your options,  please contact one of our team members on 03 9070 9839 or info@sagefamilylawyers.com.au